The myth that urbanisation reduces poverty

I'm flabbergasted by the extent of logical fallacies constantly churned out by popular authors (at times, even academics who should know better). 

The other day I commented on the foolish claim that ecological degradatation causes poverty. 

Today  I've just come across a claim by Doug Saunders ("Cities of Hope", The Weekend Australian Magazine, August 21-22, 2010) that "The dramatic declines in the number of very poor people in the world around the beginning of this century were caused entirely by urbanisation." [Saunders has published a book, Arrival City: How the Largest Migration in History is Reshaping our World, Heinemann.]

What's the fallacy here? – That urbanisation CAUSES anything! Urbanisation is a necessary  outcome of the choices exercised by free people. It is not a cause. It is CAUSED.

Of course, urbanisation has some direct effects, through networking and division of labour – but this is a weak effect compared with the primary cause, which is freedom. It crucial to understand that urbanisation is not the engine of change; it is a transmission mechanism. It merey reflects the level of freedom in society. The underlying engine of urbanisation (and reduced poverty) is freedom. 

Saunders will find it impossible to show me ANY example of successful urbanisation (and I mean successful, not like Pyongyang) that was not directly caused by increased freedom. 

India continues to remain a good example of socialist obduracy that prevents both freedom and (hence) urbanisation. It has one of the world's lowest rates of urbanisation AND the highest rate of poverty, not because low urbanisation causes high levels of poverty, but because lack of freedom and good governance causes both.

Central planners in India want to keep Indians out of the cities. They have managed to do so through a range of statist policies. Unless India becomes more free, and unless local governance reforms are introduced, India will face political resistance to urbanisation – and, of course, these lower levels of freedom will mean that most Indians will remain poor. 

Freedom eliminates poverty through many transmission mechanisms. Urbanisation is just one of them. The level of urbanisation is at best a partial INDICATOR of the level of freedom in a society, not the cause of poverty reduction!

Saunders's confusion about the concept of causality is even more pronounced in his statement: "When villagers migrate to the city, their family size drops, on average, by at least one child per family." This is flawed because the SAME underlying cause, namely, greater freedom, drives these (and many other) outcomes: urbanisation, lower fertility, and poverty reduction. If freedom to migrate is facilitated, this process can be rapidly accelerated. 

Greater freedom causes MANY things to change simultaneously. These include:

– better environment (reduced destruction of natural habitat; better wildlife management, etc.)

– greater demand for education (and consequently reduced demand for children), and increased IQ of children [IQ is not fixed: it changes, within limits]

– greater division of labour and networking effects, hence greater urbanisation, innovation and wealth (and hence reduced poverty)

– better governance (which means better health, better longevity, lower infant mortality, etc.)

I would suggest that most policy variables are endogenous. The truly exogeneous variable is the level of freedom (including all its implications, as detailed in BFN and DOF).

GOVERNANCE reforms can dramatically change a lot of things by increasing freedom. That is what Saunders should have tried to investigate and advocate. Instead, he is looking at an outcome and mixing it up as a cause. Poor logic. 

However, the book is interesting, and might provoke thought. I'd not recommend buying it, but if you find it in your local library, skim through it.