How to Fight Poverty: 8 Programs That Work #2
Look around the edges of any large third world city and you will see vast settlements built by the residents themselves. Migrants from the countryside claim empty plots in nighttime land invasions, put up a blanket with a pole or a cardboard roof and begin stockpiling bricks. Their livelihoods are similarly jerry-rigged. A man will nail together a booth, at which he can sit and repair his neighbors' shoes. A woman will open a window to the street to turn her living room into a mini-bodega, selling cooking oil and rice.
Most people surveying these kingdoms of dust and hope see only poverty. But Hernando de Soto saw something else – untapped wealth. Mr. De Soto, a Peruvian economist, realized that the world's poor own trillions of dollars' worth of assets. But their houses, plots of land and businesses lacked formal title – and so could not be used to do all the things that people in wealthy countries do to turn a little money into a lot of money.
Without title, people can not sell stakes in their businesses, use their homes as collateral for loans, buy insurance, or form limited liability corporations to reduce their personal risk. They cannot get credit in banks. They do not improve their businesses because their investment may suddenly vanish at any moment. They must spend money and time bribing the police to keep from being kicked off their land. In many cases they cannot even get electricity and telephone service.
Mr. De Soto's crusade, which has now marched to El Salvador, Egypt, Mexico, Honduras, Tanzania, El Salvador, the Philippines, Haiti, Albania and elsewhere, attempts to turn these dead assets into living capital. All countries, of course, have ways to register property. But in most poor nations, they involve so much red tape that they are essentially useless for the poor. Mr. De Soto had tried an experiment in Peru – he established a two-sewing machine garment factory in a Lima slum and hired five college students to get all the necessary permits to legalize it. He claims it took them 289 days and cost them 31 times the average monthly minimum wage.
Mr. De Soto likes to say that when he walks through the rice fields in Bali, a different dog barks whenever he crosses from one farm to another. The dogs recognize the assets under their masters' control. But the legal system does not.
To change this, Mr. De Soto founded an organization in Lima called the Institute for Liberty and Democracy. It carries out research on the informal sector. But the governments of Peru and El Salvador have also hired the I.L.D. to run registries that give poor people simple, quick ways to get title for their land, homes and businesses. It also helps them use those titles productively. In other countries, I.L.D. is helping governments design such agencies or train government officials to do this work.
The I.L.D.'s work in Peru means that legalizing a business can now be done in a day, by visiting a single desk. The cost dropped from $1,200 to $174. The group says that between 1990 and 1995, 300,000 titles were registered in urban Lima (pdf), and the value of the underlying land doubled by 1998. Hundreds of thousands of new businesses have been legalized. Poor people saved millions in administrative costs, and Peru raised millions of dollars in new taxes.
Getting title, of course, does not mean that poor people can necessarily turn it into higher incomes. To use newly legal assets, the poor must still contend with banks that won't lend to them, and courts that require bribes and put up other hurdles. Tackling these issues may help solve one of the most vexing drawbacks of globalization and the market economy – in much of the third world, they have tended to benefit only the wealthiest. But establishing property rights is a necessary first step.
Credit: NYtimes,
By TINA ROSENBERG