Property Rights Help the Poor

by Anita on February 28, 2013

Posted by Anita Folsom

Imagine you are a “squatter” in a slum in Rio de Janeiro, Brazil.  You eke out a living doing odd jobs, selling fruit, and maybe cleaning sidewalks.  But you don’t own the land or house where you do business.   Property rights are weak because the legal system is in a tangle.  Much of the land in the country is without a clear title, so it can’t be bought and sold.

What happens when you want to move?  Answer:  you don’t move, because you can’t sell the place in which you live, because you have no title.  In much of the third world, unlike the West, people lack incentives to improve themselves because they can’t get legal title to property.  Much of the land in South America and Africa is occupied by squatters with no hope of gaining wealth by owning and improving their property; they are tied to their current location unless they are willing to walk away with nothing.

When immigrants flooded into the U.S. in the late 1800s, many crowded into slums in cities. But their children and grandchildren learned English, went to school, moved up in society.  They bought tiny houses on the edge of the city or built small farmhouses in the Midwest.  They used their property rights to better their condition. Because the U.S. had a strong legal system that accurately recorded who owned land, and a system of courts that protected those land titles, anyone could own property in the late 1800s without fear that they wouldn’t be able to prove ownership. Home ownership is the greatest investment that those in lower incomes will accumulate, and they can sell and move if they wish or they can leave their property to their children when they die.

A remarkable thinker from Peru, Hernando de Soto, has studied the relationship between the poor and lack of property rights.  What, according to De Soto, is one of the best ways to promote liberty?  His answer:  A strong system of property rights.

The lack of property rights, De Soto insists, is a key to the Arab spring and the eruption of violence in the Middle East.   His organization, the Institute for Liberty and Democracy, just spent five years studying the effects of landless “squatter” culture in Egypt, finding “that 82% of Egyptian businesses and 92% of landholdings were unrecorded [without a legal title] and thus unprotected by the rule of law.” (Wall Street Journal, February 27, 2013)

De Soto’s findings also show very strong support among Egyptian citizens for an overhaul of their legal system which would enable them to own the land where they live. Indeed, De Soto’s study found that “entrepreneurs in Egypt who want a legal system with property rights like the West outnumber al Qaeda membership in the region by a ratio of about 50,000 to one.”

In early 2011, one Tunisian fruit vendor set himself on fire to protest the seizure of his tiny business by the government. His suicide was copied by more than sixty individuals throughout the Middle East, protesting their lack of rights under the current system. These acts of protest led to the “Arab spring” and more calls for reforms. Strong property rights would be a good place to begin.

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