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ArcWatch: Your e-Magazine for GIS News, Views, and Insights

November 2009

A Quest to Bring Property Rights to the Poor

Hernando de Soto Talks about the Role of Government and GIS in Strengthening Economic Development

In the developing world, few people have ever received any type of legal recognition that the land they occupy is theirs. Without legal documents or records that prove landownership, they cannot do what many of us take for granted: borrow against, rent, transfer, sell, or set up a permanent business on their own property—actions that have established the world's most successful market economies.

  photo of Hernando de Soto
Hernando de Soto speaks at the 2009 Esri International User Conference in San Diego, California.

Peruvian economist Hernando de Soto, president of the Institute for Liberty and Democracy (ILD), wants to change this by bringing property rights to the poor. De Soto is an expert on the informal economy. He stresses the importance of giving property rights to the poor in developing nations, which can lift themselves—and their countries—out of poverty. With ILD, de Soto has worked with governments in Africa, Asia, Latin America, the Middle East, and the former Soviet nations on the research, design, and implementation of institutional reform programs to bring their massive informal business, as well as property sectors, into the mainstream economies. Thirty heads of state have asked de Soto to carry out these ILD programs in their countries.

This summer, de Soto gave a keynote address at the 2009 Esri International User Conference (Esri UC) in San Diego, California. He spoke about the inability of the world's poor to gain formal recognition of their property rights, a factor he believes to be a major stumbling block to alleviating poverty. He suggests that throughout the developing world, where most of the land is held informally or under customary forms of tenure, the poor have one thing in common: the only significant asset they have is the land they occupy. In an interview during the Esri UC, Esri staff spoke to de Soto, who explained in detail why giving people legal rights to their land is a fundamental gateway to economic development.

Esri: Geographic information systems make up a powerful technology for urban planning. How would you characterize the relationship between GIS and secured property rights? Are secured property rights the foundation for development or just a component?

de Soto: Urban planning and GIS are crucial for deciding where to place cities and how to efficiently develop cities. However, if you develop without addressing the legal system, then your result will not be effective. In many developing countries, 95 percent of the population lives outside the legal system, meaning that they do not participate in the formal economy. They have been locked out of the capitalized economy by discriminatory laws.

No matter how much urban planning or how much data goes into a GIS, if that data does not come from a good land-titling system or recordation system, it will fall short. If you don't make it easy for people to participate in the legal system as citizens, as renters, as landowners, as consumers, and as business owners, they will continue to invade and squat on public lands, live outside the law, and participate in the black market. And any business or transaction that takes place in the black market may as well not have taken place at all, because it happens outside the legal system, and it's not taxable. Its profits are not something that can be used as collateral for credit in a market economy. GIS certainly makes it easier to maintain a land-titling system, but it's only one part of the puzzle.

Esri: In your book The Mystery of Capital, you discuss why developing countries must reconcile overlapping legal and customary land rights. What challenges do countries face in recognizing customary or extralegal rights?

de Soto: Land rights overlap when you look at them on paper. Take Ghana, for example: regarding who possesses a given property, the courts have had a difficult time deciding between written ownership and customary ownership. If you try to bring all this together on paper, you're in trouble. Are you going to give preference to written ownership or customary ownership?

The advantage of grassroots surveying is that there is no such thing as overlapping rights. There is no such thing as one parcel of land occupying another parcel of land. Someone possesses that land. So possession is nine-tenths of the law. When there is a dispute, you find out who owns what, you settle that. In 95 percent of cases, people agree to that settlement, because there is no possibility of having a commonly respected line unless people have come to terms with it. Five percent will not agree, so you send these cases to court. But at least you get it right in 95 percent of cases.

The key is, don't get stuck on the controversy; get stuck on what the consensus is, because once you title according to the consensus at the local, grassroots level, you then have jurisprudence with which you can settle the disputed 5 percent.

Property law is understood in different ways in different parts of the world. Any system of law and property recording system becomes a representation of that reality.

Esri: In your opinion, what countries have most recently made the successful transition from an overlapping, largely extralegal system to a secured system?

de Soto: China, Thailand, the countries of the former Soviet Union, South Africa, Peru, and El Salvador.

We in Peru have become a country of property owners over the last 20 years—very fast. But it still takes time, once you become a nation of property owners, for the full value of the capital and property to be available. Nevertheless, in Peru, in the past 15 years, we have doubled our GNP [gross national product]. It is a major step ahead. In each of these cases, you can trace this progress back to political will.

In Peru, we use GIS. What it does is makes this process much simpler. GIS is an enormous advantage, because you don't have to write everything out. You can put everything in forms. Maps are produced much quicker. You can adjust more effectively. So GIS is a supporting factor: you start having big budgets for robust and modern land records management systems the moment governments see performance.

Esri: When people are granted title to the land and the government recognizes that right, the government may also provide more services by collecting more taxes. Is inclusion key to development?

de Soto: The real questions are, who has the right to the house that occupies the property, and who is responsible and accountable? Once you can answer these questions, then you can start taxing the land or billing for utilities. This works out to their advantage, because there are many invisible costs for people living outside the formal economy.

Here's an example: How do most people in the slums of the world get water? They carry a container, sometimes hours per day, to a well or a body of water, and once they get there, sometimes they have to pay for it. Often in this scenario, they risk attracting infection from the container, the well, or the body of water, and they're probably paying an inflated price for the water. Now, if these same people had title to their land and could receive water as a utility, they wouldn't have to walk for miles to get water; they'd reduce the risk of attracting infection; and they'd probably find that they're paying less for it, be it in time or money, because they're getting the water at a fair market price. Conversely, a utility is not going to service a squatter neighborhood that does not formally exist—a neighborhood where people may be here today and gone tomorrow and are therefore not accountable for paying their water bills.

Esri: China is currently undergoing significant rural land reforms. What role has formal land rights played in China's dramatic economic growth in the past 30 years?

de Soto: China is an excellent example. The urban centers, such as Beijing, Shanghai, and Shenzhen, are all places that have secured property rights, and are the places that are growing. The places that are not growing are usually behind on the issue of property rights. In China today, the fiscal distance between the richest and the poorest in the country is enormous. Not because the Chinese are getting poorer, but because the people who have the property rights, usually in coastal areas closest to the ports, have just simply tripled, quadrupled, and quintupled their income. So wherever you find property rights available, those who benefit from them are a lot wealthier than they were before.

Read more about how Esri is applying Hernando de Soto's theory in China, Ghana, and Egypt.

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