Attempts to plan the development of cities in modernizing countries and to improve housing standards are often confounded by the autonomous action of low-income squatters and clandestine developers. In the most rapidly urbanizing areas, squatter developers dominate contemporary urban growth, reducing the planners sphere of influence to those areas developed by wealthier minorities and public institutions. This historically unprecedented, politically and economically dangerous, loss of control over major parts of urban growth can be interpreted as the result of conflicts between government programs and the demands of the people. Until realignment of institutional norms and action is accomplished, the major resource for infrastructure development, the collective will and savings of the common people, cannot be coordinated with government plans and policies. A preliminary model of the settlement process in traditional countries is presented here to illustrate the dynamics of this problem.