On his Web log, Mark Kleiman wrote about a program for ordinary
Peruvians to replace `extralegal' property rights with legal property
rights. Unfortunately, his initial take was wrong:
http://WWW.markarkleiman.com/archives/_/2004/05/what_ive_learned_so_far_at_the_law_society_meetings.php
... the World Bank, with the support of the Fujimori regime,
dumped a whole bunch of money into creating a modern system of
land-title registration and transfer for Peru. According to
Hernando de Soto's theories, this was supposed to give ordinary
folks access to the capital markets by allowing them to mortgage
their houses, thus setting off a storm of entrepreneurship and
prosperity.
As Kleiman later noted:
Update: A reader points out that De Soto himself had predicted
that reforms focusing on land registration alone would fail. That
raises the question of why the Peruvians and the World Bank
thought their project would work.
(I was that reader. Incidentally, Brad DeLong, a member of this list,
quotes this exchange on his Web log,
http://econ161.berkeley.edu/movable_type/ )
Unfortunately, Kleiman's update, while not specifically wrong, does
not tell you what de Soto meant. In his book, de Soto makes the point
that
... it is not your own mind that gives you certain exclusive
rights over a specific asset, but other minds thinking about your
rights in the same way you do.
`The Mystery of Capital, Why Capitalism Triumphs in the West
and Fails Everywhere Else',
by Hernando de Soto, 2000,
Basic Books, New York, p 176
ISBN 0-465-01614-6
This is key. De Soto is arguing that joint belief comes from the
adaptation of formal law to existing, actual social contracts, not
vice versa. The question of land registration is a detail -- land
must be recorded in a formal registry; that is not the prime issue.
The issue is how registration decisions are made.
De Soto talks of a visit to Bali:
As I strolled through rice fields, I had no idea where the
property boundaries were. But the dogs know. Ever time I crossed
from one farm to another, a different dog barked.
In this spot, to gain legitimacy, the method would have to include
listening to dogs. Local people would know the boundaries; but
outsiders would not. Moreover, the outsiders might not trust the
local people. To gain legitimacy among the outsiders, the dogs would
speak; to gain legitimacy among the local people, the local people
would speak.
Legitimacy is the first condition. The second was also made by de
Soto: that you need a reliable, quick, and honest legal system.
Without such a legal system, as Kleiman also says, a businessman
cannot get loans from a rich stranger, such as a banker. The banker
or investor will fear that you will default and that he or she will
not be able to recover his or her money.
Put another way, without a good legal system, you must depend on your
family, clan, friends, or a criminal gang. For small groups, such help
succeeds. But you cannot obtain capital from strangers this way.
Without enough capital, a businessman, no matter how smart he or she
is, will not be able to compete with large, `Western' companies.
Put yet another way, just as religions depend on the beliefs of
people, so does property. Is it a good belief that property be taken
from you if you keep someone else's money? Or is this a bad belief?
Is it a good idea that the "someone else" can be a stranger, or not?
--
Robert J. Chassell Rattlesnake Enterprises
As I slowly update it, [EMAIL PROTECTED]
I rewrite a "What's New" segment for http://www.rattlesnake.com
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