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Will formalising property rights reduce poverty in South Africa’s ‘second economy’?
Questioning the mythologies of Hernando de Soto
Policy Brief - No 18
Ben Cousins, Tessa Cousins, Donna Hornby, Rosalie Kingwill, Lauren Royston and Warren Smit
PLAAS, AFRA, Surplus People Project, LEAP
October 2005
SARPN acknowledges PLAAS as the source of this document.
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Introduction
High levels of poverty and inequality persist in democratic South Africa despite a decade of government policies and budgetary realignments designed to address the legacies of apartheid and steady economic growth. Some policies have been relatively successful: access by the poor to clean water, electricity and sanitation has improved dramatically, and increased numbers receive social grants. But South Africa has the second highest level of inequality in the world after Brazil, and the gap between the rich and the poor appears to be widening.
It is increasingly clear that growth alone will not reduce poverty and inequality, and that improved social services and grants do not address the fundamental problem: entrenched structural features of the economy. Government is now developing policies aimed at transferring resources to ‘the marginalised’, through expanded public works programmes, micro-credit for entrepreneurs, skills development and agrarian reform.
For some analysts a key problem is the absence of formal property rights to the assets owned by the poor. A recent African National Congress discussion document suggests that failure to provide title deeds to land and houses ‘sterilises the enormous value of these existing assets, which could so easily be turned into collateral to secure access to capital’.
Government’s new housing policy document Breaking new ground complains that the 1.6 million new houses funded by the state since 1994 have not become ‘valuable assets’ for the poor, and emphasises improved access to title deeds as a means to helping the poor participate in residential property markets. These examples demonstrate the increasing influence of Peruvian economist Hernando de Soto and his book The mystery of capital (2000).
De Soto offers a simple yet beguiling message: capitalism can be made to work for the poor, through formalising their property rights in houses, land and small businesses. This approach resonates strongly in the South African context, where private property is dominant and works well for those who inhabit the so-called ‘first economy’. At the same time, international support for de Soto’s ideas appears to be increasing. A High-level Commission on the Legal Empowerment of the Poor was launched this month, hosted by the United Nations Development Programme, and cochaired by de Soto.
This initiative is also, however, generating strong opposition from NGOs, social movements and bodies such as the International Land Coalition, which contest the singleminded focus on individual title, formalisation and credit as solutions to poverty (www.desotowatch.net). This policy brief analyses evidence from South Africa which suggests that many of de Soto’s policy prescriptions may be inappropriate for the poorest and most vulnerable in our society, and have negative rather than positive impacts on their security and well-being.
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