How can cities handle poverty?

Cities are magnets of opportunity: they offer better standards of living than rural areas, and will soon house 75% of the global economy. But when demand for housing, jobs, and services outstrips capacity, urban areas can turn into congested, haphazard locales that amplify extreme poverty. In 2008, for instance, urban poverty accounted for 24% of global poverty, up from 17% in 1990. Can cities handle this urbanization of poverty?

Safety net programs like cash transfers and public works could help, but have mostly surged over the past decade in rural areas. While extending them to cities seems like a straightforward thing to do, experience with safety nets in urban settings is surprisingly under-researched. My new paper explores empirical evidence and cross-country practices on this critical matter.

So what’s emerging from country experiences?

First, there are different pathways for introducing safety net programs: some countries have gradually grafted rural schemes onto urban settings, such as Mexico’s conditional cash transfer program Prospera (about 40% of its beneficiaries are now in cities). In contrast, China’s Dibao started in cities – it now reaches 21m people – and then expanded to the countryside. Other countries that have covered urban and rural areas from their outset include India, Indonesia, and the Philippines. Some programs were launched in urban areas only, like in El Salvador, Kenya and Burkina Faso, while countries such as Senegal and Mali have now started to implement such programs.

Second, there are significant spatial disparities in coverage. Household survey data from 112 developing countries show that 16.6% of the urban poor participate in some form of safety net program, as opposed to 23.4% among the rural poor – a difference of about 7 percentage points. Such a gap soars to nearly 24 percentage points in some middle-income countries.

Why such a difference?

To be sure, poverty is still concentrated in rural areas, but the locus of ‘where the poor live’ can change dramatically depending on whether we look at poverty rates, which is generally higher in rural areas, or the number of poor people, which can be higher in urban areas (seeSlovenia, Vietnam and various countries in Latin America).

There might also be a perception that safety nets are needed less in urban areas because of more vibrant labor markets. Yet only about 3-4% of the urban poor participate in social insurance and labor market interventions. Poverty may also be underestimated in urban areas, especially since the higher urban cost of living may not be fully reflected in poverty lines.

From another perspective, a sizable share of interventions to tackle urban poverty tend to fall under the remit of urban development and area-based upgrading programs. These provide critical supply-side inputs like urban infrastructure (e.g., drainage, water supply, public sanitation facilities, etc.) and, arguably, are less geared toward the ‘people’ or demand-side of the poverty equation.

In some cases, local politics may also differ, as the middle class is larger in urban areas, and local insider-outsider issues may play an important role in shaping safety net regimes and preferences. Relatedly, large-scale general subsidy schemes have been considered a de-facto urban safety net, although these tend to favor the well-off more. Finally, technical bottlenecks in safety net design and implementation may have stifled program performance in urban contexts.

Third, simply replicating successful rural approaches in urban areas won’t work. When Prospera was initially expanded from rural to urban areas, it generally maintained a rural design: as a result, only 51% of the intended urban beneficiaries participated in the program, compared to 97% of eligible households in rural areas. A similar result occurred when Colombia’s Familias en Accion was first implemented in Bogota. Indeed, urban targeting processes need to take into account the constant growth in (mostly informal) settlements, high levels of violence in select neighborhoods, or weaker community bonds; high mobility and characteristics that make people ‘hard to reach’ (e.g., the homeless, newly-arrived migrants) pose particular challenges for communication; or even when people are reached, programs’ benefit structure may not be attractive enough to offset relatively high opportunity costs of urban beneficiaries, including in terms of time, forgone income and transport cost.

So where do we go from here? Some “A, B, C, Ds” for urban safety nets:

Action is mostly local. While institutional and financing arrangements can vary dramatically across countries, there is growing interest in understanding how to enhance city and local governments’ ability to deliver, innovate and supplementing national-level capacities. This may include broadening the traditional central-level nature of the global social protection agenda to local actors such as mayors and municipal governments.

Better urban design. Some program parameters or ‘nuts and bolts’ may require adjustments, like poverty assessments. Others may entail more significant rethinking, like targeting approaches, while others may need to be reimagined, like communication and outreach activities tailored to urban settings. The experience of the United States, for example, shows that enrollment may require customization for particular categories of urban dwellers, such as the elderly, the working poor, ethnic minorities, and newly-arrived migrants. Relatedly, the issue of mobility, whether daily commuting to work or temporary migration, calls for devising ways to make benefits portable.

Connect with the urban agenda. This may include, for example, linking safety nets to housing policy or slums upgrading programs; integrating safety nets with the labor agenda for the urban poor; and incentivizing the uptake of social services relevant to urban areas, such as daycare provision, prevention of violence, and addressing specific urban health and nutritional risks. Some examples are emerging (see here, here and here), but relatively little is known about how these dimensions interact, how to identify and prioritize interventions, and what are the possible trade-offs.

Diversity of settings. We need to recognize the diversity of an ‘urban area’, including understanding the role that safety nets can play in different forms of settlements – megacities, secondary cities, peri-urban areas, small towns, and informal settlements (like most slums). Such nuance would be key to frame not only the role of safety nets in urban areas, but also how they can facilitate the process of urbanization and structural transformation more widely.

In short, urbanization and its sweeping changes are occurring at unprecedented pace, and the question is whether systems to address urban poverty can be reimagined at an equal speed. Within such process, perhaps the biggest challenge for safety nets would be to find a balance between harnessing the extensive rural experience and, at the same time, leaving that comfort zone to rethink, experiment and adapt to a largely uncharted domain.

This article was first published by the World Bank’s Let’s talk Development blog. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Ugo Gentilini is a senior economist with the Social Protection and Labor Global Practice at the World Bank.

Image: Residents are seen in the Villa 31 slum, which censuses show has grown 50 percent in the past four years to currently house some 40,000 people, near the 100-year-old railway station Retiro in the heart of Buenos Aires, February 9, 2014. ARGENTINA-ECONOMY/POVERTY REUTERS/Enrique Marcarian.