Naked Economics: Undressing the Dismal Science pdfdrive com
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Naked Economics Undressing the Dismal Science ( PDFDrive )
Property rights. Private property may seem like a province of the rich; in fact, it
can have a crucial impact on the poor. The developing world is full of examples of informal property rights—homes or businesses built on land that is communal or owned by the government and ignored (such as the shantytowns on the outskirts of many large cities). Families and entrepreneurs make significant investments in their “properties.” But there is a crucial difference between those assets and their counterparts in the developed world: The owners have no legal title to the property. They cannot legally rent it, subdivide it, sell it, or pass it on to family. Perhaps most important, they cannot use it as collateral to raise capital. Peruvian economist Hernando de Soto has argued convincingly that these kinds of informal property arrangements should not be ignored. He reckons that the total value of property held but not legally owned by poor people in the developing world is worth more than $9 trillion. That is a lot of collateral gone developing world is worth more than $9 trillion. That is a lot of collateral gone to waste, or “dead capital” as he calls it. To put that number in perspective, it is 93 times the amount of development assistance that the rich countries provided to the developing world over the past three decades. The Economist tells a story of a Malawian couple who make a living slaughtering goats. Since business is good, they would like to expand. To do so, however, would require an investment of $250—or $50 more than the average annual income in Malawi. This couple “owns” a home worth more than that. Might they borrow against the value of their land and the bungalow they have built on it? No. The home is built on “customary” land that has no formal title. The couple has a contract signed by the local village chief, but it is not enforceable in a court of law. The Economist goes on to note: About two-thirds of the land in Malawi is owned this way. People usually till the land their parents tilled. If there is a dispute about boundaries, the village chief adjudicates. If a family offends gravely against the rules of the tribe, the chief can take their land away and give it to someone else. 8 Those informal property rights are like barter—they work fine in a simple agrarian society, but are woefully inadequate for a more complex economy. It is bad enough that poor countries are poor; it is all the worse that their most valuable assets are rendered less productive than they might be. Property rights have another less obvious benefit: They enable people to spend less time defending their possessions, which frees them up to do more productive things. Between 1996 and 2003, the Peruvian government issued property rights to 1.2 million urban squatter households, giving them formal ownership to what they had previously informally claimed as their own. Harvard Economist Erica Field determined that property rights enabled residents to work more hours in the formal labor market. She surmises that property rights give more flexibility to people who previously had to stay home, or had to operate improvised businesses out of their home, in order to protect their property. She also makes another important point: Most programs designed to help the poor reduce their work effort. (This is the Samaritan’s dilemma; if I ease your hardship, you have less incentive to help yourself.) Providing formal property rights does the opposite: It encourages work. 9 |
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