Prosperity Unbound

Elena was qutoed in the Guardian by Paul Mason in the provocatively titled piece “Greece Today. Tomorrow Europe’s Gucci-clad Elite” http://www.guardian.co.uk/commentisfree/2011/jun/30/today-greece-gucci-elite-eurozone?CMP=twt_gu

QUOTE: Elena Panaritis, one of the western-educated lawmakers guiding the Greek prime minister, insists the eurozone authorities have played this badly: “Through indecision they turned an issue of long-term structural reform into an issue of short-term insolvency,” she says. As a result the austerity this week cannot in any way be cathartic – nor can it be sold as such, whatever short-term euphoria it has produced in Brussels. We need to deliver a productive economy, with an entrepreneurial culture, that exports. Europe needs to create a quick reaction system.”

Mason argues that “the governance dysfunction we see in Greece is replicated at a higher level in Europe”. He also remarks that Greece’s middle class will find itself extremely vulnerable as the country opens its economy to more competition and free-market liberalism. Losing the middle class politically also jeapordizes support for the larger European Union.

 But air of inevitabilitly surrounds the need for reforms.

Elena was also quoted in ” Breathing space for Greece as reforms pass ” (published in the Brisbanetimes with Gardian News & Media) as saying that ”There’s an American expression – ‘No pain, no gain’ … Unfortunately we have to revise our economic way of doing business.”

The Bank of Oliver Twist was posted by: lettrist on: June 26, 2009

URL: http://utopiaorbust.wordpress.com/2009/06/26/the-bank-of-oliver-twist/

Guest Contributor: Rachel Beach

Following the logic of Amartya Sen in Development as Freedom, individual property rights in a transparent system is a fundamental means as well as an end to development.  The Lettrist (blogger) is right to remind us that “the poor have always had ‘sizeable amount of assets’”.  The point is to find a way to secure their assets for their own benefit.  For many, one of their most valuable assets, land, is not secure.  Unable to use it as collateral, the poor lose one of their only means to access credit.  Mohammed Yunus, founder of the ever growing micro-credit banking movement, realized how critical access to credit is to upward mobility of the poor.  Just imagine your life without credit cards, access to loans, or any other means of credit. 

There is a plethora of property titling and land reform regimes gone wrong.  Think Zimbabwe.  In the wake of Peru’s achievements, the World Bank and many other well-meaning development agencies have bungled property titling projects by seeing property rights as a panacea for all ills. 

The problem, as Lettrist was right to point out, is looking at “titling” as a solution in a vacuum … a problem that pervades much development work today.  He cannot, however deny the unique successes of Peru.  I understand that advocates such as DeSoto invite strong criticism, but strong property rights is a cornerstone of development.  This is what Elena Panaritis, when at the World Bank and together with the Peruvian government carried out and proved in Peru (as outlined in her book Prosperity Unbound).  The reforms have been noted world wide for a specific reason.  They were not carried out in a vacuum.  Panaritis studied the political institutions, social motivations, and historical backdrop of the property titling mess, using a method she calls Reality Check Analysis.  Elena and her team went door-to-door surveying potential participants and proscribed a complete overhaul the agencies responsible for registering property.  Under a succession of presidents and parliaments, reforms responded to growing public demands for recognition of property.  It was not something foisted upon them, nor was it gentrification.  The reforms followed a specific sequencing of policy and events designed to address problems unique to Peru’s history, regulation, institutions.  This generated their rare success in property rights reform. 

Lettrist must not be aware of the actual benefits a properly-enacted property rights reform given his statement that “no one can be sure if land titling would benefit the poor at all”.  The results spoke for themselves in Peru.  The reforms were designed to cater not to large scale developers, but the poor and middle class who had experienced long-term insecurity of property.  Within three years the markets welcomed seven million new players.  Security of private ownership increased by 94%, initial property values increased by 42%, personal investment [i.e. home improvements, extensions] increased by more than 72%, the probability of child labor among participants decreased by more than 28%.  These are the positive elements of a reform designed to bring excluded sections of a society into the formal market. 

On the other hand the Lettrist was very right in saying that “capitalism has no serious strategy for reaching the poor in the extra-legal sector”.  Those in the extra-legal sector are entrepreneurs.  They simply lack access to formal markets and capital, and create their own informal markets.  Security of property rights is the fundamental bridge to the formal sector.  It provides a capitalist answer for bringing informal activity into the formal economy.

Appropriate community-based property rights systems empower citizens.  Rather than being a “wolf in sheep’s clothing”, they give both citizens a restored trust and mutual gain: the government gains revenue streams, but in return has a responsibility to provide public goods which citizens had previously been deprived of such as access to water, electricity, and roads.  Entrepreneurs can register businesses and invest in the formal economy.  They can secure loans and improve their lives and livelihood, assured that all their efforts will not be swept away by arbitrary expropriation.  Entrepreneurs in the informal sector function, but not efficiently.  Panaritis was not primarily concerned with preventing extra-legals from “bringing down the game” but bringing excluded entrepreneurs into the game.  The point being that as the percentage of citizens forced to live in a semi-informal state (parts of their daily lives secured in the legal sector, and parts outside where they cannot find access) increases, the legitimacy of a government decreases.  If the current government has not found a way to secure the property and person of a large portion of its citizens, nor provide public services to them, nor include them in formal market structures, it has failed to fulfill its role.  It is only expected that citizens would seek an alternative governing body i.e. Abimael Guzman, founder of the Sendero Luminoso aka The Shining Path.