Tag Archives: Hernando de Soto

Hernando de Soto – Property Rights 20 years on.

I have blogged quite a bit on this topic using the work of Peruvian economist Hernando de Soto and his book ‘The Mystery of Capital’. There was also some great footage from the Commanding Heights Series which showed de Soto traveling in Peru and talking about what he sees as the main obstacle to the development of markets and capitalism within developing countries – property rights.

Without a title to a property nobody knows who owns what or where, who is accountable for the performance of obligations, who is responsible for losses and fraud, or what mechanisms are available to enforce payment for services and goods delivered. Consequently, most potential assets in these countries have not been identified or realised; there is little accessible capital, and the exchange economy is constrained and sluggish. However in the West, where property rights and other legal documentation exist, assets take on a role of securing loans and credit for a variety of purposes – building capital with capital.

De Soto estimated that about 85% of urban parcels in Third World and former communist nations, and between 40 and 53 % of rural parcels, are held in such a way that they cannot be used to create capital. The total value of the real estate held but not legally owned by the poor of these countries is at least $9.3 trillion – $13.5trn in today’s money. Studies suggest that titling has boosted agricultural productivity, especially in Asia and Latin America. The World Bank wants 70% of people to have secure property rights by 2030. Despite all these efforts, only 30% of the world’s people have formal titles today. In rural sub-Saharan Africa a dismal 10% do. Just 22% of countries, including only 4% of African ones, have mapped and registered the private land in their capital cities.

PRINDEX is an organisation that measures global perceptions of land and property rights – see video below.

In July 2020 they published an informative report on tenure security – “Comparative Report – A global assessment of perceived tenure security from 140 countries”. Some of the findings from the report:

  • Nearly 1 billion people around the world consider it likely or very likely that they will be evicted from their land or property in the next five years. This represents nearly 1 in 5 adults in the 140 countries surveyed.
  • Levels of perceived insecurity vary by region. While the greatest number of people who are insecure live South Asia (22% of people), sub-Saharan Africa (26%) and the Middle East and North Africa (28%) each have higher proportions of insecurity.
  • People living in cities experience higher levels of insecurity than those living in rural areas (18% vs. 16%).
  • The possession of formal land and property rights documentation tends to be associated with greater confidence of perceived tenure security compared to owners and renters who have no formal documentation at all (80% vs. 63%)
  • Nearly half of all women in sub-Saharan Africa (48%) feel insecure about their land and property rights when faced with the prospect of widowhood or divorce.
  • Tenure insecurity is strongly linked to age. Overall, 24% of young people aged 18-25 felt insecure compared to just 11% of people aged over 65.
  • Tenure insecurity is associated with economic factors in regions that are highly developed, such as North America, Europe, Australasia and parts of Asia.
  • Perceived tenure insecurity is closely correlated with other economic, human development, and governance indicators, including gross domestic product (GDP), World Governance Indicators (WGI), the Multidimensional Poverty Index, and the Human Development Index. There is a particularly strong correlation between tenure insecurity and the Corruption Perceptions Index (CPI).

Below is a graph from the report:

Perceived tenure insecurity as measured across all properties and plots of land that a respondent has rights to access or use, not just their ‘main’ property.

Concerns

In the developing world having the authority to allocate land has great benefits.

  • Politicians use land as a way of rewarding supporters and themselves
  • Politicians / Chiefs use their powers to sell the land to mining companies / developers without the consent of their people
  • Some seize the land because it is deemed to be in the “public interest”

A crucial lesson of the past few decades, however, is that if land reform is treated purely as a top-down technical task, it will not work well. It is not enough simply to map and register a property, as several high-profile efforts show. Land is an emotive issue, especially where memories of colonial expropriation still linger. As Mr de Soto argued, capitalism should be for the many, not just the few. The Economist – September 12th 2020

Property rights needed for post-Mugabe Zimbabwe

Determining who owns the land is a necessary step to development and democratisation in Zimbabwe. Nearly all Zimbabweans who benefited from Mr. Mugabe’s land reform policy lack titles, or legal ownership of their property — leaving them at the mercy of the politically powerful. Titles are necessary if landowners are going to secure bank loans and without these loans farmers cannot buy the equipment needed to move on from a subsistence farming environment and their dependence on the government for aid etc.

Government officials, aware of the situation, have urgently started to survey the 6,000 farms that were seized after the fast-track program (where white farmers were forced off their land by the pro-Mugabe ‘Zimbabwe National Liberation War Veterans Association’) in the late 1990’s. This move will hopefully mean that Zimbabwe can now qualify for badly needed loans from international creditors like the International Monetary Fund and the World Bank.

Mr. Chaparadza, the village leader, said that as part of any resolution of the land issue, the new government should compensate white farmers.

“Even if they come back, that’s fine as long as they give us another place,” he said. “We won’t deny them. What we need is only some land where we can survive — and title to the land.’’

Property rights and Hernando de Soto

Peruvian economist Hernando de Soto sees a main obstacle to the development of markets and capitalism within developing countries being linked with the lack of property rights. The result of this is that most people’s resources are commercially and financially invisible. Nobody knows who owns what or where, who is accountable for the performance of obligations, who is responsible for losses and fraud, or what mechanisms are available to enforce payment for services and goods delivered. Consequently, most potential assets in these countries have not been identified or realized; there is little accessible capital, and the exchange economy is constrained and sluggish. However in the West, where property rights and other legal documentation exist, assets take on a role of securing loans and credit for a variety of purposes – building capital with capital.

De Soto estimates that about 85% of urban parcels in Third World and former communist nations, and between 40 and 53 % of rural parcels, are held in such a way that they cannot be used to create capital. The total value of the real estate held but not legally owned by the poor of these countries is at least $9.3 trillion. This is approximately twice as much as the total circulating U.S. money supply and nearly as much as the total value of all the companies listed on the main stock exchanges of the world’s twenty most developed countries. The lack of such an integrated system of property rights in today’s developing nations makes it impossible for the poor to leverage their now informal ownerships into capital (as collateral for credit), which de Soto claims would form the basis for entrepreneurship. However, in reality, it cannot be seen as the panacea. Titling must be followed by a series of politically challenging steps. Improving the efficiency of judicial systems, rewriting bankruptcy codes, restructuring financial market regulations, and similar reforms will involve much more difficult choices by policymakers. Zimbabwe seems to be in need of Hernando de Soto’s ideas. His book The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else is a good read.

Source: New York Times – 20th January 2018

Below is are two great clips from the ‘Commanding Heights’ series with Hernando de Soto talking about property rights. The second one has an interview with a Tanzanian coffee farmer and asks the question – “who owns the land around here?”