For a new economics of resettlement: a sociological critique of the compensation principle

Abstract

Many development projects intended to alleviate poverty end up increasing poverty by displacing large numbers of people without reestablishing them viably, despite the use of compensation payments for assets lost. This paper appreciates the contribution of economic science to matters of compensation. However, it also subjects the theory of compensation to critical scrutiny and deconstructs the current practices of compensation to highlight their fallacies, distortions, and unsatisfactory outcomes. In particular, the paper critiques: (a) the economic theory that predicates the socio-economic recovery of those displaced only on the principle of compensation for asset losses; (b) the resettlement policies that tolerate an internal mismatch between policy objectives and policy means; and (c) the methodology that planners often employ in appraising projects with resettlement, which is inadequate to the task. The author argues that the magnitude of the combined material and non-material impoverishment risks and losses experienced by those displaced far exceeds the redeeming powers of narrow compensation-centered solutions offered by conventional economics. He identifies a structural incongruity in policies which define their goals as improving or restoring resettlers’ livelihoods, and rely only on compensation as the virtually sole means for achieving either of these goals. The paper outlines several basic limitations and flaws in compensation that reinforce the main poverty risks inherent in forced displacements, as demonstrated in the author’s analytical model of impoverishment risks and reconstruction (IRR) in resettlement. To complement compensation for damages and make the policy goals in resettlement achievable, targeted investment financing channeled to those displaced is necessary as part of the regular development projects’ investments. The author argues in favor of a shift from the “economics of compensation” towards an “economics of resettlement with development”, that will pursue the final goal of affected peoples’ sustainable reestablishment rather than be focused narrowly only on compensation delivery, regardless of final overall recovery. Additional investment resources for resettlement with welfare improvement can be secured in several ways, outlined in the paper, often through equitable sharing of the project-generated benefits with those displaced.