The presumption of a direct causal link between formalisation of property rights and economic productivity was abandoned in the early 1990s after decades of land tenure reform failed to produce efficiency results. Yet the idea has now returned to the international development agenda, largely through the work of Hernando de Soto. Does de Soto’s work avoid the shortcomings of previously discredited theories? This working paper from the Institute of Development Studies argues that actually it replicates their shortcomings. Donors should resist promoting inclusion in formal legal frameworks as a solution to poverty.
De Soto argues that the web of informal norms surrounding assets that predominates in developing countries resembles pre-nineteenth Century Western property systems. These systems are based on trust and do not extend beyond narrow local circles. Unless developing countries can establish national systems of law and information on property and thus unlock the capital potential of assets held by poor people, poverty reduction will not occur.
De Soto’s justifications for formal title differ little from justifications for ambitious land tenure reforms in sub-Saharan Africa. The introduction of formal title has been seen as key to solving problems of land degradation, improving agriculture and providing farmers with security of tenure, which would create incentives for further investment in the land.
This paper argues that there are five shortcomings in both old and contemporary arguments for the formalisation of land title:
- Legality is narrowly constructed to mean only formal law. This results in over-valorisation of formal title and downplaying of the central role of informal norms and practices.
- Viewing property systems as either capitalist or pre-capitalist obscures the dynamic and multi-tenure nature of land-holding arrangements. This echoes nineteenth century notions of the inevitability of social evolution toward private (conflated with individual) ownership.
- The argument that formal title gives landowners access to credit by using their land as collateral has not been borne out be empirical evidence.
- In arguing that formal title scales up markets in land, de Soto acknowledges that such markets do exist in the absence of formal title. However, he overlooks the fact that informal transactions do persist in spite of formal title. He also fails to take account of the multiple meanings that people attach to land and other valued possession besides ‘commodity’ or ‘asset’.
- The arguments in favour of formalisation of title as the means to secure tenure ignore the fact that formal title could also generate insecurity. This casts doubt on the ‘pro-poor’ credentials of the property rights reform agenda.
Policy makers should take note of the following:
- Promising inclusion into the formal legal framework as the solution to poverty and marginality keeps substantive discussion of inequality off the agenda. This solution is deceptively simple, hence its appeal in international aid circles.
- Arguments linking formal title to productivity and poverty reduction should always be questioned in light of historical experience and their relevance for the African context examined in light of empirical evidence.
