Walking the De Soto Way
Snigdha Jain (Communicating Reality Intern, CCS)
Dharavi is no longer Asia’s largest slum. No reason to celebrate though; two other areas in Mumbai are in contention for the spot. Mumbai has slums for two reasons: rent control and public land. Assigning private property rights to the slum dwellers and selling of public land is the way ahead. The problem is that good economics doesn’t go hand in hand with myopic politics.
Slums are essentially regions senza well defined property rights. This produces two kinds of handicaps. First, slum-dwellers do not invest optimally in immovable property. When the municipal corporation comes knocking they can (and do) run with their TVs but not a toilet or drainage system. So living in an unclean environment makes sense- you and I would have done the same. Second, slum-inhabitants cannot mortgage their homes for loans. And without a legal address they are essentially out of bound as far as the formal financial sector is concerned. The poorest tend to pay the highest rates of interest at least partly because of undefined property rights.
Hernando De Soto — Peruvian economist — pondered over a rather powerful question in his book “The Mystery of Capital”. De Soto asked “Why Does Capitalism Triumph in the West and Fail Everywhere Else”? De Soto found that the difference lies in property rights. Western nations have developed a systematic and low cost method of registering and maintaining transferable property rights, while developing countries have not.
And it’s not just theory. De Soto’s Institute for Liberty and Democracy led a project which assigned titles to “more than 1.2 million families and helped some 380,000 firms previously operating in the black market to enter the formal economy”. And change there was. Slum dwellers in Mumbai would probably agree with De Soto, but the slumlord-politician nexus might beg to differ. This is one of those cases where the economic solution is rather obvious; the political question of how to get there is a whole different ball game. Perhaps we have as much to learn from the way De Soto walked the political rope in Peru as from his economic theory.
