Informal settlers: Integration, not just relocation

JC Punongbayan
For as long as economic activity is heavily concentrated in a few urban areas, no one can really blame the poor for wanting to leave their relocation sites in exchange for brighter prospects in the city centers

Society is governed by two types of laws: the laws enacted by governments and the laws of supply and demand.

This distinction can explain why people sometimes behave differently from the intended outcomes of policy.

Take for example the imposition of a minimum wage. While it is almost always intended to benefit poor workers, the minimum wage can result in a disincentive to hire among employers and, hence, higher unemployment especially among young and inexperienced workers. (See a previous article on the Kasambahay Law.)

Never-ending tension

The interaction between the laws of government and the laws of economics is also apparent in the seemingly never-ending tension between the government and informal settlers (“squatters” in colloquial terms).

For instance, in an effort to declog waterways in Metro Manila, the current administration (through the Department of Interior and Local Government or DILG) has started a massive resettlement project to move around 60,000 informal settlers situated along major waterways like Pasig River, Tullahan River, and San Juan River.

Yet another project aims to relocate thousands of families situated near Agham Road in Quezon City’s North Triangle area to give way to a new central business district.

Decades of experience suggest that such efforts, by themselves, will not be fully effective in permanently relocating the poor away from city centers. This is despite the presence of otherwise unattractive urban features like higher housing rents and natural hazard risks. Poor informal settlers just keep coming back to the city.

But why exactly? 

Housing vs. commuting

For one thing, the desire to live and work in city centers can depend largely on the relative attractiveness of living in city centers versus subcenters.

Consider the plight of an informal settler family living in the middle of Quezon City and being offered cheap housing in a relocation site somewhere in Balagtas, Bulacan. Let’s assume for a moment that they refuse to give up their present employment or business in the city center.

On the one hand, housing does cost cheaper in Bulacan relative to Quezon City. That is, the price of housing per square meter goes down with each extra kilometer farther away from Quezon City and nearer Bulacan.

On the other hand, the total cost of commutes to and from the city center will become higher. In the absence of a light rail transit (like the proposed MRT-7 to run along Commonwealth Ave), the family’s commute can take hours via tricycles, jeeps, and buses. Imagine a poor family doing this costly commute 5 times a week.

Taken together, the farther the family is from Quezon City, housing prices go down while the total commute costs rise. For as long as an extra mile of commuting costs more than the extra decrease in housing prices, the poor informal settler family will choose to remain in the city center and refuse offers to live in the suburbs.

From this cost-benefit decision calculus, the way to induce the informal settler family to live outside of city center is straightforward: Increase the attractiveness of living far away by reducing the relative cost of commuting.

While a light rail transit can help in this regard, subsidizing commute costs for the poor (given high upfront infrastructure costs) will be hard to justify on a long-term perspective. (Even today, there is an effort to reduce the high subsidies allocated to the MRT-3 running along EDSA.)

Benefits of clustering

Another way to incentivize informal settlers to live in the suburbs is by making these places viable areas to live and work in. Hence, we obviate the need to reduce (or even subsidize) commute costs to and from the city centers.

This can be done by recreating in the suburbs what the poor are looking for in the city centers: The benefits and opportunities which arise from the clustering of economic activity.

Indeed, great things arise when firms and establishments of similar or different trades locate near one another. Firms can reduce their costs by sourcing their materials from nearby suppliers; they can learn about emergent market trends and copy each other’s production techniques; they can also benefit from the pooling of clients and attract more foot traffic than if they were separated and isolated.

On the other hand, workers also benefit from interactions with workers of other firms. In the event of job layoffs in one firm, searching for a new job will be less difficult since they can immediately find alternative employment in nearby establishments and rely on referrals by friends and colleagues nearby.

These and many other benefits (collectively known as “agglomeration economies”) explain the emergence of malls (e.g., SM City), new cities (e.g., Santa Rosa in Laguna), urbanized districts (e.g., Bonifacio Global City in Taguig), and economic zones (e.g., SBMA in Subic).

MASSIVE RESETTLEMENT. To declog waterways in Metro Manila, the Aquino administration starts a massive resettlement project to move around 60,000 informal settlers situated along major waterways. Photo from Shutterstock

Urban slums

Urban slums, too, can be thought of as communities arising from the benefits of agglomeration economies. A visit to one of the larger slum communities in the metro will show that these areas are not so much a homogeneous collection of residential units, but are in fact dynamic, thriving centers of business, too.

From wet and dry markets, bakeries, laundry shops, internet cafes, barbershops, parlors — name it, they’ve got it. Businesses in these communities also locate themselves such that they’re visible to people going to and fro schools, offices, and transit terminals — much like how mall establishments strategically locate where foot traffic is highest.

The clustering of economic activity results in benefits and opportunities which everyone, including the poor, will naturally seek to partake in. The fact that the poor are willing to overlook things like congested houses and natural hazard risks in slums suggests that residing in these areas must deliver immense benefits to their lives, enough to overcome the costs of these inconveniences.

In other words, for as long as there are agglomeration economies to be enjoyed in city centers, the incentive of living in urban areas will exert a powerful pull over the poor’s decision where to live and work. Such pull can be powerful enough to overcome any piece of legislation or policy aiming to permanently relocate them to far-flung areas with little or no such agglomeration economies.

New business districts

Perhaps, then, a better way to look at the problem is not to simply relocate informal settlers hither and thither, but to integrate them in the urban landscape by developing agglomeration economies in more and more areas outside of metropolitan areas.

In other words, there should be a concerted effort to promote the development of business districts with high growth potential and substantial job creation in areas around and outside metropolitan areas like Metro Manila, Metro Cebu, and Metro Davao.

To some extent this is already happening, what with the emergence of high-growth areas like Cavite, Laguna, and Batangas south of Metro Manila; Iloilo City in the Visayas; and Cagayan de Oro City in Mindanao.

However, there are currently not enough of these emerging business districts around the country to accommodate the millions of people still living in poverty. Bringing the benefits of economic clustering closer to the regions (and hence, the poor) would be a perfect way of promoting inclusive growth and alleviating regional inequalities.

Don’t blame the poor

Given the powerful economic incentives of living in the cities, mandating the full and permanent resettlement of the urban poor to the hinterlands will be as futile as King Canute ordering the tides of the sea to retreat through law or decree.

For as long as economic activity is heavily concentrated in a few urban areas — that is, growth is geographically exclusive and not inclusive — no one can really blame the poor for wanting to leave their relocation sites in exchange for brighter prospects in the city centers.

Until development is brought to these suburban areas, that is the poor’s way of partaking in the fruits of economic growth. – Rappler.com

JC Punongbayan holds a master’s degree in economics from the UP School of Economics. He is also a summa cum laude graduate of the same school. His views are independent of the views of his affiliations.

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JC Punongbayan

Jan Carlo “JC” Punongbayan, PhD is an assistant professor at the University of the Philippines School of Economics (UPSE). His professional experience includes the Securities and Exchange Commission, the World Bank Office in Manila, the Far Eastern University Public Policy Center, and the National Economic and Development Authority. JC writes a weekly economics column for Rappler.com. He is also co-founder of UsapangEcon.com and co-host of Usapang Econ Podcast.