Considered together, squatter cities are the scene of an enormous economic event, but it escapes notice because it’s designed to escape notice. Squatters don’t formally own land or property. They don’t pay taxes. They take no part in any permit or licensing process. They pay no attention to government-approved exchange rates. And yet they thrive economically, charging each other rent for space in unowned buildings, employing each other in their unlicensed businesses, and selling each other all manner of goods and services. This is what is called the informal economy, and it is to economic theory what “dark energy” is to astrophysical theory. It’s not supposed to be there, but it is, and it is huge. How else do we explain slum-laden Mumbai (half of its 12 million residents are squatters) accounting for one-sixth of India’s entire GDP? Its actual impact on the economy is probably greater still, because GDP figures don’t typically reflect the full value of the underground economy.
Two recent books have penetrated the clouds of wrong theory about squatter cities because the authors spent time actually living in the shantytowns. The books are The Challenge of Slums, the 2003 global report by the United Nations Human Settlements Program, and Shadow Cities: A Billion Squatters, A New Urban World, by journalist Robert Neuwirth (Routledge, 2004). The U.N. book is based on 37 case studies conducted all over the world. Robert Neuwirth did his research by learning the relevant languages and then living for months as a resident in Rocinha (one of 700 favelas, or shantytowns, in Rio de Janeiro); in Kibera (a squatter city of 400,000 adjoining Nairobi); in the Sanjay Gandhi Nagar neighborhood of Mumbai; and in Sultanbeyli, a now fully developed squatter city of 300,000 with a seven-story city hall, next to Istanbul, Turkey. (If you want a vivid film experience of real squatter cities, see the work of Brazilian film director Fernando Meirelles. His City of God takes place in the favelas of Rio de Janeiro, and much of last year’s The Constant Gardener was shot in Kenya’s Kibera district.)
Contrary to a common assumption, the U.N. researchers and Robert Neuwirth found that the wretched quality of housing in squatter cities is never the main concern of the inhabitants. Indeed, when governments and idealistic architects provide public housing, those buildings often turn into the worst part of the slums. The people who build the shanties take pride in them and are always working to improve them. The real issues for the squatters are location — they want to be close to work — and what the U.N. calls “security of tenure.” They need to know that their homes and community won’t suddenly be bulldozed out of existence.
Another piece of conventional wisdom that turns out to be wrong concerns crime. Far from being the hotbeds of criminal activity that everyone assumed, the squatter cities are often victimized by criminals from outside, because they have no protection by government police. (The exception is in Brazil, where the favelas are the safest areas in Rio, thanks to drug gangs taking on the role of community police; in the absence of government police, they enforce their own stronger version of public security.)
Squatters are tremendously resourceful and productive. In aggregate they are the dominant builders in the world today. They will do much of the work and innovation of building the cities of the 21st century and the global urban economy. All that the keepers of the formal economy have to do is meet them halfway — help them secure their tenure and give them time to gradually join the formal world, which will no doubt be reshaped by their joining it.