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!

On April 6, the Naxalite insurgency group in northern India killed 76 policemen in their most violent attack in forty-three years of existence.  Prime Minister Manmohan Singh has declared them the “greatest threat facing India”.  They are active in a third of India’s 602 districts, and control thirty-three. Why has the group been able to take root in India and where?

For the past couple decades, the group’s stronghold was Andra Pradesh (AP).  In AP two factors were dominant: agriculture and land rights issues.  The state had virtually ignored poor, remote peasants, providing little if any public services.  The state provided no security for peasants from land appropriation.  The Naxalites, a Maoist insurgency group, took advantage of the opportunity presented by disenfranchised, rural citizens.  They engaged in land grabbing on behalf of the peasants, becoming something of a modern-day Robin Hood outfit.  Often, however, they did not devote sufficient time and energy to redistributing land to the poor.  The Maoists offered citizens little else to peasants in territories they dominated besides some sense of security with a violent price tag.

After 2000, the State of Andra Pradesh developed a multi-pronged strategy to root out the insurgents.  They amassed a strong counter-insurgency force with assistance of the central government’s reserve police forces.  As a counter-measure, they addressed citizen grievances, first by engaging in a land redistribution which benefited 250,000 of the state’s poor, and secondly by trying to increase employment opportunities in the areas where agricultural opportunities did not provide sufficient income.  They also proffered dialogue with the Naxalites if they would lay down their weapons and amnesty for disaffection.

Over the past four to five years, the strategy has proved effective.  The Maoists have been virtually rooted out, but its leadership has found fertile ground elsewhere to continue operations: in the States of Bihar and Chhattisgarh where the police to citizen ratio in some districts falls as low as 1:100,000.   This month’s insurgent attacks were in the Chhattisgarh district of Dantawara.  Where the government fails to provide security for it citizens and their property, someone will … creating a less-than-ideal situation, to put it gently.

This op-ed was written by Elena Panaritis back in early February 2010, in response to inaccurate and misleading comparisons made by a number of economists, between Greece of today and Argentina of 2001. In her original piece “Last Tango in Athens”, Elena questions and refines this analogy by offering a more even account of the causes for the crisis in Greece and the larger EuroZone, as well as concrete steps for reform in the medium term.

Today, Greece’s economic outlook looks grim. Bond spreads are climbing as are the country’s risk ratings. Finger pointing is in full-force, centering on the way Greece is managing the crisis. This is hardly fair given the fact that Greece is a member of the EuroZone – a monetary union regulated and overseen by its members. More worrisome, over the past two weeks, have been the comparisons between the Greek experience and that of Argentina in 2001. But is this analogy correct? Are we about to see one last tango in ancient Athens, or are we really in line for a group dance in the courtyard of the EuroZone?

The crisis in Greece became evident last October (2009), when the newly installed government rushed to Brussels to explain that its predecessors had understated Greece’s budget deficit by 7 percentage points of GDP, and that the actual deficit was a staggering 12.7% of GDP, more than four times the allowable level for European Union member states. To make matters worse, the new government had inherited an economy that was contracting even as its deficit was rising. Sovereign bond holders were left to wonder how many other areas of the Greek government were dysfunctional and whether institutional strengths have been overestimated. It wasn’t just Greece that came under scrutiny: the EU surveillance mechanisms also were called into question.

Greece’s original sin, as it is now evident, has been its long history of running budget deficits, averaging 7.5% of GDP for the past 20 years. The crisis in Greece is not about a simple adjustment of macroeconomic fundamentals and is certainly not a dilemma that appeared overnight.  In fact, it reflects a large level of informality in many economic sectors, low productivity growth, weak institutions and a too-large civil service  leading to a large waste of resources.

Is the comparison to Argentina of 2001 instructive?

Many make the mistake of linking present day Greece to Argentina of 2001 (because both gave up their monetary policy and local currency to a stronger different currency; Argentina with the US dollar and Greece with the Euro) and of predicting one last tango in Athens, ignoring the fact that the tango actually is being danced in the EU at large.

When Argentina entered into a Currency Board with the US dollar, it signaled that the country was serious about economic reforms, attracting foreign direct investment and moving toward a sustainable path to prosperity. The currency board allowed Argentina to insulate its monetary policy from any populist or political pressures taming the problem of hyperinflation. The central government and its 23 provinces were bound by the Argentine Constitution to follow US monetary policy. There was, however, no Argentine representation at any meetings of the U.S. central bank. Any increase of the US interest rates would have increased the capital inflow in Argentina creating internal inflationary pressures and reducing competitiveness, as well as the ability of the country to service its debt. In the meantime, the informal sector in Argentina remained at very high levels – informality keeps productive capacity and wealth outside the country’s measurable GDP. Institutional reforms to address the root causes of the country’s weaknesses were not adopted, hindering gains in competitiveness.

If we look closely at that period, we would also notice that Argentina’s provinces engaged in more and more fiscal spending, perhaps under the presumption that Buenos Aires would bail them out if they got into trouble. But what many local governors did not know or preferred to ignore was the fact that a currency board would have made it impossible to pick up the local tab. Argentina could not print US dollars.

In brief, what appeared to be an economic rescue for the country in 1992, namely the peg to the US dollar, in about 10 years had proven deadly for Argentina. Exit from the currency board was not well contemplated, nor were any clauses that could have allowed for the central government to mature and transform its institutions that handle property rights, contract enforcement and transaction costs.

Similar to Argentina, the Euro zone (not Greece alone) has come to face its structural deficits in a painful manner. In this context, the Greek experience resembles those of Argentina’s indebted provinces leading up to the 2001 crisis, with one important difference: unlike Argentina’s local and national government, Greece has a seat at the table and is represented at the European Central Bank.

The main structural problem of the EU as a monetary union is that not all members of the EuroZone were equally ready to adopt the Euro. Institutional differences were assumed away, while informality and the cost of enforcing contracts were underestimated. EU subsidies were used to resolve and compensate for economic weaknesses that were not identified as institutional in nature. In reality, subsidies often exacerbated existing institutional failings in some member countries.  They also increased the lack of transparency in the local public sectors, raised transactions costs and dampened eagerness and political will to deal with structural problems.

This leads us to where we are today: The financial markets are looking beyond Greece and the ability of the Greek government to stem the crisis and are questioning the ability of the European bureaucracy to manage EU members. In fact, Greece may have its unlikeliest hero in the socialist Prime Minister George Papandreou. The mounting crisis is pushing the Greek PM to adopt immediate fiscal measures (such as tightening public spending and fighting tax evasion) along with longer term structural reforms (such making the public sector more efficient and integrating the informal economy). If Papandreou is able to advance tough reforms, he may set the course for an EU structural reform effort, create a social network for the Union’s weaker members, or allow for the issuance of financial products such as a Euro Bond, that might avoid punishing high interest rates.

At the moment, the EU lacks the legal ability to design and implement a bailout for an individual member under duress, including Greece. But legal obstacles can be overcome and the EU clearly recognizes the gravity of the situation.  If Brussels can establish an action plan and lead the support to Greece possibly also enlisting the experience of the International Monetary Fund. In the short-term, the focus should be on finding a viable (if ad hoc) solution for Greece. Such move will provide the EU with some breathing space to design and implement a long-term structural reform of the EuroZone that will allow for sovereign debt restructuring while addressing the issue of member countries’ overextended public debts with an expectation of a bailout.

As seen on Paul Romer’s Charter Cities Blog

The pressing need in Haiti is for food, water, and medical care, plus assistance in re-establishing basic services like policing, power, sanitation, and telecommunications.

This kind of aid and assistance has to be the highest priority now, but many people are already looking ahead. How can Haitians get access to urban infrastructure, buildings, equipment, and the know-how that can support jobs in industries like garment assembly?

Contrary to what some have suggested, a charter city in Haiti is simply not an option at this time. A charter city can only be created through voluntary agreement. Under the current conditions, the government and people of Haiti do not have the freedom of choice required for any agreement reached now to be voluntary.

In 2004, most knowledgeable observers concluded that the crisis in Haiti met the stringent criteria required for a humanitarian military intervention. A UN dispatched a force of 7000 soldiers and 2000 police officers. It made real progress, particularly after 2006. It reduced kidnappings and established a police presence in areas where criminal gangs had been so strong that Haitian police could not enter. The UN also paid for the expansion and training of the Haitian police force.

On top of its enormous human and economic cost, the earthquake has setback these efforts at strengthening the Haitian government. The case for a foreign military presence is now much stronger. The number of foreign troops is increasing rapidly. They are likely to stay much longer.

In the current circumstances, any attempt at creating a new city in Haiti under foreign control would turn a humanitarian military intervention into a humanitarian military occupation. This approach is fraught with risks that the concept of a charter city is designed to avoid.

A country that is subject to a military intervention has little true freedom of action and choice. Choice affects how people feel about an agreement after it is enacted. An agreement might be hailed as a breakthrough if entered into voluntarily. But if it were imposed unilaterally, the same agreement could generate resentment, hostility, and even violent opposition. We know, for example, that there are people who would readily move to a place like the United States and follow its rules. Yet they would violently resist an attempt by the United States to impose its rules without their consent.

Even if the motivation is humanitarian, letting a military intervention morph into a long-lasting occupation in some part of a country would risk the kind of violent opposition that colonialism generated in the past. There is no reason to take this risk. We should retain the current strategy. Military interventions should involve the shortest possible duration, should be used only to establish the necessary minimum of legitimate governance, and should not impose irreversible commitments on a nation.

However, we must recognize that this strategy, by itself, will not bring good governance or rapid economic growth anytime soon. It is the strategy that has been followed in Haiti for decades, to little good effect. It is the strategy that left Haitians in a position so precarious that an earthquake killed many tens of thousands.

There is a natural complementary approach that is a much better bet than giving colonialism another chance—letting Haitians migrate somewhere with better governance and rules. This is the surest answer to the question posed in the beginning. It can give them access to the urban infrastructure, buildings, equipment, and the know-how that can support jobs in areas like garment assembly.

Competitive pressure from emigration might also speed up progress toward better governance in Haiti. Demonstrated successes for Haitians who live together in other places with better rules might offer a model for reform that people in Haiti could follow. Even then, good governance may not emerge there. But if there were places where all Haitians could go, no one would have to be trapped by this failure.

There are clear limits on the number of Haitian immigrants that nearby jurisdictions are currently prepared to accept. But if nations in the region created just two charter cities, they could accept the entire population of Haiti as residents. There are many locations close to Haiti where these new cities could be built, but for now, Haiti itself is the one place we should not consider.

Update: Andrea Marchesetti points to some interesting news in the Comments. In response to the earthquake in Haiti, Senegalese president Abdoulaye Wade made an offer of land to Haitian migrants. He referred to “fertile” land, which could either mean that he anticipates rural rather than urban settlement or simply that the land would be located in the interior desert areas of the country. He also said that “Senegal is ready to offer them parcels of land – even an entire region.” At this point it is not clear how many migrants might be accommodated under this offer.

Guest Contribution by Rachel Beach

Per a recent article in the Washington Post:

China provides an interesting case, where hundreds of U.S. companies have chosen to do business inside the Great China Wall, even when threatened by insecurity of Intellectual Property Rights and financial assets. It is understood in financial markets that the threat of expropriation of property requires a risk premium on investments in such an environment, but even given this, when so much is at stake, businesses continue choosing to operate in the country. And many are getting stung in the process. Ebay, Google, and Time Warner number among those that have either pulled out of the market or are reconsidering, locked in legal battles to protect their interest and investments in the market.

Is it worth it? Over a billion potential customers should offer a resounding yes! But when there is potential for those same billions to steal your business concepts and intellectual property rights, your customer base, and a government to change its laws once again, acquiring much of your assets or restricting your mode of operation, the answer becomes a little more blurry. As stated by Kevin Smith, head of General Motors in China, “there are different rules in China”.

The question arises: how are companies to deal with theft of Intellectual Property Rights in a country of a billion plus people? A Washington Post article suggests that China is a “very unique country” in this regard, and attacking every violator is not the best strategy. Should it be? Shouldn’t a company strive to protect its Intellectual Property Rights wherever it does business? The question returns us to the considerations of government provisions of security of property. Where the government does not provide security, how much are private businesses and how much should private businesses invest to protect their rights and property by other means? To an extent, in a country like China, where this means any number of its billion citizens could be violating your intellectual property rights, it is a futile effort. It’s almost like chasing a flock of chickens: chase one and exhaust yourself catching it, only to find that all the others have scattered far beyond your reach. In a country like China, a business with broad potential for theft of IPR, its energies would be better devoted in lobbying the government to strengthen IPR regulations and enforcement. If this is true, how does this make China a “unique country”? The greater the market size, the greater the potential for loss (in parallel with the potential for profits).

Grabbing the perfect opportunity to reform and revive a country’s growth capacity… through a tough economic crisis!

I have been mired in the Greek economic crisis in my new capacity with the Greek government. Once again I observe a country that has been suffering from the vast permeation of informality resulting in a sluggish growth and endless leakages in public finances. Once again I notice the great opportunity to align the incentives of all parties in the Greek society for a fundamental reform that will transform the informal sector to the formal secure growing economy – based on secure rules and rights to assets.

Greece provides us with an excellent example of a country where the strength of the informal economy signals the weakness of existing rules in terms of predictability and enforcement. Combating informal property rights, establishing secure and predictable process and rules will allow the country to move not only ahead but revive its latent assets and wealth.

• Indebted Dubai puts on brave face for tower – International Business Times

from Michael Shermer’s blog “Skeptic“:

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

from Paul Romer’s blog “Charter Cities“:

The laws that govern the ownership, sale, and collateralization of property are a classic example of rules that are important to economic and human development. The story of property reform in Peru illustrates the harm that can come from bad rules, the benefits that come from improving the rules, and the difficulties reformers face when they try to change the rules.

Like many developing countries in the 1990s, Peru undertook structural adjustment programs (taming hyperinflation, privatizing inefficient government enterprises, opening up to foreign trade and investment) as part of lending agreements with the IMF and World Bank. Unlike most developing countries, Peru also made a meaningful institutional overhaul of its property rights system. This deep institutional reform helps to explain Peru’s development strength in relation to its peers.

Peru’s economy is among the best performers in the developing world. Sustained growth lowered the poverty rate from nearly 50% in 2004 to 36.2% in 2008—a year in which GDP growth reached 9.8%. Though growth slowed sharply in 2009, Peru appears set to weather the global recession without entering a recession of its own.

Elena Panaritis helped to redesign Peru’s property system as an economist with the World Bank. At the time, more than half of property owners in Peru were not registered. The goal was to formalize the heretofore informal property and give millions of Peruvians access to the productive potential of their assets.

Panaritis’ book, Prosperity Unbound, describes the experience.In the early 1990s, Peru’s property rights system was a mess—a relic of land redistribution policies of the 1960s and 70s. The policies broke up large haciendas, creating cooperatives or individual holdings but forbidding the sale of land or its use as collateral. Legal registration of redistributed land was rare. The land belonged to whoever worked it, a principle that kept people close to their informal holdings—greatly reducing labor mobility.

Duplicate property claims were rampant, and resolution of claims took seven years or more. According to Panaritis, a Peruvian wanting to register a title or execute a contract for the sale of property had to deal with 14 different government offices and hundreds of steps. Bribery and corruption were the only way to effectively title property or resolve a claim.

Rather than register people under the existing dysfunctional system, the reformers in the Peruvian government and the World Bank decided to create an entirely new system. In the early 1990s, the government rescinded the laws forbidding the ownership or sale of land, and the reformers set about registering property under a new system based in part on a registry developed by the Lima-based Institute for Liberty and Democracy.

Abrupt, nationwide changes in the rules were not feasible. Opposition to property reform was too strong, and reformers needed time to try and revise. An initial pilot program successfully registered 88,000 properties, primarily in urban areas. The pilot convinced property owners that the new system was effective and trustworthy. The demonstrated success of the new rules acted as a catalyst for change across Peru.

As formal property registration expanded through the late 1990s and the early 2000s, collateral-based lending increased. Newly formal property owners felt secure enough to make improvements to their property. With formal rights, people were free to pursue earnings opportunities away from their property without fear of losing it to another claimant. Panaritis also reports lower levels of child labor and higher levels of school enrollment among families with formal property rights compared to their informal counterparts.

The reforms made made property a tradable asset and gave Peruvians the freedom to use their property in ways that best served their interests. The reform effort was not a simple matter handing out titles under the existing system—it required the creation of a new system for registering property. To this end, the pilot program was key. It allowed reformers and property owners to try and revise the new system, the success of which engendered trust in the pilot participants and sparked enthusiasm for the reforms elsewhere in Peru.

UCLA Podcast: http://international.ucla.edu/asia/podcasts/article.asp?parentid=113153

Introduction by Professor Steven L. Spiegel
Director, Center for Middle East Development

About Elena Panaritis

Elena Panaritis, author of Prosperity Unbound: Building Property Markets with Trust (Palgrave Macmillan, 2007), is an economist and social entrepreneur. She now leads the effort of public sector reform in Greece as an honorary government adviser. Her ideas are particularly timely, especially in the context of the current global economic crisis and the ongoing efforts to eliminate illiquid/informal property markets around the world.

“It is no accident that this crisis has originated in the United States,” Elena explains. “The property system is built on a false assumption: that the property is valued correctly. Unless that’s fixed, the risk will always be far greater than necessary.”

Elena is the founder of a prototype triple-bottom-line investment advisory firm, Panel Group, and is a former World Bank economist. She has played a direct, hands-on role in creating stable property markets and preventing mortgage crisis such as ours. She created a new methodology and used it to spearhead property rights reform in Peru, with enormous and internationally recognized success. Some 9 million people benefited from the reforms in about three years.

Robert Litan of the Brookings Institute and The Kauffman Foundation of Enterpreneurship calls Elena’s work a “real contribution.”

In his Financial Times online column, Willem Buiter specifically recommends Elena’s book Prosperity Unbound. Buiter, a London School of Economics professor and former chief economist at the European Bank for Reconstruction and Development, takes “useless” and “harmful” finance based on derivatives to task and writes that “effective and efficient financial intermediation is a necessary condition for prosperity.” By contrast, he refers to Elena’s work as “useful finance” and continues: “The world described in [Prosperity Unbound], where the foundations of a productive market economy are being put in place, appears light years removed from the world of Wall Street …”

Guest Contribution by Rachel Beach

Microcredit and property rights reforms, how do they connect? The Panel Group was first asked to connect the dots between financial services to the poor and security of property in discussions with organizations such as the World Bank, Gates Foundation and International Trade Agency (ITA). The exercise brought to light a multiplicity of connections, and in the process we discovered that this is actually a very relevant and necessary discussion to promote. Indeed, it is a relationship whose identity is increasingly touched upon in current development debates.

An increasing number of articles and platforms address the importance of securing wealth bound up in physical real estate, small entrepreneurial activity and intellectual property as incentive for further investment and economic growth.  In a recent profiling by Fast Company, June Arunga – celebrated by the magazine as one of this year’s 100 Most Creative People – is asking a very common question but coming up with an answer at once banal and profound:

‘Why is Africa so poor?’ says the Kenyan, from her current home in Ghana… ‘What should be encouraged is the fundamental right of people to own land and the products of their labor, which are then recognized by courts, and can be exchanged at the market.” Asking for aid, she says, is part of the problem. “I doubt there is a parent that raises their child to become a beggar,” she says. “Gain respect. Keep your promises.”

Security and legal recognition of property for the poor is something development agencies are slowly waking up to. It is something De Soto recognized and has been both praised and vilified for – tapping into the wealth of the poor. One side criticizes him for finding another brilliant way to extort the poor, “formalizing their wealth” so it can be taxed by the government and their property sold to developers. The other side recognizes something elemental in development: access to credit and securing of property (i.e. not simply physical real estate but all forms of wealth) are essential. Between these two elements are a host of incentives. And their interplay entertains many fields of study: the psychologies of security and self-improvement, incentive to invest, the dynamic of trust and credibility between a State and its citizens, hope.

The connection between the credit-access and property-security is not merely curious, it is fundamental to development. In fact, it is a symbiotic relationship. Without a reasonable guarantee that property will be protected both from expropriation or theft, the acquisition and maintenance of investments and other assets in a given economy is illogical, as many an African dictator’s holding of properties abroad (read: securer states) and Swiss bank accounts will attest to. On the other side, without access to credit, the ability to invest is severely restricted.

Capitalism has struggled to find meaningful ways to bring the poorest brackets of society (and those operating in the “extra-legal” sectors due to any number of structural and financial barriers) into the market economy. Financial services for the poorer sectors look very different than the services to the wealthy. However, the risks they face, the way they operate, and types of basic services needed should not be treated as an exception to the standard middle-class or wealthy citizen’s fundamentals of wealth management and financial services. Indeed, the middle-class and wealthy are the minority in this world we live in.

Micro-credit is not simply a well-meaning, social business enterprise that should be patted on the back and politely applauded while we go about our business in the real world. Micro-credit is the type of financial service needed for a great majority of the world’s population. It is more than finding creative ways to “help the poor”. Micro-credit allows the impoverished to slowly rise out of a cycle of poverty. Securing of property rights for these small enterprises and private citizens gives owners legal, socially-recognized protection of their newly acquired parcels of wealth, however minute. Any high-school lecture about compound interest will attest to the benefits of savings and investment, however small one’s start. This creation of wealth then slowly builds on itself.

Neither Peru nor Bangladesh are anecdotes (as Peter Shaefer seems eager to claim in his Foreign Policy article). Yunus’ Grameen bank is expanding operations on five continents, including successful start-ups in the United States and the birth of one in Italy. Our work at Panel Group explores insecurity of property rights around the world – as Elena did in Peru during the 1990s – partnering with municipalities and governments to strengthen, streamline, and even create socially, legally recognizable ownership of physical property (i.e. real estate) where none existed before. Without the dual-expansion of financial services for the poor and security of their assets, the poor will remain in a cycle of poverty.

Guest Contribution by Henry Musa Kpaka

President Obama’s speech in Ghana outlined his commitment to sub-Saharan African economic and social development (see the Economist article, Barack Obama and Africa: how different is his policy). His message was to usher in a new strategy for development assistance from the U.S. and perhaps the rest of the West.  The debate over ending poverty and bringing economic and social development to sub-Saharan African has exhibited an increasing number of facets in recent years.   One stemming from the rather dismal results from the heavy use of aid, encouraged development agencies such as the World Bank to turn their attentions to the promotion of trade liberalization, macroeconomic and monetary stability, and privatization, all embodied in the structural adjustment programs aka “Washington Consensus”.  Following the poor results and frequent failures of this strategy, a new line of thinking emerged, one with a lot of potential to lift the continent out of poverty: institutional reform.  President Obama was quick to echo this in his Accra speech: “Africa does not need strongmen, it needs strong institutions”.

The focus on institutions as a means to lasting prosperity for all in sub-Saharan Africa has been around far longer than the Obama administration, but this administration is giving it some steam, and rightly so.  A few economists and development practitioners have written about the impacts of institutional reform in sub-Saharan Africa.  In criticizing traditional foreign aid in her book, Dead Aid, Dambisa Moyo observes that aid impairs African institutions. One implication she gives: public revenue/tax collecting institutions are largely absent because African leader build their budget with revenues coming mostly from aid.  Elena Panaritis also spends some time in her work, Prosperity Unbound talking about institutional reform in developing countries.  Panaritis, whose work focuses on transforming the informality of property and property right systems into formal legal systems in developing countries, describes the importance of institutions.  In her words, “institutions structure incentives in human exchange, whether political, social or economic. In other words, they hold together and protect the social contract by enforcing contracts and laws and providing a sense of certainty in human exchange”.

The immediate economic benefit from efficient institutions as various economists have outlined is that it reduces transaction costs of all kinds (i.e. time, money, imperfect information).  Markets work well when there is a predictable and legitimate set of rules that governs doing business.  Well-functioning institutions also promote accountability and give a voice to the poor. The Obama administration’s efforts (making a speech and creating new policy directives are two different animals, the question is how much weight will he put behind the rhetoric) to endorse this approach is certainly a step in the right direction.  My only concern is that this approach has already become another “Washington Consensus” that wipes out all other ideas.

The question of what kind of reform should be promoted is addressed by Dani Rodrik: “The type of institutional reform promoted by multilateral organizations such as the World Bank, IMF, or the World Trade Organization is biased towards a best-practice model. It presumes it is possible to determine a unique set of appropriate institutional arrangements ex ante and views the convergence towards those arrangements as inherently desirable. This approach,” Rodrik continues, “encourages cross-national comparisons, benchmarking.” All of which he rightly claims are based on first-best mindset. He proposes a second-best approach where institutional reform is promoted in a case by case basis, where focus is placed on areas of quick wins and high impact results. Growing up in Sierra Leone, it was easy at first to reject a second-best approach for my continent. However, Rodrik’s idea makes a lot of sense.  Different countries, even in sub-Saharan Africa have different approaches in doing business and rely on unique arrangements of formal and informal institutions. A “one size fit all” approach may cut transaction costs in the short run but has high potential to fail.  The heavy reliance on institutional performance indicators, like the Good Governance Index, can easily misguide us, lead to waste, and subsequently to yet another retreat of a potent solution to the poverty problem in sub-Saharan Africa.  Institutional reform holds a lot of promise for development in sub-Saharan Africa if applied appropriately.