Formalization within an Informal System


Temporary housing has been set up across the road from my office for construction workers and their families who have come in from rural Maharashtra. I am not talking about temporary apartments with electricity & water access, these are shacks with metal slates used as siding. Water is delivered in the morning for the community and if I come to the office before 8:30am I walk right by them having their morning showers! So I asked a colleague what will happen when their work is done? He responded that although the construction workers and their families would move to the next job, the whole area would soon be re-inhabited by homeless families looking to establish slum housing. First these families will sleep outdoors he said, next they will set up basic, inexpensive siding using burlap sacks, and only once it is clear they will not be kicked out will they invest in more expensive building materials like metal and wood. Eventually the slum lord will come and start to collect “rent” from them to occupy the space and keep municipal and police officials from “noticing” them. After 1-2 years once a community of people becomes established those who can afford to will start re-enforcing their homes with bricks. Like Dharavi, one of the largest slums in Mumbai, this community will operate almost entirely outside of the formal economy.

My next question – why doesn’t the Indian government pay to build low-cost housing and transfer these communities? Well it turns out the government has tried and one of the problems is that families awarded the housing sell it on the market for income and then set-up a slum dwelling elsewhere. According to my colleague the main issue with new housing is that they are not used to formalized systems for rent, electricity, building maintenance, taxes….and revert back to slum lifestyle.

Now please keep in mind this is just one person’s version, and I am sure there are nuances that I have missed, but I do find it fascinating that there can be such complex formalization within a system that operates almost entirely within the informal economy. Below is a picture I snapped yesterday on my walk to the office.

Joanna Harries Personal Blog


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4 Responses to “Formalization within an Informal System”

  1. Kevin Says:

    Interesting post! And what a picture! It really makes you realize that there are no easy answers when it comes to intervention. I do think that it’s a bit of a cop-out to just say that people aren’t used to the formal systems of rent, etc. This is a free market issue, and ultimately people are only going to participate if it’s clear that the incentives are stronger than the status quo, a good acid test for whether an initiative is just a band-aid solution or if it tackles the more systemic issues.

    The acceptance of slum lords and the police’s blind eye suggests that this “informal” economy does have the support of “formal” institutions. Silence is consent!

  2. Nelu Says:

    Very interesting observation Jo, and fantastic photo!

    It’s unfortunate that the poverty cycle seems unending for these people, with the lack of goverment regulation and follow up on these social housing initiatives. But, what can help when there is also an informal system set up for corruption and “land lords” preventing financial freedom for poor families? We really take it for granted in the western world.

    That being said, I recall driving by a shanty town in Delhi, with what looked like acres and acres of tin roofs, and there in the middle, on top of one roof, was a satellite dish for tv.

  3. kneeloo Says:

    Hey Jo- The Slumdog phenomenon has been in our press a lot lately, thought you’d like this article:

    It’s supposedly opening in India next week- I’d strongly recommend seeing it- it’s a great film!

  4. joannaharries Says:

    Thanks Nelu – I do plan on seeing it. I like the realism of the comment in the article from the boy living in Dharavi saying that he wouldn’t know what to do with that kind of money.

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