Introduction

Presumption of a direct causal link between the formalization of property rights and economic productivity is back on the international development agenda. Belief in such a direct causal relationship had been abandoned in the early 1990s, following four decades of land tenure reform experiments that failed to produce the anticipated efficiency results (Bruce & Migot-Adholla 1994; World Bank 2003). The work of Hernando de Soto has provided the springboard for this revival (de Soto 2000). De Soto argues that formal property rights hold the key to poverty reduction by unlocking the capital potential of assets held informally by poor people.

The premise of de Soto's argument is that the poor inhabitants of the non-Western world have failed to benefit from capitalism because of their inability to produce capital despite holding vast assets (ibid., 5). The key to transforming assets into capital lies in instituting a system of property rights and information on property that is applied nationally and is ‘legible’ to outsiders. Instead of a national rationalized formal system of law and information, property relations in developing countries and former socialist states are governed through webs of informal norms based on trust, which do not extend beyond narrow local circles (ibid., 6). As a result most assets are not adequately documented, and therefore ‘cannot readily be turned into capital, cannot be traded outside of narrow local circles where people know and trust each other, cannot be used as collateral for a loan and cannot be used as a share against an investment’ (ibid.). Formal title would enable all these, facilitate enforcement of property transactions and establish an accountable address for collection of taxes and debts and thus enable delivery of public utilities (ibid., 7, 59).

By contrast, the West benefits from capitalism because over time, disparate micro-rules on property were assembled into one coordinated system of formal property rights thus overcoming the constraints of legal pluralism (ibid., 52). Unless the Third World can do what the West did a large majority of its people will continue to be ‘trapped in the grubby basement of the pre-capitalist world’, holding dead assets that cannot be translated into capital (ibid., 55). Formal title breathes life into dead assets and transforms them into capital.

De Soto's argument has found favour with development agencies across the political spectrum: from neo-liberal USAID and World Bank.