Refugee Cities: A Solution for the Crisis

Refugees are one of the most controversial topics in modern politics. Not since the end of World War II has the world faced such an influx of inter-jurisdictional refugees. According to United Nations data, over 3 million Iraqis left their country since 2014, 3.3 million Sudanese are still living displaced because of the Sudan Civil War in 2013, 13 million Syrians (half of the country’s population) live scattered across the Middle East and Europe, and 600,000 members of the Muslim Rohingya minority had to leave their homes due to Buddhist persecution in Myanmar. 

These refugees often have to leave their homes, jobs, relatives and assets to preserve their lives by going to a neighboring country or anyone that hosts them. Most of these refugees, however, do not live within host countries, but in refugee camps. Camps like the one in Dadaab, Kenya, have housed over 300,000 Somali refugees, for example. These camps are temporary reception zones for refugees, often established by the UN, while they await a resolution by the authorities of their host countries. We all know that life in these zones is difficult. Many of them do not have electricity, basic sanitation or even adequate infrastructure to receive these populations, such as homes, schools or hospitals. The fact that the authorities rarely give any drastic resolution is worsening the situation by confining the refugees in these camps for indeterminate periods.

Local populations and governments often see refugees as burdens because of tax expenditures to maintain the camps. Few realize that these fields are not dead zones but are full of human potential. Because of the lack of financial infrastructure and institutional conditions, these refugees often do anything they can to survive. The emergence of informal food markets within these camps, the establishment of parallel currencies (such as cigarettes, grains and drink), and the provision of informal services are common across such establishments. 

Apurva Sahgi noted in a column for the Brookings Institution:

“One striking and immediate—observation was how vibrant the economy is in the camp. This included refugee-owned and operated electronic shops and restaurants that are serving not just refugees but also the host communities and even aid workers. For example, we saw host community traders selling firewood to refugees, and local Turkanas being employed as household help by refugees with means. One enterprising refugee whom we interviewed owned and operated two (hawala) banks.”

But, despite the dynamic socio-economic life that is emerging in these refugee camps, these entrepreneurs often find no support in establishing such activities. These refugees often live without access to property rights and other institutions that allow them to develop consistent economic activity, because of the camps’  status as “temporary” reception areas. They configure what Peruvian economist Hernando de Soto defined as “dead capital”. They cannot mortgage their homes in the camp to receive credit to invest in their businesses, enter legal contracts,  resolve a commercial conflict, nor invest in human capital. There is so much potential, but it is unmet because refugees lack basic structures that allow its development in more complex capital structures and production chains. 

But what if there was a solution? What if there was a way to transform refugee camps from economic drains to powerhouses? This is the idea: to transform the camps into cities or special economic zones for refugees. These cities could be new autonomous cities within the territory of the host country and would operate according to their own legal system. While traditional camps do not allow refugees to have normal legal rights, like property, and discourage foreign investors to invest there, autonomous cities would allow legal certainty within a specific system (such as that of English common law) and potential foreign investors to invest there.

One might think that these camps would become big sweatshops, places where multinationals would pay miserable wages to refugees. But this is an overstated concern. Sweatshops often take workers out of even worse conditions, such as working in rural areas and even extreme situations of poverty, like that of the refugees. As the American economist Paul Krugman put it: 

“Workers in those shirt and sneaker factories are, inevitably, paid very little and expected to endure terrible working conditions. I say ‘inevitably’ because their employers are not in business for their or their workers’ health; they pay as little as possible, and that minimum is determined by the other opportunities available to workers. And these are still poor countries, where living on a garbage heap is attractive compared with the alternatives.

And yet, wherever the new export industries have grown, there has been a measurable improvement in the lives of ordinary people. This is partly because a growing industry must offer a somewhat higher wage than workers could get elsewhere to get them to move. However, the growth of manufacturing–and of the penumbra of other jobs that the new export sector creates–has a ripple effect throughout the economy. The pressure on the land becomes less intense, so rural wages rise; the pool of unemployed urban dwellers always anxious for work shrinks, so factories compete for workers, and urban wages also rise.” 

In fact, because many of these refugees have a certain human capital accumulation from their former countries, as many were engineers, doctors and managers, it is likely that the relative high productivity of their workforce leads to even higher wages than those practiced in sweatshops of the Third World.

One example, albeit a very modest version of refugee cities, is the Al Zaatari camp in Jordan. The camp hosts 80,000 Syrian refugees, which would be Jordan’s fourth largest city. It allows the refugees to own property rights over their homes and to carry out small economic activities. As a result, a new market has evolved within the limits of the camp and there has been a significant improvement in welfare conditions among refugees. 

According to Kilian Klein Schmidt, director of the Al Zaatari camp, the international community should abandon the mentality of seeing refugee camps as a “temporary” burden and starting to see them as positive growth solutions. The camps should become special economic zones to support social entrepreneurship. Companies and refugee entrepreneurs could profit from improving the living conditions of the camps. 

As the World Economic Forum put it in a recent note, it is necessary to stop thinking about just “giving the fish” to refugees, it is necessary to teach them how to “get the fish”. According to them, the international community could help these refugees more by giving them more efficient transaction tools, basic infrastructure and access to technologies than simply by giving them food, medicine and sheets. Above all, granting them an efficient legal system would have an enormous impact on these people, as it would unlock their dead capital and open up possibilities for socioeconomic development.

This is true sustainable development. Good intentions and charity can only slow down this crisis. But it can only be solved, once and for all, by allowing refugees to empower themselves.

About the author 

Sávio Coelho is an economist scholar in development economics, exitarian and enthusiast of alternative governance. He is columnist of the economic blog Terraço Econômico and the libertarian group Evolucionários. 

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