This video is the simplified, dinner-table outreach version of the World Bank argument put forth by Hernando de Soto, the Peruvian economist famous for saying that capitalism is failing in Third World countries because of complicated legal systems. De Soto and the World Bank advocate widespread privatization of extra-legal and squatter neighborhoods in order to bring them all under a single power, one common notion: the formal property-ownership system.
In his book The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, de Soto is apologetic about the “existing game”. But he writes,
The Marxist tool kit is better geared to explain class conflict than capitalist thinking, which has no comparable analysis or even a serious strategy for reaching the poor in the extralegal sector.
That’s interesting, because later in the book he says,
Marx would probably be shocked to find how in developing countries much of the teeming mass does not consist of oppressed legal proletarians but of oppressed extralegal small entrepreneurs with a sizable amount of assets.
Dickens would probably be shocked, too. (De Soto makes a reference to Oliver Twist in the video.) Oliver Twist, scrummaging around in Fagin’s underground den of thieves, is a representation of the poorest of the poor – the social and economic “underclass” of the class system – who are mistreated by people even slightly higher then them on the social scale. Anyone anywhere may have a “sturdy spirit” – like an Oliver Twist – under a any kind of circumstances. But that appeal to the entrepreneurial spirit of the poor and their assets is also just a really bad intellectual anachronism: the poor have always had “sizable amount of assets” in the eyes of the colonizers and the realtors.
When de Soto talks about the benefits of capitalism that the poor can achieve through formal titles, he is referring to land reform in a vacuum, in complete isolation. (Mystery of Capital is not different in that sense from the film.) Without any analysis of the specific rights — usufruct, mineral, transfer, autonomy, development, etc. — that would be conferred by the formal title, no one can be sure if land-titling (an expensive process itself) would benefit the poor at all. But even more to the point, legal property rights are simply a recipe for legal appropriation, a way to pick more from the pockets of the poor through legal land reform.
Third World governments do not like having huge informal settlements so close to the places where exploitation originates: the factories, the banks, the inner-urban core. For years governments have burned down these villages, killed the inhabitants, or just bulldozed them. Many countries signed agreements with the UN against “forced evictions,” but many countries are still eager to eradicate this population. Kenya is infamous for repeatedly violating this agreement in the district of Kibera, the largest slum in Africa. Aside from forced eviction, what can governments do? This is why the World Bank/ De Soto argument is increasing in popularity.
What is the aim of this policy? It would be great if formalizing property rights for the poorest would improve peoples’ lives on a practical level, but improving lives of the inner-city poor this is not the aim of the policy. The aim of the policy is to pacify this group so they do not resort to terrorism or revolutionary ideology. This is what de Soto’s book The Other Path is all about. It details how including poor people in public decisions can reduce terrorism.
Reviewers were quick to point out that de Soto committed a fallacy almost every right-wing academic after 9/11 committed, namely, equivocating poverty with terrorism. More importantly, his ideas come from a position of privilege, where the only solutions to poverty he’s interested in are ones that reduce terrorism, so the two-thirds of the world don’t “bring down the existing game”. The rhetoric of raising standards of living is merely an afterthought.
The central locations of many informal settlements slated for formalization make them irresistible targets for “urban renewal” and gentrification by large-scale developers who have “the political influence and financial power to solve the very confusing ownership problems,” explains Ozlem Dundar, a Turkish scholar who studied the gecekondu (squatted slum) neighborhoods around Istanbul. Once a neighborhood’s assets are the objects of interest for wealthy landowners, the property and capital acquisitions soon follow. Land-titling serves a function in Third World developing countries – to prevent class war, or at least to legitimate it. But to drive the point further, it the preferred way for legally appropriating what assets the poor do have. Meanwhile the guarantor of land rights (states) are no longer liable for conditions in the slums; the state is no longer liable.
The Philippines, a pilot country for the World Bank’s new global strategy for urban development, is a case in point. The Bank identified 253 poor “areas for priority development,” beginning with a vast section of squatter housing along the shores of Manila. Investments “trickled straight up to the land developers and the construction industry,” wrote Erhard Berner in a 2000 paper called Poverty Alleviation and the Eviction of the Poorest in the Journal of Urban and Regional Research. A poor village in Pasig, also, was widely heralded as a model project for poor families, with Pope Paul VI as an official sponsor of the operation. But within five years of the World Bank involved in Pasig, writes Berner,
All the original dwellers had left because their lots had been sold to wealthy families.
The program’s failure led the World Bank to change its focus to sites-and-services provisions in newer settlement areas outside metro Manila. “These remote locations discouraged gentrification,” writes Mike Davis in Planet of Slums. However, the gentrification had essentially already taken place.
Titling in slums creates dramatic disparities, and often a lot of the money goes to ‘slumlords’. Sociologist Susan Eckstein wrote that 25 to 50 percent of the original squatters, from the 1960s and 70s, built small vecindades which they in turn rented to poorer newcomers. This later evolved into a “two-tiered housing market” that reflected a “downward socioeconomic leveling of the population”: although some older residents had thrived as ‘landlords’, the new renters had far less hope of socioeconomic mobility than earlier generations. By the turn of the century the number of poor had increased, but with the two-tiered housing market in place the colonia as a whole could no longer be called the “slum of hope”.
The Lopez Portillo administration in Mexico City (1976 – 1982) encouraged squatter settlements to sell their property at market rates, which resulted in the middle-class gentrification of formerly poor colonias in prime, inner-city locations. This time-period in Mexico City’s history is particularly interesting because the economic structure changed so rapidly in just a few years. With land titling, these changes take place so fast it is difficult to unravel their complexities years later. And by then, the price of a lawyer competent enough to make the case for small land use conflicts, and who is well-versed in adverse possession law, would be out of reach for the poorest.
De Soto acknowledges the existence of informal laws, an “extra-legal” formulation, that operate in the urban slums and the squats. Capitalism, he says, will not work in these areas unless they all obey the same rules and regulations as international capitalist systems. If the extra-legal sector is not the brave new – entrepreneurial-spirited – world envisioned by de Soto, it is certainly still a living museum of human exploitation. What miseries have been narrated by Dickens, Gorky or Zola that do not exist somewhere in the Third World today? Land-titling, the peripheral nation’s equivalent of globalized gentrification, is in my opinion the proverbial wolf in sheep’s clothing.
Many contemporary theorists are reluctant to recognise the globalisation of capitalist production and its world market as a fundamentally new situation and a significant historical shift. The theorists associated with the world-systems perspective, for example, argue that from its inception, capitalism has always functioned as a world economy, and therefore those who clamor about the novelty of its globalisation today have only misunderstood its history. Certainly, it is important to emphasise both capitalism’s continuous foundational relationship to (or at least a tendency toward) the world market and capitalism’s expanding cycles of development. But, without underestimating these real and important lines of continuity, we think it is important to note that what used to be conflict or competition among several imperialist powers has in many important respects been replaced by the idea of a single power that overdetermines them all, structures them in a unitary way, and treats them under one common notion of right that is decidedly postcolonial and postimperialist.
- Toni Negri, Empire
Following the logic of Amartya Sen in Development as Freedom, individual property rights in a transparent system is a fundamental means as well as an end to development. The Lettrist (blogger) is right to remind us that “the poor have always had ‘sizeable amount of assets’”. The point is to find a way to secure their assets for their own benefit. For many, one of their most valuable assets, land, is not secure. Unable to use it as collateral, the poor lose one of their only means to access credit. Mohammed Yunus, founder of the ever growing micro-credit banking movement, realized how critical access to credit is to upward mobility of the poor. Just imagine your life without credit cards, access to loans, or any other means of credit.
There is a plethora of property titling and land reform regimes gone wrong. Think Zimbabwe. In the wake of Peru’s achievements, the World Bank and many other well-meaning development agencies have bungled property titling projects by seeing property rights as a panacea for all ills.
The problem, as Lettrist was right to point out, is looking at “titling” as a solution in a vacuum … a problem that pervades much development work today. He cannot, however deny the unique successes of Peru. I understand that advocates such as DeSoto invite strong criticism, but strong property rights is a cornerstone of development. This is what Elena Panaritis, when at the World Bank and together with the Peruvian government carried out and proved in Peru (as outlined in her book Prosperity Unbound). The reforms have been noted world wide for a specific reason. They were not carried out in a vacuum. Panaritis studied the political institutions, social motivations, and historical backdrop of the property titling mess, using a method she calls Reality Check Analysis. Elena and her team went door-to-door surveying potential participants and proscribed a complete overhaul the agencies responsible for registering property. Under a succession of presidents and parliaments, reforms responded to growing public demands for recognition of property. It was not something foisted upon them, nor was it gentrification. The reforms followed a specific sequencing of policy and events designed to address problems unique to Peru’s history, regulation, institutions. This generated their rare success in property rights reform.
Lettrist must not be aware of the actual benefits a properly-enacted property rights reform given his statement that “no one can be sure if land titling would benefit the poor at all”. The results spoke for themselves in Peru. The reforms were designed to cater not to large scale developers, but the poor and middle class who had experienced long-term insecurity of property. Within three years the markets welcomed seven million new players. Security of private ownership increased by 94%, initial property values increased by 42%, personal investment [i.e. home improvements, extensions] increased by more than 72%, the probability of child labor among participants decreased by more than 28%. These are the positive elements of a reform designed to bring excluded sections of a society into the formal market.
On the other hand the Lettrist was very right in saying that “capitalism has no serious strategy for reaching the poor in the extra-legal sector”. Those in the extra-legal sector are entrepreneurs. They simply lack access to formal markets and capital, and create their own informal markets. Security of property rights is the fundamental bridge to the formal sector. It provides a capitalist answer for bringing informal activity into the formal economy.
Appropriate community-based property rights systems empower citizens. Rather than being a “wolf in sheep’s clothing”, they give both citizens a restored trust and mutual gain: the government gains revenue streams, but in return has a responsibility to provide public goods which citizens had previously been deprived of such as access to water, electricity, and roads. Entrepreneurs can register businesses and invest in the formal economy. They can secure loans and improve their lives and livelihood, assured that all their efforts will not be swept away by arbitrary expropriation. Entrepreneurs in the informal sector function, but not efficiently. Panaritis was not primarily concerned with preventing extra-legals from “bringing down the game” but bringing excluded entrepreneurs into the game. The point being that as the percentage of citizens forced to live in a semi-informal state (parts of their daily lives secured in the legal sector, and parts outside where they cannot find access) increases, the legitimacy of a government decreases. If the current government has not found a way to secure the property and person of a large portion of its citizens, nor provide public services to them, nor include them in formal market structures, it has failed to fulfill its role. It is only expected that citizens would seek an alternative governing body i.e. Abimael Guzman, founder of the Sendero Luminoso aka The Shining Path.
Thanks for that very thoughtful reply, I’m not used to having such a well thought out comment posted here.
I want to respond to the case in Peru, and, having read De Soto’s own work the land-titling program there seems to have “worked”. I have poured over lots of UN Habitat documents that also claim Peru, and Thailand (which is highly questionable) and other Southeast Asian programs are alleged success stories too.
The focus is on privatizing the assets of squatters, which either brings them into the “existing game” or pushes them further away. What is of the greater importance from the point of view of poverty alleviation is security of tenure, rather than formalizing property rights. If land is not secure for the target population, there is no success.
You do not need a formal property rights system to do this, since land never needed a system of English property law in order to be secure for people until the expansion of Western European capitalism made this increasingly necessary. The problem is many have already been sufficiently exploited, and now we want to initiate them into the formal system of exploitation.
Maybe that answer is unsatisfactory, because plenty of cases show that it has worked. According to UN Habitat, “security of tenure” describes an agreement between an individual or group for the rights to use land and residential property. The security of tenure derives from the fact that these rights are underwritten by a known set of rules, and are justifiable. De Soto thinks these rules can always be translated to fit with global capitalism, but I disagree.
What made most of these success stories successful was, by the Bank’s criteria, their access to lines of credit once they could use formal titles to land as collateral. But the real impediment to the access of the poor to formal credit is not the absence of collateral but the reluctance of credit institutions to lend to them, which is a result of being in poverty. The poverty cycle has not been addressed by the formal title. The ability of titles to transform even modest landholdings into a viable form of collateral for commercial loans cannot be taken for granted, since plenty of examples in Africa show that property ownership will not all the sudden lead to credit opportunities. The use of titles to access loans particularly fails in many settings where transaction costs associated with collateral processing, foreclosure and resale are large relative to the average size of loan requests.
In Karachi, the tax burden then foisted upon the squatters-turned-property-owners was so high they rejected the “offers” to title the land. Then there is an equally impoverished urban rental class that is not even addressed by this model at all.
These are some of the “vacuums” that land-titling happens inside. The “enabling” or “self-help” or “slum upgrading” approaches are the vacuums I am referring to. De Soto and the World Bank just have one solution to all this: give them title. That solution is empty because it’s like saying the answer to depression is to take medication, when we know there are plenty of other factors involved. Plus the medication might be itself highly questionable.
Just as the invention of medication as the solution to a problem that never would have existed without the problem of civilization, so formalization of land as the solution to poverty would have never been proposed had it not been for the introduction of capitalism to global society.
I can write more about your specific examples later, but for now thanks again for commenting.
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