Economists fret about the fact that they cannot conduct experiments. And that nature doesn’t drop too many natural experiments into their laps (and laptops) either.

A natural experiment can make comparisons more meaningful. Take the countries split by the Cold War. The stunning differences in the living standards in East and West Germany, or North and South Korea, offered conclusive proof that capitalism delivers the goods, while communism doesn’t. Why? Because every other variable in the capitalist and communist halves of Germany and Korea was (or is) the same—geography, culture, initial economic conditions. So, the success of one society and the failure of another can only be ascribed to the choice of economic system.

The recent slum redevelopment blitz in Mumbai offers a similar opportunity to better understand why people choose to live in cities rather than in villages.

Here’s the story.

The area where I stay is a few minutes away from Bandra Kurla Complex, which is Mumbai’s emerging business and financial hub. Real estate prices are sky-high. The redevelopers have moved in. Two of the three major slums in our area are being torn down. But there is one important difference. One of the slums is going the usual way. A builder is rehousing the slum dwellers in 225 sq. ft flats that are stacked seven floors high. The free space created on the ground by going vertical will be sold commercially.

The other slum is being demolished in a radically different manner. The residents have been offered Rs80 lakh for every house they own. It is a pure cash transaction. They are expected to take the money and leave. No alternative housing will be provided.

What will the beneficiaries of this unexpected bonanza do with the money? Will they take the cash and go back to their native villages or will they continue to live in a city? The answer could tell us a lot about the dynamics of urbanization.

I have been conducting an admittedly imperfect dipstick survey over the past few weeks, by asking some of the slum dwellers I know—the maid and the local electrician, for example—what they plan to do with the free housing and the cash bonanza. Interestingly, just about everybody I have asked says that they will stay on in a city, though not necessarily in Mumbai.

We have two groups of people who are alike in most other respects. There is only one difference between them—the incentive to leave the city. One group gets a free flat that its members cannot sell at once. So this group is likely to stay on. The other group gets cash, and an immediate chance to escape the madness that is Mumbai.

Yet, I suspect, most of the second group, too, is likely to stay on in a city.

This is the intriguing part of the story. Years of populist rhetoric have led us to believe that the poor have fled the pristine glory of rural India and moved into the bad city because of crushing poverty. This would mean that given half a chance, we will have reverse migration into the villages. That may have been true years ago. But is it still the case?

In a recent article in The Wall Street Journal, Future Capital chief economist Roopa Purushothaman has quite correctly demolished the myth that rural India is facing economic stagnation while urban India is prospering. In fact, she points out, “India’s rural economy has grown on an average by 7.3% year-over-year over the past decade, against 5.4% in the urban sector." Other studies have showed that poverty rates are dropping faster in the villages rather than the cities.

In spite of this, people continue to stream into the cities. And, as indicated by the behaviour of the slum dwellers I spoke to, many choose to stay back despite getting a chance to leave the city.

“The year 2008 will mark a watershed in the complex and ongoing urban revolution. For the first time in history, more than 50% of the world’s people will live in urban areas," write David Bloom and Tarun Khanna of Harvard University in the latest edition of Finance and Development, a quarterly journal from the International Monetary Fund.

The main driver of urbanization is perhaps no longer crushing rural poverty—and the desire to escape it. While the capricious cycle of drought and floods does send lakhs of refugees into the cities, there are clearly other factors at play. It could be that young villagers prefer low-skill jobs in the city to back-breaking work on the farm. Or that the anonymity of urban life helps break caste barriers, as B.R. Ambedkar told his followers many decades ago.

India’s future is obviously urban. And it seems that more and more of us choose to live in cities for the advantages they offer, rather than merely being pushed there in desperation.

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