How do you build a new culture from the ground up? That question came up this week during lunch with a colleague, who is involved in a challenging project in Latin America. Outwardly, it has to do with mortgages. But at its heart, it is about the power of culture to either trigger or stymie economic growth.
My colleague consults for a mortgage agency owned by the national government. Its mission is to expand home ownership by providing provide low-cost mortgages to low-income people. Fulfilling its mission also requires it to promote the creation of a lot of new housing by private developers. If this combination sounds depressingly familiar to Americans, the mortgage agency in question is no Fannie Mae. It just does mortgages – no credit default swaps, no high-leverage deals – and so it has maintained its fiscal position through the credit crisis.
Despite its fiscal virtue, however, my colleague fears that the agency is on the path to failure. Not for lack of fulfilling its basic mission. For nearly a decade, it has been originating a half-million mortgages a year. Millions of families have moved from slums into homes of their own, with proper title to the land, which economists will tell you is a vital rung on the ladder to greater prosperity.
So, what’s the problem? There are two. First, many of the developments have been built following the pattern of rich-country developments, in which the goal is to create an island separate from its surroundings. Transportation is a particular problem. The developments are housing people who work in the cities, but low-income citizens can seldom afford to both own a car and pay a regular mortgage, which is a first-time experience for many. So circumstances eventually drive them to abandon the homes into which they have poured their life savings.
The second problem is cultural. Seeking an income, enterprising residents turn part of their homes into shops. The attractive parks and public spaces created by developers are taken over by vendors and turned into public markets. What’s the result? The developments soon come to resemble the slums from which the residents fled. And more homes are abandoned as their value declines.
So it turns out that providing home ownership in new developments is only the beginning. The home owners need to adopt the culture of ownership – one that preserves the value of their property. They also need to cease being islands cut off from the regional economy.
That’s a tall order. My colleague contributes what he calls common sense. Many of the developments have been built with pleasant bicycle paths – but they run only inside the developments. If they were extended outside – say to places of employment – it would help alleviate the transportation problem. Zoning needs to be put in place to create commercial centers in the developments and outlaw retailing from home. The public spaces need to be cleared of vendors, refurbished and guarded to maintain the public’s right to use them for recreation. These will not be popular moves but residents will eventually love the results.
And then there’s broadband. Communications is in the hands of a monopoly, but the developers have the right to build their own networks. My colleague is encouraging the mortgage agency to fund network deployment, because it will boost the appeal of home ownership, create new economic and educational opportunities, and integrate the developments into the regional and global economy.
In communities around the world, we tend to repeat over and over again the mistake of building infrastructure – whether buildings, roads or networks – without thinking through what users will do with it. What users will do is to cling to the past until they see a better future ahead of them. My colleague believes that, if these changes are not made, the developments will turn into colossal failures. But by focusing on culture and connectivity, they have every chance of transforming the lives of their people and the economy of the region for the better.