Formalization of Property Rights in Eradicating Poverty

Lysebu, 18 September 2002

Professor de Soto, distinguished panellists, colleagues and friends,

It is with great pleasure and anticipation that I welcome you all to this seminar on the Formalization of Property Rights in Eradicating Poverty. I am especially pleased to welcome Professor Hernando de Soto; - the leading world authority on this subject.

The debate on the general issue of property rights probably predates the biblical Abraham. Somewhat more recently, in 1864, another Abraham - Abraham Lincoln, - said in a statement to the New York Workingmen’s Democratic Republican Association:

"Property is the fruit of labor—property is desirable—is a positive good in the world".

The Lincoln quote – and the context in which he was speaking – indicate that the issue of property rights has been a source of considerable friction in all societies; rich and poor – for centuries.

The specific issue at hand here today, however, is the link between formal property rights and poverty eradication.

Eradicating poverty is the most important and most urgent challenge facing us today. It is the challenge of our century. More than one billion people live in extreme poverty, without daily access to food or clean water, deprived of education opportunities and adequate health care. Billions more depend on livelihoods that are vulnerable and insecure; they live at the mercy of changing natural environments and unstable and distorted markets.

Against this background, the Norwegian Government in March this year launched a new plan of action to fight poverty in the South.

In order to eradicate poverty, we have to understand why poverty exists and how it is perpetuated. The ideas and work of today’s keynote speaker, Professor de Soto, is an important contribution in this respect. In my opinion, his book " The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else"- published two years ago - offers an original and thought provoking analysis with great relevance to the multifaceted challenge of poverty eradication.

So why do poor people remain poor? According to Professor de Soto, this is not necessarily because they lack assets. In fact most people do have assets, such as for example a house or a shack - or a plot of land. They are poor because they rarely have formal title to their possessions and therefore they cannot use these assets as collateral to raise cash or in other ways transform the assets into productive capital.

Economists tend to consider the informal economy as a marginal phenomenon. But in many developing countries the informal economy is far larger than the formal one. In a typical African country, only one person in ten lives in a formally owned house, and only one worker in ten holds a formal job. The remaining nine-tenths are often ignored. Professor de Soto estimates that the total value of fixed property held - but not formally owned - by the poor in developing countries and former communist countries is at least 9.3 trillion US dollars. To put this figure in perspective; - this is 20 times the total amount of foreign direct investment in developing countries between 1989 and 1999, and 93 times the amount of development assistance from OECD countries in the past 30 years. As Professor de Soto says in his book:

" In the midst of their own poorest neighbourhoods and shanty towns, there are trillions of dollars, all ready to be put to use if only the mystery of how assets are transformed into capital can be unravelled."

Although other economists may come up with different figures, no one will dispute de Soto’s point about the adverse effect of disproportionally large informal economies in developing countries.

In the West today, we are benefiting from a long period of gradual, painstaking evolution and integration of formal property systems. Systems that were originally developed to protect property. Professor de Soto has also identified a number of other useful functions that such property systems have, such as encouraging the development of assets and protecting asset transactions, enabling people to gather and order dispersed information, easing communication, solving conflicts, and serving to hold people accountable.

Many or all of these functions are absent from property systems in developing countries, or they are available only to a very small and very privileged group of people. The majority of poor people are without formal, secure rights to their assets. They are therefore mostly unable to put these assets to productive use. Smallholders who lack title to their buildings and land, cannot use these to secure funds to develop their farming or create new enterprises. Thus, the assets of potential investors remain idle.

By explaining the reasons behind the vast difference between the performance of assets in the West and in the rest of the world, Professor de Soto has enriched our understanding of the causes and persistence of poverty. This achievement has, rightly, gained him great international acclaim.

The formalization and integration of property rights is a slow and gradual process. In the West, we have been struggling with it for more than two hundred years. It is also a painful process. The systems we now benefit from in the West were not put in place without dispute or suffering. We should also remember that attempts, both old and recent, to formalize land rights in Africa have often exacerbated rather than resolved conflicts over resources.

As Professor de Soto has emphasized, there is no magic wand that will allow poor countries to conjure up an instant and painless transition to formal, integrated systems of property rights. Overnight success is not possible, and developing countries will need time, just as the Western countries needed time. Unfortunately, time is a luxury that the poor and the hungry of the world can ill afford. Poverty and hunger require immediate action.

That is why we have to attack poverty now. And that is also why we have to use all the avenues open to us. We are all committed to fighting poverty in line with the Millennium Development Goals, which were agreed by the United Nations two years ago. The goal is clear: - to halve the proportion of people who are starving and living on less than a dollar a day by the year 2015. To achieve this we need a multifaceted approach, and this is what the Norwegian Government has proposed in its new plan of action to combat poverty.

Professor de Soto’s thoughts and findings forces us to take a fresh look at how to address the challenges ahead. My challenge to you as seminar participants is that you come up with a clear analysis on the direct implications of his insights for the way we conduct our development cooperation:

- What concrete action can be taken in this area that is not already being done?

- What are the opportunities and constraints involved?

Up to now, Norwegian development cooperation has had limited experience in the field of formalization of property rights. But we do have some experience with respect to land administration and land rights. In Kosovo and Croatia we are involved in the establishment of a framework for new cadastral systems. In Tanzania we have supported a programme on large-scale mapping, including cadastral mapping, in nine cities. This programme has now been extended by the Tanzanian Government to eleven new cities. No such mapping has so far taken place in rural areas. The Tanzanian Government is, however, currently initiating a pilot project in rural Tanzania.

In Guatemala Norway plans to support a national development programme for establishing and strengthening the legal, technical and institutional framework for securing people’s right to land.

We realize that the problems relating to land administration and the right to land will vary depending on local traditions, cultural factors and colonial history. Uniform systems of property rights will not be capable of dealing with the variety of norms and rules and the fragmented systems of rights that have evolved locally. We need to look for solutions and adaptations that take account of local forms of property rights and use - based on traditional law, family ties and village customs. This is imperative; there is no "one size fits all" solution. It is also important that the solutions chosen include and recognize minority rights to land and the use of land by minorities.

Another essential condition is, of course, that the development of land administration is sustainable and that the institutions for registering title to land are accountable, just and have transparent procedures. The solutions chosen must secure people’s right to water, fuel, land and housing. This is why I view the formalization of property rights as part of a rights-based approach to development – an approach that we strongly emphasize in our development cooperation. Every individual’s human rights, - both civilian and political, social, economic and cultural rights, - is the basis for our development efforts. This is also emphasized in the Norwegian Plan of Action for Human Rights that was launched in 1999.

These are challenges that we are now looking into in our development cooperation programmes. Access to land is essential. This is one of the issues being considered by an independent group of experts in agriculture that is examining how Norway can enhance its support for agricultural development. Their conclusions and recommendations are due in a couple of months, and will be factored into the elaboration of a new strategy for agricultural development in developing countries. Land and title to land are relevant in this context.

Land and title is very important in our work to strengthen private sector development – which is another priority area of Norwegian development cooperation. Title to land and real estate is often crucial for providing access to finance for business development.

Professor de Soto’s enumeration of the vast assets possessed by poor people in poor countries has alerted us to new opportunities in our fight against poverty. We must, however, recognize that many poor people still own little or nothing beyond their own labour. To many women, orphans, and landless labourers, - the formalization of rights to assets and possessions is in itself of little use. Such formalization must, thus, go hand in hand with greater recognition of contributions made by women, better production opportunities and access to credit systems, land reforms and improved social security systems. Entitlement must lead to new opportunities, - in real terms.

Professor de Soto has identified a new agenda and additional "frontlines" in our fight against poverty. Now we must assess how this new agenda fits into the overall development policy context? To what extent is successful implementation of this agenda contingent on progress within other policy reform areas such good governance? What about the role of education within the larger picture? With these overarching issues as a backdrop, the specific purpose of today’s seminar is to start a process aiming to operationalize de Sotos findings and recommendations in the context of rural Africa. I expect the discussion to provide a platform from which we will be able to see the contours of our bilateral- as well as multilateral- development cooperation in this field. As the bulk of Professor de Soto’s practical and academic work has been related to Latin America, Asia and the Middle East, you will have an opportunity to break new ground here today by focussing on rural Africa.

Once again, a warm welcome to Professor de Soto. We look forward to learning more about your ideas and thoughts on how to fight poverty by giving title to the most needy and the most deprived.

My final appeal to you as seminar participants is that you put the rights of the poor at the very center of your deliberations. That will serve the fight against poverty. That is why you are all gathered here.

I leave you with a quotation from Ghana, published in the context of the World Bank’s Voices of the Poor-project. I think it speaks volumes about why poverty eradication is the number one priority, as well as why we must study its causes and possible remedies thoroughly:

" Poverty is like heat;

you cannot see it;

so to know poverty

you have to go through it"

Thank you.

Extracts from the seminar proceedings