Johan Fourie's blog

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On the road to riches

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RDP houses

Road to nowhere: RDP houses outside Kokstad, South Africa (Rhodes University)

Escaping poverty is one of the most difficult things to do, especially in a country like South Africa where at least a quarter of the labour force is unemployed. Every year, thousands of young rural men and women move to the urban periphery in search of jobs and a better life for their children. They mostly end up in townships on the fringes of South Africa’s largest cities where the lack of services – housing, water and sanitation, education and health – are unlikely to allow them to escape the poverty they so desperately hope to. Their children, in all likelihood, will remain on the fringes of the formal economy, unable to break free from the poverty trap.

How to solve the immobility of the poor is one of the most vexing questions that captivate economists. What are the policy levers that we can pull to allow a poor household migrating from Qunu to Cape Town to build a better life for their children? One might think of a plethora of policy options: more housing, clinics and sports fields, better sanitation, teachers and public transport, safer streets, classrooms and public parks; in short, all the things we associate with better neighbourhoods. But better neighbourhoods are highly correlated with high incomes, and it is difficult to know which comes first: do rich people create better neighbourhoods, or do better neighbourhoods create rich people?

Two Harvard economists have recently provided the most compelling evidence to date to show that it is neighbourhoods that, in fact, create rich people. They track the participants of a lottery programme in the USA that allowed some families – those that were lucky to win the lottery – to migrate to better neighbourhoods. Because it was a lottery programme, selection is not an issue, meaning they can interpret the difference between those that migrate and those that stay behind as the causal impact of the new neighbourhood. Here they summarize their results:

As an example, consider a set of families who move from Cincinnati to Pittsburgh. Children who grow up in low-income families (at the 25th percentile of the national distribution) in Cincinnati from birth have an income of $23,000 on average at age 26, while those in Pittsburgh have an income of $28,000. Now consider the incomes of children whose families moved from Cincinnati to Pittsburgh at some point in their childhood.

Harvard

 Figure 1 plots the fraction of the difference in income between Pittsburgh and Cincinnati that a child will on average obtain by moving at different ages during childhood. Children who were nine years old at the time of the move (the earliest age we can analyze given available data) capture 50% of this difference, leading to an income of approximately $25,500 as adults. Children who move from Cincinnati to Pittsburgh at later ages have steadily declining incomes, relative to those who moved at younger ages. Those whose families moved after they were 23 experience no gain relative to those who stayed in Cincinnati permanently.

The earlier you  move to a better neighbourhood, the better chance you will have to escape poverty. While this might sound intuitive, this is the first time that economists have credibly established the causal link from residing in a better neighbourhoods to better outcomes later in a child’s life.

But what is it about these better neighbourhoods that really matter? Is it, as Justin Wolfers writes in the New York Times, “their schools, community, neighbors, local amenities, economic opportunities and social norms” that matter the most? The Harvard team has an answer: commuting time. This is how one newspaper reported it:

Commuting time has emerged as the single strongest factor in the odds of escaping poverty. The longer an average commute in a given county, the worse the chances of low-income families there moving up the ladder.

The relationship between transportation and social mobility is stronger than that between mobility and several other factors, like crime, elementary-school test scores or the percentage of two-parent families in a community, said Nathaniel Hendren, a Harvard economist and one of the researchers on the study.

These results should have profound implications for how we think about attempts to alleviate poverty in South Africa. Following the end of apartheid, the government decided to build large, new townships of what became known as RDP-houses in response to the massive housing backlog. These, located on the outskirts of towns and cities, was a legitimate attempt to provide shelter and a basic living standard for South Africans neglected by the previous government. But while they may have improved standards of living immediately, these new neighbourhoods had the crippling effect of locking households into poverty: far from town and city centers with job opportunities, these promises of a new future did little more than to entrench the nefarious spatial policies of apartheid. South Africa today, I venture to say, may be less socially mobile than it was at the dawn of democracy.

What does the South African city of the future look like? More urban sprawl with longer commuting times? Possibly, but then we should accept the fact that it will also be a society with lower levels of social mobility, a society locked into the inequalities of the past. The only way to expunge the past injustices is to bring the poorest closer to the city center. Public transport can help, which it is great to see that Cape Town is now building MyCiti to the poorest neighbourhoods. But it is only a beginning. Why not make Paardeneiland, located close to Cape Town’s city center, a model for new, denser neighbourhoods that cater to low-income households?

If the kid from Qunu will make it in Cape Town, he needs to live in a good neighbourhood with short commuting times for his parents. The walk to economic freedom is still too long.

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Written by Johan Fourie

May 20, 2015 at 07:09

6 Responses

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  1. […] Dit het beteken dat meeste van die stedelike arm swart mense baie hoë vervoerkostes het om na die stedelike gedeeltes te beweeg. Selfs na die einde van apartheid was nuwe huise steeds gebou ver van die middestad af, wat net die probleem erger gemaak het. […]

  2. […] This has meant that most of the poor urban areas face high transportation costs in order to reach the urban centres. Following the end of apartheid, new houses were still being built in areas far away from city centres, compounding the spatial policies of apartheid. […]

  3. Lakheni introduces a novel approach to address at least part of this problem (commuting involving ‘paying to stay poor’). The 2-woman MBA team from UCT recently won 3rd place in the Global Social Ventures Conpetition (GSVC) at UC Berkeley Haas Business School. This is part of what they propose (and they’re venturing into much more): http://youtu.be/ACMeBO5m_t0

    Lydia-Marie Joubert

    May 25, 2015 at 19:16

  4. Johan you are well meaning but naive. This article displays the logic of an academic who has never filled out a VAT 401. Its time to wake up and smell the thorns. They don’t call economics the dark science for nothing.

    You cannot consume your way out of poverty!

    Watch Wall Street I again. Remember when Gecko pulls up at the kerb and looks at two guys standing in the rain. The one is a beggar in rags and the other is a banker in a suit. They are both getting drenched.

    It matters not if you are living in an RDP house or lecturing at Stellenbosch, you are both captive of consumption. You live from one pay check to the next. The only freedom from this cycle is to produce and to produce way more than you consume. Only the producer can ever reach economic freedom.

    Your idea breaks because in order to “create these new neighborhoods” you are are going to have to tax some profit making producer and you are going to hamper his means to produce and his means to deliver future taxation. through taxation you will transfer this resource to a non producing area and we will all get poorer.

    Go back to second year microeconomics : The mission of the entrepreneur is to move economic resources from areas of low yield to areas of high yield.

    That is the dark ugly truth and everything else is socialism.

    Philip Copeman

    May 20, 2015 at 10:48

  5. Hierdie perd “mag maar”, soos die studente sê. Uitstekend en dit laat mens diep nadink.

    Jan Botha

    May 20, 2015 at 09:29

  6. Hi Johan, Another brilliant post. It was really good to see some stats with reasonable answers. But, once the parents move closer to town where there should be opportunities, the opportunities for jobs are so scarce. Then what do they do? The frustration, disappointment and apathy due to perceived failure to find a job increases. I can’t see it working for too many people in South Africa. Survival entrepreneurship may be a solution as long as the entrepreneurs are not focusing their market on their own immediate poor community.

    bonnieandsihle

    May 20, 2015 at 09:28


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