Dharavi, considered Asia’s biggest shantytown, two square km (0.8 square miles) [consists] of open sewers, muddy lanes and ramshackle tenements that is home to almost a million people.
But strip away its squalid veneer and Dharavi bares a unique entrepreneurial spirit, and multi-million dollar micro-businesses, that breaks all the stereotypes of a slum.
…Arguably the most prosperous among the world’s biggest shantytowns, Dharavi has about 5,000 single-room factories and hundreds of cottage industries that together have a turnover of around $1 billion.
Practically every home here produces something to sell – incense sticks, poppadoms, pickles, soft toys and candles among the many crafts.
Much like the startling statistics about the face of poverty in the US, a similar spate of data about Dharavi lifestyles showcases accoutrements which would have been decidedly middle and perhaps even upper class just a few decades ago –
…In recent years, prosperity has been trickling down to Dharavi’s residents. There is 24-hour electricity and running water, and 2006 research shows 85 percent of households have a television, 56 percent a gas stove and 21 percent own a telephone.
So if they’re so productive and have such amazing turnover, the obvious question is why is the place a slum?
I’ll toss up a few theories based on some current thinking in developmental economics and encourage mutineers to offer up their own –
We’re in the midst of transition — Dharavi wasn’t always this productive and has only recently achieved the growth described in the article and thus, just needs to be given some time. One can readily imagine that much of the small scale production in Dharavi was driven even deeper underground during the license-raj era and economic openness just takes time to “trickle down”.
Public Service Ethic — A key ingredient for economic growth – particularly at the small scale is an efficient public sector imbused with a “public service ethic” – something somewhat famously lacking in the desi bureacracy. Arnold Kling illustrates by way of example here:
A public service ethic is something that we take for granted in the United States. If you want to open a restaurant, you may find the paperwork and regulations irritating. However, at least you can count on the public officials to process your application in a reasonable time without requiring a large bribe. In many other countries, the conduct of state employees ranges from routine petty corruption to organized extortion.As hard as it is for suburban the middle class to navigate this milieu one can only imagine the utter impregnability it must present lower class slum dwellers. The article other others note that part of the solution for public infrastructure in Dharavi is partial privitization of these services via some of the most massive, private-sector managed urban building projects in Asia.
Hidden Capital & Property Rights — Hernando De Soto’s Mystery of Capital was, for many, the single best explanation of the phenomena of Hidden Capital. According to this argument, the key thing that prevents the 5,000 single-room factories from combining forces, achieving scale, and thus far greater wealth is the lack of firm property rights for existing operations and thus collateral for investment capital to expand. Without contractual enforcement predicated on clear, legally-enforced ownership of your factory, you can’t get the institutional assistance necessary to succeed.
Social Capital & Trust — Paralleling the financial capital argument put forward by DeSoto, Francis Fukuyama puts forward a social capital based argument for interpersonal trust. In addition to governmental infra necessary to scale up a business operation, this theory recognizes significant issues at the entrepreneur & employee level as well. The normal ebb and flow of doing business requires that biz partners & employees trust each other in a deep way to carry out their duties with the best interest of the firm in mind. In lieu of such trust, it’s rare for the firm to scale beyond the size of a single family unit — e.g. the “mom and pop” shop.
Complicating matters is how many of these factors exist simultaneously and feed on each other. There’s a type of “trust” between the individual and the state necessary for an efficient public sector. One of the biggest drivers for “hidden capital” is mistrust of both the state’s corrupt tax man and neighboring, potential business partners. And the solutions are often intertwined as well – the trust necessary for spontaneous formation of desi IT firms, for ex., is no doubt motivated by the highly visible rewards that come from teamwork and GNP growth. Either way, it’s heartening to see Dharavi appearing to make progress on all fronts.