THE OVER-urbanization in the Third World involves both the sheer aggregate growth of the proportion of a national population living in cities, as well as the concentration of the population in particular cities.

The misallocation of labour due to over-urbanization results in the redundancy of labour in the urban sector and an increase in the cost of providing services for a country’s growing population.

Cities have grown explosively in the developing world. The projection was that between 1975 and 2000 alone, there would be an increase of 166 per cent, or 1.32 billion new urbanites in Africa, Asia, and Latin America.

The central problem is that of “absorptive capacity”: to what extent can the urban economy productively employ new labour force entrants and provide basic social services to accommodate them? The process of rural-urban transfer in western countries took place over longer periods of time, so the absorption was smoother.

In addition to the absolute size and unprecedented rates of natural population increase in the rural areas of developing countries, the sheer volume of internal urban migration puts enormous strains on the urban labour market.

Moreover, because of the dependence of developing nations on imported, capital-intensive technologies of production and lack of training, management, expertise, and financial resources to successfully mount a sustained programme of indigenous technological research and development, industrial employment growth in developing countries has lagged behind output growth.

Given the uncertainties faced by developing nations in the era of globalization, and the resultant difficulty in formulating coherent national development strategies, it seems all the more obvious that the absorptive capacity of urban areas has been overstretched.

The problem of substantial surplus labour exists in various guises in cities in developing countries. To the extent that rural-urban migration leads to a ‘misallocation’ of labour between the rural and urban sectors, and rural-urban migration increases the cost of providing for a country’s growing population, over-urbanization remains a problem.

Urban surplus labour due to it includes the problems of unemployment, underemployment, and misemployment. In addition to open unemployment, which is difficult to measure because of the paucity of accurate censuses and definitional problems, there is also underemployment in the form of under-utilization of labour and ‘mis-employment’ in the form of labour that contributes little to social welfare.

But what are the economic implications of urban surplus labour? This has to be answered by considering the opportunity cost at the rural end. Hence a counter-factual: what would have happened if some of the migrants had stayed in their rural homes?

It used to be assumed that the marginal productivity of rural labour is zero in heavily overpopulated countries like Bangladesh, India, Pakistan, Egypt, the Java region of Indonesia, and in much of Latin America where the mass of the rural population has no access to land.

But in rural areas where uncultivated land is still available, where virgin lands can be developed, and where institutional restraints on the intensification of farming can be overcome, rural-urban migration does entail a loss of potential agricultural output.

It should be remembered, too, that a large proportion of the rural population is engaged in full-time or part-time non-farm activities. Labour utilization by farm families is high. The inefficiency of current rural-urban migration patterns is the result of the loss of potential rural output and the inability of cities to fully employ their existing labour-force to productive ends.

There is a tension between individual and national interests in the problem of overurbanization. Despite the inefficiencies at the aggregate or national level, at the individual level, most migrants report that they are motivated to move for economic reasons and that they have improved their condition. For individual rural dwellers, then, migration may be a rational response to economic realities and it is not so easy to dismiss the advantages to be gained from the move.

But what about the increasing pull on urban resources and amenities by the migrants from the point of view of the state? And are developing states themselves contributors to the problem?

National policies do indeed contribute to over-urbanization. When severe imbalances in income-earning opportunities exist between city and country-side, people are forced to leave in search of urban jobs.

National policies bringing this about include institutionally rigid minimum urban wage policies, over-valued foreign exchange rates that lower the price of capital below its real value, per capita disproportionate provision of urban services, skewed public investment and tax programmes that provide incentives for both domestic and foreign investors to locate in major urban areas, and transportation networks that centre on the metropolis and its immediate surrounding areas to the neglect of the hinterland. Some of these policies have been the target of international development and aid agencies in the last two decades, under the impetus provided by liberalization theorists like Jagdish Bhagwati, Anne O. Kruger, and Deepak Lal, but other elements of the “urban bias” remain in place.

Government policy needs to create a more viable balance between rural and urban economic opportunities by stressing a realistic combination of rural development and dispersed urbanization strategies. Specific short, medium, and long-term policy tools are available to accomplish this goal. Short-term policies might include trying to generate rural employment and related income-earning opportunities, as well as modifying and rationalizing the pattern of internal migration. This could be done with the help of rural public works programmes for the landless, unskilled, and semi-skilled; farm price supports, including crop insurance schemes, guarantees, and less over-valued exchange rates to promote agricultural exports; supervised credit programmes for small farmers, including the introduction of locally adapted agricultural inputs and extension services; a freeze on urban real wage rates, particularly in the public sector, either through a modification of civil service salary scales or by letting urban prices and taxes accelerate disproportionately to rural prices and taxes; explorations of the feasibility of utilizing labour exchanges and employment information systems in rural areas in an attempt to better match urban employment opportunities with both urban and rural job seekers.

Over the medium-term, more fundamental institutional and structural changes have to be initiated. These would include a major reordering of development priorities in which comprehensive rural development assumes greater importance, along with the articulation of a dispersed urbanization strategy that emphasises the development of market towns, rural service centres, and small regional cities.

The objective is to create a hierarchy of small towns and service centres that give rural populations access to a wider range of producer and consumer goods, expanded markets to counter the current control of local monopoly powers, and a wider range of investment and employment opportunities to strengthen agricultural development.

Land reforms: Long-term policies to address over-urbanization would begin with land reform supported by appropriate national policies. Why do landless labourers or urban migrants come into being? It is because the potential advantages of new high-yielding cereal varieties are turned to the exclusive use of the already prosperous. New agricultural technologies are scale neutral - i.e., they are equally effective on small and large plots- but are typically not institutionally neutral - i.e., larger, more wealthy farmers have greater institutional and political access to credit, extension services, and other inputs necessary to realize the potential of the new technologies.

Land reform, properly initiated, should be a vehicle for redistribution of rural assets and income-earning opportunities, and also a means for increasing productivity. Land reforms, to work, must be buttressed by supportive policies that extend the availability of credit, improve input supply, expand research and extension services, and build new storage and marketing facilities.

The process of dispersed urbanization through new town development and the strengthening of existing rural service centres has to be backed up by providing incentives for investors to locate their activities in dispersed urban locales and by redirecting public expenditure programmes to create new nonagricultural job opportunities.

Public policy has promoted more capital-intensive production technologies than might have been used if relative factor prices were a more accurate reflection of relative factor scarcities. Rural and urban production processes have become more capital-intensive, despite the obvious resource costs and foreign exchange burdens of this process. This disparity must be addressed.

Patterns of urbanization in developing countries have been divided into four types: Type 1 includes countries, especially in Latin America, where urbanization is well under way; Type 2 includes countries where urbanization is more recent, such as the semi-industrialized countries of East Asia and North Africa; Type 3 includes countries in sub-Saharan Africa which remain predominantly rural; and Type 4 includes South Asia, Indonesia, and China, where both rural and urban populations face accelerating pressures. Each of these types presents its own problems in attempted recalibration of population distribution, with Type 3 being the most amenable to policy tools.

The World Bank notes that policies to halt over-urbanization have largely failed, and this indeed was predicted by economists some decades ago. Efforts to force populations to move are unlikely to work, and governments have shown little real will to change urban bias policies to get at the root of the problem. The World Bank takes a market-oriented approach to the problem in its latest report, drawing on its conclusion that governments tend not to make good decisions about location of households and firms. But what the World Bank calls the need to establish a level playing field between rural and urban areas will require somewhat more trust in the efficacy of governmental intervention to redirect population distribution patterns than it is willing to grant.

The role of public policy is certainly constrained by a number of factors. The impact of direct public policies on over-urbanization is important but is overshadowed by the consequences of larger policy shifts taking place across the world. Some economists are skeptical of the ability of public policy to influence over-urbanization and say that it might end up reducing welfare, especially of the poor and middle classes. Their conviction, however, that most policy-makers remain profoundly unaware of the impact of specific economic policies on population shifts remains a continuing challenge.

Skeptical economists hold that in contrast to the direct intervention favoured by governments before the 1970s, the new orthodoxy of liberalization - including balanced budgets, removal of subsidies and tariffs, privatization of government enterprises, and the development of legal institutions and property rights which enable free and competitive markets to function more efficiently - has greater impact on rural-urban migration than the smaller scale policy shifts aimed to directly affect this problem.

Skeptics are doubtful of intervention on other scores. Governments may not be motivated enough to curb urban growth when urban jobs are growing rapidly; when foreign investment is high so that public investment in infrastructure does not mean an end to industrial capital accumulation; when economic growth is sufficiently rapid to provide government with the resources it needs to make key infrastructural investments; and when agricultural development results in the rapid growth of smaller cities and towns, which serve as marketing depots and commercial centres for an increasingly prosperous countryside. Where rural education is advanced, so that urban migration does not result in a flood of unskilled labourers, the whole issue is of minor importance to governments. Ironically, successful agricultural growth may itself be a contributor to rural-urban migration. Establishing an optimum city-size in response to concerns that cities in the third world have become too “primate” is a difficult proposition.

Agglomeration economies offered by urban areas are not to be easily dismissed; their existence is undisputed, and skeptics of intervention point out that governments may do more harm than damage should they pursue policies to deliberately disperse sectors. Even dramatic success in curbing the natural rate of population growth will bear little fruit in curbing the high urban migration rate in the least developed countries. The idea of establishing secondary cities is sound, but it faces the challenge of infrastructure expenses under conditions of severely strained national budgets.

There is also the paradox that repressed agricultural prices might not necessarily lead to sustained urban growth, since low agricultural prices diminish foreign-exchange earnings which are essential for city growth. The IMF’s SAPs (structural adjustment programmes) are likely to reduce rural-urban migration, because of devaluation, reductions in government budget deficits, reduction in money supply growth, wages and employment declines in urban areas, the tightening of state enterprises’ (parastatals’) budgets, and in general reduction of other forms of rent-sharing and rent-seeking behaviour. These are all complicating factors that place restraints on and generate contradictions within direct public policy aimed to reduce population disequilibrium.

Nevertheless, having taken these caveats into account, government has a distinct role to play in curbing the rural-urban population disequilibrium from further intensifying. There are obvious psychological factors in the attraction of cities, but to compound that there should not be the “push” factor that results from low levels of public investment in agriculture.

Urban infrastructure has tended to receive disproportionate emphasis. When it comes to education, the countryside has been relatively ignored. The disparity between wage levels in rural and urban areas is a problem that has to be addressed by targeted policies. Leaving the problem of overurbanization mostly to market forces is not likely to result in a return to equilibrium.

As we have seen, some economists have argued that attempting to change a country’s regional growth pattern may be excessively costly in terms of loss of output, presumably from the loss of scale and agglomeration economies. Nevertheless, regional equity “balance” is regarded as a desirable goal by most planners and politicians.

The policy of decentralization or regional development is interpreted to mean that the capital city of other large urban centres should not grow as fast and the more backward regions should develop faster. In other words, rather than the people moving, economic activity should move to the people.

In the face of excessive rates of rural outmigration at the turn of the millennium, this remains a sound principle for the future. In the 21st century, a more coordinated response to overurbanization will have to come from both international agencies and individual governments. Urban-rural disparities are marked and cannot be allowed to continue unchecked. Regional disparities, in terms of almost any kind of socio-economic indicator (medical provision, schooling, industrial activity or whatever), are extreme.

Developing nations have spent disproportionate amounts on provision of public services in urban areas, but the same services are also chronically overstretched due to their very existence and attractiveness relative to their paucity in rural areas. Overall, the idea of “primate” city location has done much to hurt the welfare of both rural and urban residents in terms of lower quality of life; there is tremendous insecurity in economic prospects for urban migrants.