Tuesday, October 18, 2005

Property Rights vs Propertarianism: Part I

Here's a shorter series. Less cautiously prepared. More of an entertaining rant, with some insights into history.


Over on the Philanthropy discussion, we have been touching upon Hernando de Soto's widely discussed proposition, that the poor of the world will be best helped by the establishment of clear property and banking law in all of their own countries. This is a "right-handed" version of modernist-assertive-progressivism that (alas) is all too rare, these days, so I want to tout it before going into WHY such ideas are as rare as hens' teeth, over on the conservative side of the spectrum.

Apparently, "poor" people in most countries own vast amounts of property - a fact that simply escaped notice because of the widespread assumption that poverty means lack of resources. It can also mean an inability to use resources to benefit yourself and your family. Only recently have some sampling surveys penetrated this simpleminded stereotype in order to show that simple Third World farmers and fishermen and herders often - (when not enslaved by big time landholding gentry) - own appreciable amounts of land and other holdings. By some estimates, the value of property held by such people exceeds by far all of the world's combined foreign aid, as well as the national budgets of most equatorial nations.

Land that has little value or usefulness at present, for lack of capital investment in such simple things as wells (for clean water) or sewage, or a windmill or a useful road to carry produce to market. Classically, such property is supposedly leveragable by owners, used as collateral for reasonable bank loans that could then be used for development - either by increasing the land's productivity or through business startups. But there is a rub.

Well, actually, a lot of rubs. We'll put aside for now the need to do all of this with an eye for environmental concerns. The biggest foe of peasants uplifting themselves has - throughout history - always been the local gentry who do not want lower orders getting uppity. But even where that is not a problem, there is one crucial stumbling block. Peasants can only use their property as collateral if their title to the property is clearly established and an honest banking system exists to lend money based upon that title.

Leftists may not like all this talk of banking and establishing clear property title and lending through transparent and competitive capital markets. Their laudable instincts are to promote generosity in the form of aid, or debt forgiveness. Still, many moderates among the liberal community are increasingly willing to admit that it is time to start weaving market forces into the development mix. Especially after witnessing the roaring success of "micro lending" among urban and village women.

And then there is history. The richest and happiest nations - including those that care most about the environment today - are those that used this method. Our ancestors lifted themselves from grinding poverty. And they did not get foreign aid. They borrowed, invested, repaid loans, then did it again. Shall we tell the Third World's poor not to do what worked for grandpa?

de Soto's core point: it is arguable that no endeavor could make more of a difference to world development and eliminating poverty that simply improving law, title systems and banking in places where poor people own some capital, but cannot use it for their own benefit. No conceivable combination of national budgets and foreign aid could match the resulting unleashing of capital and market activity.

It is a fascinating concept and one that is related to things I've long said about anti-globalization fetishism on the Left. (Just about the stupidest of many moronic lefty notions has been to claim that globalization hurts the world's poor. Even if Addidas factories are scandalous by our standards, they are scandalous only in comparison to where the workers want to go,. (They want to be more like us.) Those factories are not scandalous compared to where they formerly were... slaving as serfs or sharecroppers for brutal local gentry who often had literal power of life and death over their tenants. Why else would those serfs eagerly flock for jobs at Addidas factories?

(If labor and environment and other abuses linger in globalized factories - and almost certainly they do - then the answer is more law, not less. All of those problems were mostly solved in western countries by more connectivity and more law. Not less. People who truly sympathize with those workers would help them organize to use globalization, rather than reject it and go back to indentured slavery under local thugs.)

Yes, I am in one of my more "conservative-sounding" phases. (Actually Hayekian-libertarian, in that I believe that genuine markets do help to solve human problems with great agility. There are right-handed and left-handed solutions. A modernist will happily listen to both kinds.)

But hold on to your hats. I will veer around very soon. I have no choice. After all, in today's world, the Left is a vapid, emasculated and silly force, without real power or (in the near term) any likely prospect of power.

Under such conditions (and see below for why this may change) any true believer in SOA (Suspicion of Authority) must be honest and turn back toward this decade's livid danger...
      ...from Monsters of the Right.

Oh, I agree with de Soto that promoting worldwide property law will do a lot of good. But pushing for adequate worldwide property law... without an accompanying that push for property ACCOUNTABILITY... will be self defeating in dozens of ways.

The biggest reason is that it will be viewed as yet another effort by aristocrats to anchor their traditional and age-old dominance.

Of course this is a tragic effect, conflating two things that should not be confused with each other. deSoto is fairly convincing that true property rights law will benefit the poor more than the rich. After all, the rich can already - in most countries - enforce their "rights" through bribery and hired force. A push for explicit legal documentation, court adjudication and banking will help those lower down, in their ongoing struggle to limit capriciousness of power.

But we must recognize that most people will not parse this subtlety.

They won't parse it, because they will increasingly, across the coming decade, see "propertarianism" as the great mystical push by this generation of aristocrats toward justifying a re-institution of aristocratic rule. And if you have not noticed this trend, then you are as blind to history as those on the freaky left who oppose property law.

Tune in. Let's figure this out. Maybe there's a way to separate something that is useful, exciting and good from something that is ancient, banal, boringly predictable... and evil as hell.

==Continue to Part II of this series

==See also: Class War and the Lessons of History


Anonymous said...

David , you have touched upon a very good point, but only scratched the surface of this complex problem, (which is way to long for me to get into!) but a couple of points.

For those who wish to know more about micro-loans, Grameen Bank of Bangladesh is one of the most successful of its kind (a 95%+ repayment rate) and I agree with David about it being one of the best hopes to raise people out of poverty.

As for the land issue, the biggest hurdles are education and local administration. On the education side, many poor farmers are illiterate or close too. They don’t know how to register their lands and can’t read or understand government proclamations on land issues.
On the administration side, most well do families have at least one member in government service, so they usually have the inside track on land laws and will file before local lands owners can.
Case in point after the tsunami hit Thailand many villages were wiped out. The federal government issued a directive that local residents should register their land holdings by a certain date, after that their land would be open for public bids. What happened was local provincial and district level administrators did not advertise this directive as ordered or when they did, the leaflets where confusing and unclear. When the date passed relatives of these administrators, bought up massive chunks of land and villages that had resided on that land for over a 100 years were kicked off because they didn’t know where, how or when to register their land. The laws were there, but subverted.

Final point: The Shoe/Clothing/Toy etc… factory overseas, this is were David’s “Age of Amateurs” come in. CSR (Corporate Social Responsibility) is the newest catch phrase, which pretty much means consumer/amateur power. Every time a cry is raised, things change because the consumer forces the company too. With the Age of Information upon us, workers owning camera phones (they are common and cheap here in Asia) can upload pictures at the nearest internet cafĂ© and put their plight before the world!! This advent of the consumer caring how their product was produced is a great boon for workers and the environment around the globe. Some say we are not doing enough, I say small steps, small steps will get us there.

I could ramble on forever, but I will leave it at that.

Simon Neville

Anonymous said...

An interesting parallel problem:

Squatters creating illegal but vibrant "suburbs" on the edge of megalopolises. There's a discussion here which mentions De Soto's work:


reason said...

I can remember studies back in the 1970s that suggested that inherited wealth disappeared within a few generations. Of course that was then. Since then wealth concentration has increased enormously and there is a big danger that the current explosion of debt will exacerbate the problem. I would be very interested what a rerun of these studies would show.

Unfortunately, if we look at history, increasing concentrations of wealth and power lead eventually to bloody revolution. Often the land rights that you mention are the result of revolutions not the way of avoiding them. Some Anglo-Saxon colonies avoided this fate historically by killing off the aboriginal inhabitants (either directly or via introduced diseases) and rationing the available land. Unfortunately, this trick only works once.

I'm all for what you are proposing but perhaps the dangers and opportunities can be well illustrated by comparing what happened in Poland and Czeckoslovakia as against the Soviet Union and to a lesser extent East Germany. In Poland and Czeckoslovakia State assets were divided amongst the population providing widespread capital that could be used to bootstrap entepeneuers. In Russia a kleptocracy claimed them with disastrous consequences. In East Germany they were taken over by the West with the result that "East Germany became a nation of renters and employees with no capital of their own". Much of East Germany is slowly being depopulated as a consequence and East Germany is an enormous drain on Germany as a whole.

My point is that it depends largely where you start from and long term there is no guarantee that it will lead to a healthy society. These institutional arrangements are necessary but not sufficient unfortunately.

Anonymous said...

A good example of why this is unlikely to work is to look at the land redistribution that took place in Zimbabwe a few years back. Large corporate farms were taken away from their post-colonial owners, and divvied up into a lot of smaller landholdings.

Result: a net food exporter became a net food importer, and people started starving.

Why? Same land, same farmers... what's the difference?

I would chalk it up to an unwillingness to work cooperatively. I'm not a big fan of hierarchies generally, but they do have the advantage of being efficient at utilizing resources.

reason said...

your example is unfortunately misinformed.Unfortunately it was not the same farmers (ignorant cronies instead), and there is the small problem of hyperinflation and lack of essential inputs to cope with. Try again.

Rob Perkins said...

There's ownership of land, and then there's ownership of skills. LDS Philanthropy runs a program called the "Perpetual Education Fund", in which student loans for vocational schools are offered to Church members in good standing. The program is only offered to the hyper-poor in developing countries. Repaid loans are then paid out to students in the next class, for the same thing. I don't know the repayment rate.

The return on that sort of investment is phenomenal; recipients of the loans can quadruple their own income, just by going to school, and in just two years.

While the program from that Church is limited to its own members, modeled as it is after a previous "perpetual emigration fund" which was also limited to members, I wonder if the model of lending might be useful outside the Church context.

Steve Gilham said...

The property-rights (and indeed proper contract law) issue, comes up in virtually every piece on developing economies in The Economist, citing the historic use of land as collateral.

Indeed far from beign a counter-example, the case of Zimbabwe shows what happens when the system contract/rights is torn up by expropriation - why put sweat equity into what is “easy come, easy go“?

daveawayfromhome said...

@ simon neville, re: the post-tsumani land grab: Dont think that the law wasnt set up to allow the land grab, because it probably was, or else why the registration date?

He also points out the biggest problem (to which Rob Perkins gives one good solution) to any proposal dealing with legal systems: ignorance, or education.
What's the saying? "Give a man a fish and he'll eat for a day. Teach a man to fish and he'll eat for a lifetime".
Education is the one investment that is an all but absolute lock for a good return (as Republicans keep telling us each time they raise tuition and slash aid at universities, or refuse to pay more local taxes for education).

I think that perhaps refering to the problem as one of "property" is the wrong way of looking at it. Better, perhaps, to refer to it as a problem of "resources". This gets rid of the "my land, my choice" school of thinking, and directs towards solutions of how best to use what you've got.

fpoole said...

The investment of capital by regional institutions is fine, but I do feel that there is a responsibility to do more than just leave people to be shuffled/battered about by market forces. If this is to be really successful as a development model, I think we'll need to throw cheap, renewable energy into the mix... as we have seen, industrialised nations that don't make heed of its importance are just as vulnerable as anyone else.

Let's not forget that whilst the West pulled itself out of poverty, unspeakable crimes were committed in the process, under the names Manifest Destiny and Colonization. Much of the Third World's poverty shares a direct connection with the latter, and our own form of government intervention in (foreign) markets, the CIA (e.g. leader toppling).

Property law I don't see any problem with, except in the case of RIAA/MPAA, Microsoft, Intel and the like, who simply abuse it in the name of stifling competition (real market-friendly) or persecuting individuals instead of improving a (failure of a) business model.

Anonymous said...

For a contrarian take on De Soto, see John Gravois's article in _Slate_ from January 2005: http://www.slate.com/id/2112792/

"De Soto's vision of the Third World is instinctively appealing. He sees industrious, entrepreneurial slum-dwellers, toiling with boundless ingenuity, yet living in homes and owning businesses that are theirs only by de facto possession and jury-rigged local agreements, not by de jure deed and title. . . .
On the level of gee-whiz metaphors and moving rhetoric, de Soto deserves a lot of credit: He's brought an unprecedented degree of attention and funding to the vital and fascinating issue of squatters and informal economies. But he has botched the details, especially by pushing one solution—individual property titles—for all different kinds of poor people in all different kinds of poor places.
From the field, the verdicts are rolling in: In some corners of the world, the land-titling programs inspired by de Soto's work are proving merely ineffective. In other places, they are showing themselves to be downright harmful to the poor people they set out to help. . . .
It turns out that titling is more useful to elite and middle-income groups who can afford to bother with financial leverage, risk, and real estate markets. For very poor squatters in the inner city—who care most about day-to-day survival, direct access to livelihood, and keeping costs down—titles make comparatively little sense. These poorer groups either fall prey to eviction or they sell out, assuming they'll find some other affordable pocket of informality that they can settle into. . . ."