Property titles key to third world progress

November 7, 2000

Free Market Foundation

Millions of the world’s poor have staked their tents on land they hold as squatters, but with no legal title. They build shelters, then houses, and establish micro-businesses serving the needs of the other squatters. However, because they have no title to the land, they have no access to credit that might help lift their level of economic activity.

Peruvian economist Hernando de Soto says these so-called informal settlements represent trillions of dollars of untapped wealth that could help lift the Third World out of poverty.

De Soto, author of the book “The Other Path,” has now written “The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else.” Capitalism in America and Britain, he argues, took off when governments decided to make it easy for people to get title to their property.

But in the developing world titling property is extremely difficult for instance, de Soto found that to legally register a two-sewing-machine garment factory in a Lima, Peru shantytown would take an entrepreneur 300 days, working six hours a day.

To get title to a house in a so-called informal settlement took 728 steps for one agency alone, and 10 other agencies also required approvals.

De Soto has found the same jungle of red tape in Egypt, Mexico, the Philippines and Haiti.

To help solve the problem, de Soto set up a property registry in Peru, and 1.3 million buildings and 300,000 businesses were titled from 1991 to 1994. Once titled, property owners can invest in their land with security, more easily obtain credit and get electricity and water services.

“Five-sixths of humanity have assets, but nothing they can use to secure a loan,” he says. “When their assets are documented, the banks will find a way to lend them money.”

Source: Tina Rosenberg, “Looking at Poverty, Seeing Untapped Riches,” Editorial Observer, New York Times, October 26, 2000.

For text http://www.nytimes.com/2000/10/26/opinion/26THU3.html

For more on Third World Poverty
http://www.ncpa.org/pi/internat/intdex11.html

RSA Note:
Hernando de Sotos prescription for third world development is remarkably similar to that contained in the FNS/FMFs Laws Affecting Small Business Land booklet by Leon Louw and the FMFs From Poverty to Property by Professor Themba Sono. South Africas rural communities are particularly badly affected by the lack of title to property. The two books propose that South Africas landless people should be allocated plots of land out of land already held by government (including local authorities) and that tribal communities should be allowed to grant title to land subject, if they so wish, to limitations that confine transfers to members of the same tribe. Professor Sono estimated that South Africas poorest people could be enriched by as much as R100 billion through land grants and upgrading of title to land.

Eustace Davie, Director, FMF.