Friday, February 18, 2011

Property Rights

Over the last 20 years, Hernando de Soto has built a case that a big cause of poverty around the world is poorly defined property rights.

He’s Peruvian, and his research started there. Basically, he argues that people may “own” a business or a home, but do not have clear title to it. If they don’t have clear title, it makes less sense to improve it, and further it may not be possible to leverage it to build a bigger operation.

Why don’t they have clear title? Because the legal system is intentionally clouded to protect vested interests.

More recently, he’s been funded to study this problem around the world, and in the February 3 issue of The Wall Street Journal he has a piece about Egypt. He reports that the largest employment sector is the underground economy, that over 90% of owners don’t have clear title to their homes, and that the value of undocumented wealth is 30 times larger than the market value of the entire Egyptian stock exchange.

Why? Here’s a few reasons:

To open a small bakery, our investigators found, would take more than 500 days. To get legal title to a vacant piece of land would take more than 10 years of dealing with red tape. To do business in Egypt, an aspiring poor entrepreneur would have to deal with 56 government agencies and repetitive government inspections.

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