But no matter how many austerity measures Greece implements and how many eurozone summits and meetings are scheduled, the markets remain skeptical.
Investors are nervous. They realize the crisis has been misdiagnosed as a problem of illiquidity.

 
It is not just a problem of illiquidity. Greece is also facing a solvency crisis caused by an inadequate capital base. Yet, current fiscal measures have largely only targeted the symptoms of these structural problems.

 
The government, for example, has worked hard to overhaul the tax system. However, the government’s failure to raise tax revenues signals a more serious problem than a broken tax code.

 
Informality is to blame for Greece’s structural economic problems. It’s the result of excessive red tape and overlapping regulations, an uninviting investment climate, as well as the absence of any well-defined and secure property rights.
The findings of the World Bank’s latest Doing Business survey of 183 economies are quite alarming. Greece’s not-so-friendly business environment is 109th overall. The World Bank ranked Greece 149th for starting a business, 153rd when it comes to registering property and 154th in protecting investors.
But while Greece’s rankings may be low, the country is not unique in terms of the challenges it faces. Many other developed countries, like fellow EU member Spain, also rank near the bottom. Spain is at 147th for starting a business, and France ranks 142nd for registering property.
As regards ease of doing business, Italy ranks 80th and China 79th. Russia places 123rd — only slightly better than Brazil (127th) and India (134rd). While Europe’s trading powerhouse, Germany, ranks 22nd overall, it drops to 88th for paying taxes. This is actually slightly worse than Greece (74th).

 
What’s more, despite the current crisis and the country’s low rankings in important business indicators, Greece is an advanced economy. The country does not face the same problems developing economies face. These include widespread poverty, malnourishment and illiteracy, as well as low levels of human capital, which reduce the ability to develop high levels of capital adequacy.  
 
 
In terms of individual wealth, last year Greece ranked 47th in the world, with a GDP per capita of $29,600. Germany ranked in 33rd place with a per capita GDP of $35,700.

 
And while Greece’s debt/GDP ratios are entirely unsustainable, they are not too far off from those of other advanced economies. According to the Organization for Economic Cooperation and Development (OECD), Greece’s debt/GDP ratio for 2011 (January to May) stands at 157%. Japan’s ratio is at 212%; Italy, Iceland and Ireland are all above 120%; and Portugal, the United States, Belgium and France are around 100%. Germany and the United Kingdom are not too far behind, with both at 88%.

 
The problems facing Greece are illustrative of those afflicting other mature economies, including those in Western Europe and North America. The fundamental difference between Greece and most advanced economies is in degree — and not in kind.

 
Nonetheless, the impediments to economic growth in Greece are quite real. The country’s over-regulated economy is one example of how doing business can be hindered. It’s a situation that stems from the creation of new regulations before the existing ones can be tidied up and harmonized. The costs are financial and economic, direct and indirect, and they serve to hamper investment and economic growth.

 
What’s clear now is that it is necessary to undertake urgent and immediate measures to manage the problem of illiquidity in the near term. But it would be wrong to presume that this will also provide a viable exit from the crisis. This is because the real problem is not one of liquidity, but one of capital adequacy.

 
The solution hinges on successfully reforming the Greek state. We need to simplify judicial services and enforcement of rules and laws, apply quality control on goods and services, eliminate organizations with overlapping mandates and rationalize the public sector.
We must also streamline the process of creating, running and dissolving a business, while encouraging foreign investment.

 
The purpose of reforms should be to boost our capital base, generate growth and make Greece an attractive place for investment. These reforms should focus on Greece’s comparative advantage.  
 
Greece’s main asset is its human capital. The country is also blessed with significant natural resources and boundless potential, especially in the tourism, shipping and renewable energy sectors. Their exploitation, however, also requires a kind of investment and entrepreneurship that can only flourish in a healthy business environment.

 
Consequently, the country’s central strategy should be to capitalize on our bright, capable and creative individuals — all those who do so well when they are outside of the country.
Any effective long-term plan must involve far-reaching and comprehensive reforms that are necessary to guarantee the long-term growth prospects and economic health of the country. In turn, a robust economy will improve the sustainability of the public debt, sending a positive message to creditors.

 
In addition, such measures will improve public opinion of the government’s response to the crisis. Unsurprisingly, the majority of Greek citizens are fully aware of how difficult it is to boost investment and do business in Greece. They are also very much aware of the wider structural problems plaguing the country.

 
This internal public discontent mirrors the poor image of Greece abroad. Greece suffers from a reputation deficit due to a series of statistical revisions of government debt and deficit figures, as well as the failure to honor past promises of reform. All this has undermined Greece’s credibility, especially that of the political parties and politicians.

 
And, perhaps because Greece is a popular summer destination, there is also a prevalent, enduring and damaging image of Greeks as lazy and ungracious recipients of excessive government benefits.
This could not be further from the truth. According to the OECD, Greeks in 2009 worked on average 2,119 hours — much longer than the OECD average of 1,739 hours. Specifically, Greeks worked on average 20% longer than Americans, 36% longer than workers in France and 52% more than the average German worker. Moreover, according to the Center for European Policy Studies, government expenditures on public wages as a percentage of GDP were lower in Greece than in Portugal and France.   
 
Yet Greece has undertaken a stability program to dramatically reduce its public expenditures. It is proceeding with an internal wage reduction. Salaries and pensions have been reduced, and taxes have increased. The unemployment rate has soared to 14.5%, while 7% of full-time workers are getting paid below minimum wage.
With these figures in mind, is it any surprise thousands of Greeks have demonstrated in protest against the new austerity measures? Pushing through such reforms would be unthinkable in any other European country. Let’s not forget what happened in France, where the mere mention of lengthening the 35-hour workweek has caused widespread public unrest, forcing policymakers to backpedal.

 
Amidst these extremely difficult economic conditions and growing public discontent, Greece will continue to push through tough reform measures. Sadly, the international public underestimates the difficulty of such a Herculean endeavor.
Due to past policies and a lack of credibility, Greece’s reputation abroad has been tarnished. If this were not the case, the results of these critical and unprecedented measures would probably be a lot more positive.

 
Evidently, Greece must wage a war on three fronts. The first is to take immediate action to ensure adequate liquidity over the next few years. The second requires us to implement ambitious structural and institutional reforms that will establish capital adequacy and solvency in the longer term. The third is to highlight the enormity of the changes, the painfulness of the adjustment process in the short term and the potential for positive reform that can benefit the country in the long term.
This message must reach the Greek and the international public, as well as important partners such as the eurozone and IMF.

There is a clear need for courageous, ambitious and timely actions on the part of the government.
The impetus for necessary changes must come from within the country itself — both from the Greek government and from the Greek people.

The crisis is a wake-up call. It can provide an opportunity for a complete reversal of the country’s current economic course, fostering sustainable economic growth that is based on productive investments and on taking advantage of the country’s human and natural resources. 

This article first appeared in the Globalist on July 6th, 2011: http://www.theglobalist.com/storyid.aspx?StoryId=9220

On June 29, Greece’s parliament adopted a contentious austerity package that paves the way for the EU and the IMF to unlock another crucial installment of bailout funds. Elena Panaritis, a member of Greece’s parliament, explains what her country must do going forward to put itself on sounder financial footing.

It was a make-or-break vote in Athens on June 29, and the whole world was watching and waiting to see whether the government’s latest austerity package would pass through parliament.

In the end, we made it. The sigh of relief was almost audible.

The stakes were too high for the vote to go any other way. The austerity plans are the key to unlocking some €12 billion of additional funding from the European Union and the International Monetary Fund.

We succeeded in averting a domestic, European and international financial calamity. Greece’s debt woes, at least for now, will not mutate into a full-blown crisis.

It’s now up to us to deliver and lift the country out of the worst recession in modern Greek history. It won’t be easy.

As a mood of optimism begins to spread again, we need to convince the global financial markets we are serious about implementing the new measures — a painful mix of spending cuts, tax hikes and wage reductions worth €28 billion.

There’s really no other choice. It’s our only way out. It’s the only way to redeem ourselves after decades of mismanagement and broken promises. It’s the only way for Greece to win back the trust of our partners in the eurozone.
Reflecting the Greek reality

Now is the time to bolster our economic diplomacy. Greece has to turn the tables and redefine the problem. The current travails are not just about rescuing Greece, but are an opportunity to restructure the country’s economy and stimulate the production base in all 17 eurozone countries.

The June 29 vote was a key victory. The government gained significant momentum. The tough job, however, is not over yet.
The hard work is just beginning.

It is positive to have the support of other European Union countries and our international lenders. They understand now that our problem is also their problem. They understand that this crisis is much larger than Greece.

This crisis has brought to light the shortfalls of the European Union economic support system.

What if?

If the vote on July 29 had gone the other way, the situation would have intensified. The problems would have spread, starting from Greece and then spreading to the rest of Europe. Countries would have struggled with continuous downgrades by international rating agencies. The sovereign bond spreads would have widened.

Let’s not think about the unthinkable: Greece’s default. Such a scenario would be catastrophic. It would not just be a bad turn of events, it would be a living nightmare.

And I am being very honest when I say this. I know firsthand what it would be like. I have watched countries default back when I worked with Latin American countries in the 1990s and early 2000s while at the World Bank.

This is why all of us must pull together and rule out the remote chance of Greece or any eurozone country defaulting.

To avoid it, we must make the most of our negotiating power and embark on high-level economic diplomacy. We need to explain that the Greek crisis, as well as the wider one in Europe, is not entirely a problem of liquidity. Nor is it simply a problem of debt management.

It is a problem of solvency — which in Greece stems from poor management of the civil service, bureaucracy and overregulation. All this has led to a drastic loss in productivity.

But first things first. Greece has to solve some heavy-duty regulatory problems for the new measures to have lasting and positive results. These are problems no one has addressed for decades thanks to the excess liquidity (coming either from European Union accounts or from low-interest loans).

These include a heavy bureaucracy, which results in a lack of transparency and takes the form of inefficient law enforcement, as well as insecure property rights and a complex and convoluted administrative process. This ultimately serves to decrease predictability and discourage foreign direct investment.

Much of this is being tackled by the new law. Thankfully, due to the crisis, these problems are now out in the open — and they will not be swept back under the carpet.

Whatever the Europeans have been criticized for, and there are plenty of reasons to be critical, this point is true about Europe as well: It has been unusually good in using crises to make real progress in overcoming its problems.

And using crises as an opportunity to reinvent, improve and resolve — that is very much the European trait we Greeks must urgently adopt. For all the talk about the EU’s “integration technology,” no element is more important than that — to use crises to remake yourself.

This is why we must direct our economic strategy toward regulatory and institutional reforms — a single, simplified tax system, simplification of the judicial system and the safeguarding of property rights, as well as the overall improvement of the average Greek’s daily life.

It’s going to be an uphill climb. Though the path we are on is very difficult, we must persevere. What is required of us now is to mobilize our strengths to forge ahead and to deepen the reforms. Let’s stay driven and determined to keep going.

This article first appeared in the Globalist on May 13, 2011.

Over the past year, we here in Greece have been going through all of the five stages of grief: denial, anger, bargaining, depression and acceptance.
We woke up to the crisis in denial, came to terms with it, and became angry. Then we started bargaining for our future until we got so depressed we finally had to accept our “new” reality — a reality of recession, high debt and continuous austerity.

Greece is a very old country. Not just an old country, but an old civilization. It wasn’t until the 1830s that the modern Greek state was established, after rebelling and gaining independence from the Ottoman Empire.

This achievement, however, was followed by a series of wars: The 1912-13 Balkan Wars (during which we actually increased our territory), World War I, another war involving Asia Minor in 1921, World War II in 1940, followed by six years of civil war that started in 1946 — and, finally, a conflict in 1974 between Cyprus and Turkey.

The Greek Civil War was fought between a government backed by British and American support and Greek Communists. It was the bloodiest and most devastating war in the history of Greece considering the number of lives lost. The death toll reached nearly 10% of the Greek population.

While we — and the world — have been focused mostly on the political dimension of Greece’s path in the entire post-1945 era, tragically the economic sphere never received similar attention. While still a poor country, Greek leaders sought to protect, and sooth, the war-stricken population by finding alternative ways to help improve their livelihoods. The stage was set for a statist approach to economic policy.

A welfare state emerged, including an automatic, indexed salary schedule instead of annual pay increases based on market indicators (such as productivity). A worker’s base salary would be further adjusted to include subsidies and transfers of all kinds, based on factors such as marital status and number of children. This also included the infamous 13th and 14th monthly salaries.
The resulting lack of economic opportunity and real growth, however, pushed an unprecedented number of Greeks to emigrate to the United States and Australia after the World War II. With one of the highest rates of emigration in the world, remittances soon became the largest component of Greece’s GDP. Greece even established a parliamentary committee for its diaspora to better address their interests.

Also worth noting is the fact that, despite these measures, the average total monthly salary in Greece was still far below the average European Union monthly salary.

Greece’s modern history is marred by conflicting factors: a rapid evolution of the state, economic growth and governance based on legal institutions that were mainly imported. Despite all these problems, I am convinced that Greece can bounce back. And while the path to prosperity may be slow, it is not unrealistic.

Greece has done it before. Let’s not forget the economic miracle achieved by Greece in the early 1970s (when the country boasted an average annual growth rate of 6%). It was a period of unprecedented growth. Inflation was low. Greece’s GDP was growing annually about 8% — the fastest growth rate in Western Europe. Industrial production also expanded at about 10% annually, and manufacturing exports topped agricultural experts for the first time in Greece’s history.
This time around, we will need to spark growth through institutional reforms. The question before us is this: How can we use the current crisis to steer Greece in the right direction?

In the Parliament, we have pushed through some difficult, but very necessary, reforms. They are aimed at freeing up the very rigid labor market of the past. We have also taken actions aimed at rebuilding trust between citizens and the state. These reforms are opening up the so-called “closed professions,” increasing the retirement age, and consolidating wages and pension funds by 2015. We will also restore some key institutions, focusing on property rights and security of title.

We have to rekindle Greeks’ entrepreneurial spirit at home, rather than out of the country. Why is it that Greeks excel far better abroad in countries like Australia and the United States? It’s because these countries provide a friendlier investment environment. We are continuing on the path of reform to deregulate and simplify bureaucracy. I am confident we will see a remarkably strong emergence of local entrepreneurs.

A solution to all the problems can only be found if the formal economy becomes simple, predictable and, therefore, easy to track. Any rules must, at long last, be applied even-handedly, with appropriate pricing of risk and minimal informational asymmetry, which usually benefits those who have accumulated considerable economic power — and thus stifles innovation, risk-taking and entrepreneurship.

For that to happen, however, people first need to understand the underlying risk and the devastating effect of bad rules and processes and inappropriate institutions, and that they not only lead to persistent distortions, but also systematically diminish economic growth.

Greece’s recovery is not a sprint. It’s a marathon and an exercise in building trust between citizen and state.
This is the answer to the country’s problems: Unshackle the chains of the past. Unleash the enterprising spirit. We have just never tried it before — and it’s high time to do so.

Greece’s recovery is not a sprint. It’s a marathon and an exercise in building trust between citizen and state. That makes it all the more worth pursuing and completing.

The 2009 crisis is probably the biggest opportunity in Greece’s modern history to carve out a new path to prosperity.

For that to happen, we need to put through deep institutional reforms. That might, and will, displease the few, but if we don’t do so, we will fail the many — our citizens.

This article first appeared in the Globalist on May 12, 2011.

In this pressure-cooker environment, and with speculators anteing their bets that Greece will default on its debt, our government is facing an even more difficult effort to quell the crisis. The speculation is chewing away at market confidence and forcing us once again to convince lenders and investors that Greece is serious about reducing the debt. The ultimate success or failure of our effort depends on it.

Undermining market confidence, however, will only serve to prolong Greece’s debt crisis. Betting that Greece will default on its debt could turn out to be a self-fulfilling prophesy, not only for Greece but for the euro.

Greece is serious about its reform effort to avoid any type of restructuring – and definitely not prior to 2013, when the loan agreement with the European Union and the International Monetary Fund expires.

I am confident the country is on a path of sustainable growth and development. We have to give this program a chance. Any discussion now about restructuring Greece’s debt before 2013 is premature and unfair. Instead of talking about default way before the end, let’s put some faith in the EU/IMF program.

And let’s not forget that the economic crisis in Greece is also a problem of the euro.

People speculating on whether Greece will restructure its debt should consider the implications. Restructuring will be painful, not only for Greece, but for all euro zone countries. Defaulting on the Greek debt, especially prior to the end of the program, would be a tremendous shock to the euro, the European Union and to the euro zone.

We all have the euro. The markets are not only watching Greece – they’re keeping a close eye on the euro and how this monetary union is handling the crisis. The program structured by the EU and the IMF to is also being put to the test. By discussing the likelihood of Greece defaulting while this program is still running, we are actually undermining the entire effort.

It has only been a year since the financing program was initiated. No country in the world, to the best of my knowledge, has ever managed a reversal in such a short period of time. So, let’s hold our horses. Yes, speculators are key players in an open market, but they are not playing fair. They should remain on the sidelines while Greece is at the plate.

For now, let’s limit any talk of restructuring the debt to an academic discussion. It is an interesting subject. Many countries have had voluntary restructuring prior to default. Others have had to default and then restructure. And there are various ways to restructure debt.

In the case of Greece, however, restructuring will not be an option. We are committed to our effort and expect our results to be averagely successful. This means we will be on the right track. We will be handling our indicators and working very hard to make it work.

The best way to fix the crisis in Greece is to engage everybody in a constructive conversation. This involves a number of key reforms to reduce the cost of production by reducing transaction costs, leakages, bureaucracy and confusion. This will boost productivity and efficiency and increase exports and revenues.

This is the only viable alternative. It’s the only way to turn the tide. If we want it to work, we will all have to increase production. To do this, we have to repair the economies that have leakages. These are economies in which transactions, like starting a business, are too cumbersome. Transactions have to become simple and flexible.

Our challenge is to fight the cynicism and to convince the markets and our counterparts that Greece can serious about restoring confidence and creating a friendly and attractive investment environment. Our top priority is to build an economic model for a larger, vibrant and flexible economy – one that can boost the number and volume of transactions.

Greece deserves a chance to see the program through to the end.

Read the Globalist for more articles by Elena.

The piece first appeared in the Globalist on May 11, 2011.

Very interesting news from California!
“On April 21, Judge Steven R. Denton of the Superior Court of California ruled in favor of the Community Youth Athletic Center (CYAC) and against National City, Calif., in one of the most important property rights cases in the nation.

The Court struck down National City’s entire 692-property eminent domain zone in the first decision to apply the legal reforms that California enacted to counter the disastrous U.S. Supreme Court Kelo decision in 2005. This ruling, which found that National City lacked a legal basis for its blight declaration, reinforces vital protections for property owners across the state, and underscores why redevelopment agencies should be abolished.”
To read the full press release visit the Institute for Justice page.

In recent years,  local governments have been abusing their eminent domain powers. Many see it as an urban development tool.  The truth is that this “tool” has had a mixed record in terms of development impact. Below is a link to a very nuanced article “Development without Eminent Domain” written by Curt Pringle, Mayor of the City of Anaheim:

http://www.castlecoalition.org/pdf/publications/Perspectives-Pringle.pdf

Enjoy!

I  just presented the Greek edition of my book “Prosperity Unbound” in Athens yesterday (this is the book’s second non-English translation).  This long awaited release, as most of you know, is of great personal significance. I am really proud to share a small part of my work with the Greek public and to engage them in a larger conversation about the possibility of transformation, as I have lived and experienced it some years ago. It was also terrific to see so many familiar faces in the crowd! Thank you for all of your support!

Each new translation calls for a reinterpretation of the themes outlined in the book. Yesterday’s panelists did a great job of contextualizing the book in the post-financial crisis world, where the need for radical reforms sustained by broad-based impetus is ever more necessary. The reform in Peru reminds us that while political vision is key, collective buy-in and strong alignment of incentives between public, private, and civic parties is fundamental.

I hope I’ve shown that informality does transcend geographical borders and cultural differences.  Greek readers today could draw lessons of hope, determination, and perseverance.  Prosperity Unbound is ultimately about unleashing human potential by ensuring equal rights to physical and intellectual property. As we enter the world of  the “New Economy” innovation, ingenuity, and ideational capital will be the key drivers of growth and development. But before “going long” on entrepreneurship and imagination, let’s make sure that we put in place the right market ‘infrastructure’ to support such transformation.

-EP

This op-ed “All Arabs Will Hear My Street Corner Chatter” was first published on the pages of the Financial Times, February 4, 2011 at 21:31 p.m.. To see the entire piece click here: http://www.ft.com/cms/s/0/9f20cfd2-3095-11e0-9de3-00144feabdc0.html

My friend Ezzedine recounts his recent experience and that of his wife during the tumultuous last few days in Egypt. He speaks about a nation that has finally overcome its proclivity for apathy, impotence and failure. Here are some highlights from his reflections on events as they are developing on the ground, and what makes them unique:

“This is what has changed in the last week: politics is back; people feel empowered; and individuals have realised they form a community.”

“Recent days have revived long-forgotten feelings of determination, optimism and pride. For the first time these are not associated with mobilisation against a foreign enemy, but with the birth of collective hope.”

He questions the “predictability” of what now appears to be almost unhinged quest for people’s rule by a “re-politicized public”:

“…the protests have exposed the failure of the system to address long-standing grievances. The accumulated frustration and anger has reached a tipping point. New players and solidarities are emerging, old ones changing. As for the regime, it has realised, rather brutally, there are limits to its power.”

Some of the dangers that he fears will plague Egypt’s political future include:

• the risk of prolonged instability, ” which could be the worst outcome for all parties. This would stem from a lack of political flexibility and skill – both rare commodities.”
  
• a possible slide towards a Brothers hegemony: “While most political actors are splintered and inexperienced, the Brotherhood is distinguished by its ability to mobilise supporters and its clear vision. It has a better chance of out-manoeuvring other groups.”
• the legacy of repression: “Leaving the future to the army increases the chances of a return to authoritarian rule.  The unfolding of these challenges will have a huge impact on the Arab world.”

As the people of Egypt are redefining the political landscape in the Arab world, a psychological barrier has fallen soundly on the ground: “Egyptians have realised their actions can make the difference.”

The writer is a novelist and political science professor at the American University in Cairo. He is a former diplomat and UN political adviser.

Please read Michael Shermer’s blog posting on “Build a 1st-World Country (in 12 easy steps)” and support his publication “The Skeptic” (Skeptic.com).

Shermer coins the phrase “Panaritis’ Panacea” which refers to Elena Panaritis’ groundbreaking work in Peru, which lends empirical evidence to the direct relationship between sound property rights markets and broad-based prosperity. More importantly, her achievement in transforming informal real estate and practices in Peru suggests that property rights are not prerogative of rich nations or attributes of fully-developed societies. In other words, property rights and the corresponding norms, contracts, and institutions that create and apply them are fundamental pre-requisite for economic growth and wealth-generation.

While the key ingredients to successful socio-economic development are hardly a mystery, the primacy of property rights markets and institutions remains understated and misunderstood. Michael Shermer restores their importance by zeroing on Ms. Panaritis’ pioneering work in Peru.

Full text available below:

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How do you turn a 3rd-world developing nation into a 1st-world developed nation? It actually isn’t that hard.

In fact, it is so simple it can be explained in a blog-length essay. You need twelve conditions. I call them the Developing Dirty Dozen:

1. Property rights.
2. The rule of law.
3. Economic stability through a secure and trustworthy banking and monetary system.
4. A reliable infrastructure and the freedom to move about the country.
5. Freedom of speech and the press.
6. Freedom of association.
7. Mass education.
8. Protection of civil liberties.
9. A robust military for protection of liberties from attacks by other states.
10. A potent police force for protection of freedoms from attacks by other people within the state.
11. A viable legislative system for establishing fair and just laws.
12. An effective judicial system for the equitable enforcement of those fair and just laws.

Of course, we should remember what the sage pop philosopher Yogi Berra once said: “In theory, there is no difference between theory and practice. In practice there is.” Let’s call this Yogi’s Maxim. In theory, just implement the Developing Dirty Dozen. In practice, this might not be so easy. I recommend starting with just the first one: property rights. And the playbook on how to do so is already written: Prosperity Unbound: Building Property Markets with Trust (Palgrave Macmillan, 2007) by former World Bank economist Elena Panaritis, now working with developing nations around the world to build trust through property rights.

Panaritis explains how to change informal property into formal property, illiquid property into liquid property, and un-real estate into real estate. Presto-chango. It’s like magic. Property = Prosperity. Call it Panaritis’s Panacea.

Pioneered with pilot programs in Peru, Panaritis explains how to make property real and investments secure through property rights enforced through law. Unfortunately, there are plenty of other places to test this theory: about 70% of the world’s population, or about 4 billion people, are sitting on roughly $9 trillion in illiquid property. By “illiquid,” Panaritis means that the property can be lost or taken away without compensation, and it has little to no value as an investment tool outside of immediate bartering for goods and services needed at the moment.

Panaritis makes a distinction between “the haves and the have-nots,” but not as the phrase is customarily employed. What she means is those who have property rights and the security of their finances and investments, and those who do not. This difference is what, in the long run, creates a wealth or income disparity.

By “un-real estate,” Panaritis means that even if there is property you can see, if it is illiquid it means that you cannot use it to secure investments in your future, and thus you have no secure future and so your real estate is unreal. A houseboat on a river Southeast Asia is the epitome of informal property: just a family on a boat floating on a river, so precarious that it likely won’t last a single generation. How do you build a future on such an unstable foundation?

The lack of formal property rights leads to numerous economic distortions: distorted valuations up and down, distressed property markets, illiquidity of savings, limited labor mobility, weak capital markets, and limited investment in infrastructure such as utilities, energy, and telecommunications. In Ecuador, for example, having passed through the country many times on my way to the Galapagos Islands, I noted that Ecuadorians largely skipped the land-line stage on the way to cell phones. Establishing a land-line telephone infrastructure was the responsibility of the government, which they did with their usual corrupt ineptitude, leading the developing free market of cell phone technology to sweep in and displace the old with the new almost overnight. Fortunately, the Ecuadorian government was prescient enough to secure the property rights of cell phone carriers in their country, and a cell phone as property can fit in your pocket!

Without property rights, in addition to economic distortions there are social distortions: enduring inequalities, violence, corruption, criminality, child labor, and social discontent, especially among women and minorities, who have the least control of their property. As well, there are environmental distortions such as land quality degradation and poor waste management.

The solution? Simple: transform property from illiquid to liquid, or from un-real estate to real estate. Property = Prosperity. Panaritis’s Panacea. Case in point: In Peru, Panaritis worked with a woman named Margarita, a seamstress whose labor was valued in 1990 at $80/month, but who is today worth thousands of dollars a month. How did this happen? Untangling property rights and removing the bureaucratic red tape that it takes to own your own business, by reducing the number of government agencies from 14 to 2, by reducing the time it takes to obtain a license to own your own business from 7 years to 2 days, and the cost from $7,000 to $14! Now that is change we can believe in!

Can it work anywhere? Of course, as Panaritis explains:

The problem of “unreal estate” is global, but its solution local, and it can lead to unbound prosperity. The approach worked in Peru and it can be repeated elsewhere. Done right, institutional reform of property rights can reduce risk, ambiguity, costs of transactions and create new possibilities for those who hold assets informally by turning them liquid. In such cases, immovable property that once had little formal exchange value is transformed to a marketable asset. What seemed “unreal” becomes real.

Basically, once you have set up a system of establishing property rights, a rule of law to enforce those rights, and a judicial system to settle property rights disputes, everything else will fall into place and prosperity will prosper (with the caveat, of course, of remembering Yogi’s Maxim). This is, in practice, what David Hume meant in principle: “Any person ought to have the right to enjoy the fruits of his own work.”

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Contents copyright © Michael Shermer.

Michael Shermer is the publisher of Skeptic magazine, a monthly columnist for Scientific American, a professor in the School of Politics and Economics at Claremont Graduate University, and the author of The Mind of the Market (Times Books). Contact: mshermer@skeptic.com

I was really pleased to see Linsay Clinton’s article “Property Rights: A Development Imperative” which appeared in the October issue of Beyond Profit e-magazine. Shifting intellectual fashions in development often obscure the most fundamental and ubiquitous impediment to sustainable economic growth, namely the absence of formal property rights and markets.

By demonstrating the interrelatedness of property rights issues to all other major development challenges today: from climate change and population growth to political stability and sustainable economic growth, the author makes a strong case for tackling informality in property rights, first and foremost.

I call this global phenomenon (that knows no geographical boundaries and plagues developed and developing countries alike):  “unreal estate.” It is estimated at US$ 9 trillion in size. And as the author correctly points out:

“Landlessness is one of the strongest predictors of poverty, more so than gender or caste.”

Indeed, it is not difficult to trace persistent wealth inequality to insecure property rights and illiquid real estate assets.

“The process of changing systems to give the poor better access and
secure rights to land will require innovative action, policy reform, and
patience.”

Based on my own reform experience, I would add to that list: VISION, RIGOR, and TRUST.

Institutional reforms addressing property rights are extremely hard to implement not because of the technical aspects of the actual reforms, but because high level government commitment is both critical and difficult to ensure and sustain due to the short-termism imposed by political cycles and deeply enshrined monopoly powers.

There needs to be a critical mass of political support behind the reform effort, which starts with willingness to address the problem, accept the diagnosis and follow through on recommendations.

Finding visionary reformers that can generate and sustain an appetite for reform across the public bureaucracy is the most difficult part of the reform process.  Leaders have to be ready and willing to undertake all necessary changes, including legal and regulatory reforms, to benefit constituents.

Often, the public must push politicians to assume the mantle of leadership, as opposition forces tend to hide behind the political ‘elite’.

Any politician who agrees to work for institutional reform will need to overcome some major obstacles, from open political opposition to subtle political pressure (from monopoly powers who had come to benefit from high transaction cost economy). Politicians can mute opposition or render it irrelevant if they can clearly articulate the societal benefits of the reform.

It is worth reiterating that for governments, property rights reforms offer particular benefits.  A well-functioning property rights system makes the overall work of the government clearer, more predictable and more accountable. It lowers transaction costs. It rebuilds trust. It legitimizes the very work and existence  of the public sector, not through handouts and entitlements but by involving people in markets at the level of their properties (their land, and homes), which ultimately represent their honor and their sense of belonging to a community. A reform that creates formal property rights establishes new market opportunities, and hence new profit opportunities, across the board.

Fundamentally, this type of reform addresses the root cause of wealth disparity, namely the use of financial assets to secure a better future.

Not undertaking holistic property rights reforms in many parts of the world means letting those at the bottom of the wealth pyramid fail.

I was deeply honored to be ask to speak at this year’s Orientation for Fellows at the MIT Legatum Center for Development and Entrepreneurship. I found myself surrounded by an incredible group of like-minded pioneers of already conceptualized, and well-thought out solutions to most pressing societal problems.

As I said to the group,  to me, the distinguishing characteristic of a ’social entrepreneur’ is someone that can recognize when a part of society is ’stuck’ and provide new ways to get it ‘unstuck’– ways that ultimately pass society’s litmus’ test of TRUST (that this is a sustainable solution to a problem, that it is designed by a bottom-up logic that incorporates the views and realities of its end recipients, and  that it is scalable and able to have a certain ‘reach’).  The solution has to be ‘new’, meaning that often times social entrepreneurs have to persuade entire societies to take new leaps.

Both the Legatum Center and the Fellows are committed to examining the circumstances in which society progresses through private efforts and in finding market-based approaches and solutions to development challenges.

I have to admit that I haven’t always been cognizant of the fact that I am a ’social entrepreneur’, particularly throughout the 1990s when the term was not yet a buzzword in the development field. With the evolution of my work in addressing the root causes of ‘unreal’ estate in different parts of the world (which resulted in  the methodology  “Reality Check Analysis”)   it became evident to me that traditional development institutions were not the right place to incubate the type of privately-funded reforms that I was envisioning, or to broker the type of partnerships between citizenry, private investors, and policymakers that were necessary requirements for successful reforms and lasting positive change.

I am very proud to have had the opportunity to exchange ideas with this class of Legatum Fellows and I look forward to following their work in the upcoming months.

-EP

Guest Contributor: Barun Mitra, the director of Liberty Institute, an independent public policy think tank in New Delhi, India (www.InDefenceofLiberty.org)

The Department of Land Resources in the Ministry of Rural Development, Government of India, has placed the draft of Land Titling Bill 2010, on their web site: http://www.dolr.nic.in/landtitlingbill_notice.htm

The date for submission of comments and suggestions has been extended to Aug 31, 2010.

Below is a12-point summary on the Land Titling Bill, based on the detailed comment that we submitted to the government. Would greatly appreciate your comments.

1. Land being a state subject, the preamble should contain a short explanation as to why a national level model legislation is being proposed.

2. Since the Bill is modeled on the Torrens title system, it is vital to detail specific exceptions for granting Indefeasible title in the Act so that the judiciary is not burdened in the same way as at present in attempting to establish titles and defeating the very purpose of an Indefeasible title.

3. “Part ownership” of a whole property is a complex issue involving various forms of associations by property owners. However, the draft Bill does not go into specifics of titling procedures under the Community Development Scheme and Strata Title. Rather than leaving such important issues for subordinate legislations, it would be prudent to leave such concepts outside of this Land Title Bill, and separate statutes be framed by appropriate authorities to deal with these issues.

4. The requirement that Registers be maintained on paper, along with electronic forms, will entail an avoidable duplication, and can be avoided by simple  security procedures.

5. With the operation of the new titling system, the current documents or deeds will change. These documents/templates should therefore form part of the statute itself, and the Bill needs to include the prescribed documents under the land titling regime.

6. The Registry should be allowed to make basic parcel data, owner identification, and valuations publicly available without need for approval of the Director. This information is extremely valuable to the private sector and making it public will encourage development and improve securitisation.

7. Title guarantee proposed by this Bill seeks to reverse the presumptive nature of property titles that have evolved from the common law and in India it finds statutory cover in the Land Revenue Codes of the States. The draft Bill should seek deletion of the provisions in the State Land Revenue Codes which provide for the principle of presumption in favour of the record-of-rights.

8. The draft Bill needs to detail the valuation principles. It needs to replace Registration fees and Stamp Duties levied by States, with a nominal user charge to meet the costs of record keeping. The aim should be to discourage the use of Registration fees and Stamp Duties as primarily revenue gathering measures, rather than facilitating property transaction. This has led to massive evasion, corruption, and loss of revenue to the state exchequers. For the Bill to achieve its objective, transaction costs need to be bare minimum, so that property owners have the incentive to participate in the registration process.

9. Valuation is primarily guided by the zoning and land use regulations. This also becomes necessary in view of the land ceiling, and fragmentation of land holding. By removing land ceiling, and facilitating transactions, the scope of zoning and land use regulations would be significantly reduced. This would help significantly reduce the variation in the value of land in the same area. Seeking exemptions to, or modification of, land use regulations, are another source of corruption affecting land transactions. Removal of land ceiling and consolidation of operational holding would help development of localized land use practices among the land holders themselves.

10. The provisions on the Title Guarantee Fund are inadequate. It needs to be dealt with in greater detail and deserves a separate Chapter. The draft Bill may specify conditions of compensation out of the Title Guarantee Fund to ensure that State powers to indemnify is not stretched and the lack of clarity and unlimited indemnity does not discourage private participation providing Title Insurance cover.

11. Compulsory land titling in a five-year time frame is very ambitious, in a country of diverse land recording systems, administrative competence, and widely prevalent informal arrangements. If adopted it will be prone to capture by special interests, and open a new door for corruption, and trigger a new wave of social unrest. The draft Bill should instead look towards mandatory titling for every new transaction and encourage voluntary registration. This will provide an opportunity to fine tune the rules and regulation, help build trust in the new system, and facilitate its acceptance by the public.

12. For an initiative of this scope, and in a country of India’s scale, the draft Bill needs to encourage the participation of private players, both for for-profit and non-profit, to help with the land mapping, documentation, and registration process. The present technologies allow for such bottom up, demand driven services to take full advantage of the changes in the law and procedures.

Please try and take a look at the actual bill, and share your thoughts.

Guest Contributor: Rejoice Ngwenya

Amidst the glamour and glitz of constitutional reform, Zimbabwe’s run of property rights violations continues unabated. Reports  that South African farmer Mike Odendaal was arrested for ‘occupying’ his (own) farm and that German investor Heinrich von Pezold lost property to ZANU-PF thugs  are testimony that Zimbabweans are yet to understand the implications of private property rights.

Moreover, if Prime Minister Morgan Tsvangirayi wields a semblance of authority, it is hard to understand why he cannot stop the rot. A noble peace prize [yes, noble] awaits a Zimbabwean who will convert Robert Mugabe from his dangerous path of permanent national disability. The answer is to create a serious band of private property rights zealots and unleash chariots of fire in pursuit of free market freedom in Zimbabwe.

Related Articles:

See: http://www.iol.co.za/index.php?set_id=1&click_id=84&art_id=vn20100702044736816C5687266  

See: http://www.mercurynews.com/breaking-news/ci_15427579?nclick_check=1

The government of India has proposed a new law to guarantee property titles, based largely on the Torrens system in Australia and England. The draft was open to public debate and input till June 15, 2010.

Details of the draft law are available in the document below:

http://dolr.nic.in/Draft%20Final%20Model%20Land%20Titling%20Act-04.5.10.doc

Recent article on the topic was published in the “Financial Express” on May 27, 2010 by Ravish Tiwari

New law drafted to guarantee property titles in India

To bring uniformity across the country and replace the existing deeds system fraught with litigation due to inaccuracies in property records, the rural development ministry has drafted a model law to usher in a system of conclusive property titles with title guarantees through registration of immovable properties.

The department of land resources under the ministry has drafted the Land Titling Bill, 2010 that provides for establishment and management of a system of conclusive property titles with title guarantees and indemnification against losses due to inaccuracies in property titles, through registration of immovable properties.

“We have prepared the draft Land Titling Bill, 2010 and have invited public comments. We will soon be consulting state governments for their comments on the draft Bill. We will also be organising a workshop with state authorities to create awareness about the Land Titling system,” Rita Sinha, secretary, department of land resources, said.

The system envisaged under the Bill is currently operational in countries like England, Australia and New Zealand. It hopes to replace the existing deeds system under which the government does not give any title to any individual or organisation.

In fact, in the deeds system, all titles of immovable property are ‘presumed titles’, where title to property is claimed by people through diverse legally recognisable instruments. Usually it is the sale deed which is used as the prime instrument to claim title to property. But it gives rise to litigation with different persons furnishing different instruments to contest title claims.

In contrast, under the land titling system, the government guarantees conclusive title, as against presumed title, for every immovable property which is tagged with an unique property identification number.

Titles under the new system would be indefeasible—title of any immovable property entered in the register of titles cannot be altered or made void.

After sale, the register of titles will erase the earlier assignee in the register and replace it with the new holder. In the register will, on behalf of the government, grant a certificate of conclusive title to the new holder.

The proposed draft model Bill envisages a land titling authority which will have four different divisions—title registry, survey settlement and land information system, property valuation, and legal services and title guarantee—to ensure uniformity and usher in the new system. It also envisages instituting a Land Titling Tribunal to adjudicate issues arising at the time of ushering in the system.

Sinha said the National Land Records Modernisation Programme (NLRMP), approved by the Cabinet in the year 2008, has undertaken a massive programme that can be used as a platform to usher in the new system that seeks to address property rights concerns.

The NLRMP has undertaken computerisation of land records which includes data entry, digitisation of cadastral maps and integration of textual and spatial data, strengthening of revenue and survey training institutions, village index maps and core GIS, legal changes and programme management.

“I am given to understand that the West Bengal government has almost completed digitisation of its land records and is now ready to usher in the new system. I hope the model Act will help the state government modernise the property rights system in the state,” said Sinha, expressing the hope that the model law will provide the basis for uniformity across the country.

Response to Dr. Ekekwe’s blog on “Global Productivity=Technology + IRP”, Nkpuhe

by Reneta Milcheva

Globalization and particularly the rapid spread of communication-enabling technology and virtual networks have shown us that we live in a world of ‘ideas without borders’. Creativity and ingenuity abounds in different corners of the globe. Novel ideas have come from different cultures, races, regions, social strata and faiths. But what separates the “boy who harnessed the wind” from the boy who dreamed up the iPad? The answer is intellectual property rights (‘IPR’) and it is given by Dr. Ndubuisi Ekekwe, the founder of African Institution of Technologyand author of Nanotechnology and Microelectronics: Global Diffusion, Economics and Policy in his latest blog on raising productivity and improving innovation in Africa, specifically in his native country- Nigeria.

Earlier this month, Apple launched its latest product- the iPad, which is said to be a game-changer in digital media and consumption of news and entertainment. As the world marvels at yet another technological feat ‘made in America’ it is an opportune time to defend the role of well-defined and protected intellectual property rights. Dr. Ekekwe is right to distinguish between ‘inventors’ and ‘innovators’, with the latter prevailing in societies with secure IPRs, who also happen to enjoy greater productivity and wealth. This correlation is the crust of the author’s argument.

The process of innovation and productivity is contingent upon well functioning intellectual property rights system. I agree with Dr. Ekekwe that those who enable the erosion or violation of IPRs through piracy fail to recognize that they deprive their communities from unleashing the powers of innovation. Just like the vicious cycles created by the existence of ‘un-real estate,’ the disincentives and productivity loss stemming from widespread “un-real intellectual property” are hard to undo and reverse.  Many of the countries in Africa could reap the economic benefits that come with a demographic dividend only if they can incentivize young people to learn, dream, and capitalize on their very real dreams and ideas by granting them secure intellectual rights so that they can trade and invest in their greatest assets- their minds.

We cannot close the wealth gap if we do not address the (intellectual) property rights gap first!