Mysteries of capital or mystification of legal property?

Mysteries of capital or mystification of legal property? Franz von Benda-Beckmann De Soto s Mysteries of capital is a visionary plea to governments in the Third World and the former Soviet Union to adopt formal property law in order to facilitate economic development. In particular, the potential for creating capital out of the assets held under extra-legal property must be mobilized. For only formal legal property has the properties and functions that can lead to development. It does so, according to De Soto, by fixing the economic potential of assets; by integrating dispersed information into one system that transcends the typically local operations of extra-legal assets; by making people accountable; by networking people and protecting their transactions (p. 49 ff.). This form of property, De Soto claims, caused the rise of capitalism and popular welfare in the West, and it needs to be introduced in developing countries and the former Second World. In particular, the opportunities of formal property must be opened up to the poor, the many enterprising people operating in extra-legal sectors. For, and this is the other grand message, the poor are not really poor. They are enterprising, they save, and together hold vast assets that constitute the largest possible source of potential capital for development (p. 34). However, these assets are held in defective form (p. 5): as dead capital (p. 210). While there is nothing basically wrong with such extra-legal property, it is not sufficiently codified and fungible to have a broad range of application aside from its own geographic parameters (p. 180). It cannot be turned into liquid capital and traded outside its narrow local confines, nor be used as collateral for productive investment (p. 7). The marginality of the poor and their assets is largely due to their inability to benefit from the functions of formal capital (p. 66). So these assets have to be legalized (p. 165). While governments have formal property laws and made attempts to open them up to the poor, most citizens cannot get access, De Soto continues (p. 153). The legal and administrative systems are bad, cumbersome, overbureaucratized (p. 156). Moreover, these laws are not informed by the traditional laws and the new rules emerging in the informal sectors in the cities. For people have their own law (p. 170). Legal pluralism is ubiquitous. In order to draw in the poor and their assets, the new property laws must be in reference to existing social contracts and legitimacy (p. 172), must codify it (p. 57, 186). Governments must create a social contract with extra-legal property and capital (p. 158). Then the globalization of capitalism, which has so far failed in the Third World and the former communist states, can become complete (p. 211). It is not easy to do justice to De Soto s challenging book in a couple of pages. Most of his empirical observations and his critique of legal policies are not really new for anthropologists or other social scientists who have Focaal - European Journal of Anthropology no. 41, 2003: pp. 187-191 187

done research and written on property rights issues and legal reform in the Third World, a wealth of data and ideas De Soto chooses to ignore. So for me De Soto as the Haroon al Rashid of the extra-legal sector is not really impressive. This does not make his observations less relevant, of course. He has many important things to say and if due to his popularity some of these messages should reach the ears of economically and politically powerful actors, all the better. But I am worried by his causal constructions about the relationship between formal property, economic development and poverty. I think that many of the supposed causal links are implausible, that he ignores or belittles some crucial issues and substitutes them by wishful thinking. Moreover, there are some serious blind spots in De Soto s tableau, all of which adds up to a mystification of legal property. The first blind spot is that the people remain an undifferentiated category. De Soto keeps talking about the poor, and the poor are largely identified with those operating in the extra-legal sectors. This oversimplifies the problems of poverty. Within the extra-legal sector, there are huge differences of wealth, exploitation, and discrimination. While many of whom he lumps together as the poor in the extra-legal sector indeed are enterprising businessmen and farmers, and while many poor people save, there are millions of really poor close to starvation, in India as many as hundreds of millions. Their assets do not add up to much, and their assets would not change value if legally clothed in formal property. A formal title is not worth much, if the asset is a dilapidated slum dwelling. Banks do not give credit to poor beggars or a mortgage on a slum dwelling located amidst thousand others. It is not so much, and certainly not only, the legal status of assets, but their value which counts. The second blind spot is his inattentiveness to differences in property rights and their functions. Although it is never explicitly mentioned, formal property seems to have the characteristics of individual private ownership, and its primary function is the generation of capital. Extra-legal property remains an undifferentiated category but seems to have the same, though incomplete, function. In both cases, other functions such as the significance of property for the social continuity of groups, for social security, as fall-back reserve are ignored. For people who have no alternative for economic livelihood and survival these functions are crucial. In light of these functions, the optimal use of property is often non-marketability. Moreover, De Soto connects his theory and expectations to abstract categories of property rights. He gives little attention to the actual distribution of property rights-relationships between actual property holders and property objects, with other words the distribution of the wealth embodied in these property relationships. These relationships and their functions are usually embodied in complex property relationships with specific combinations of rights and obligations of individuals and social groups (F. and K. von Benda-Beckmann 1999). They are interwoven with other social relationships and cannot simply be taken out of such system. For De Soto, it is primarily the location in the informal, the extra-legal sphere which is the problem. He seems to assume that it would be easy to legalize such rights without changing them. Yet the experiences with land rights reforms show that, even with a well functioning bureaucracy, the transformation of local property rights into actual private ownership changes the nature of the rights and leads to the exclusion of weaker and temporary property rights under customary laws, often held by weaker members of society, amongst them women and strangers. I share De Soto s view that the reluctance of local people to transform their property into formal western property should not be looked for in culture (p. 225). It is often more people s (in)voluntary adherence to the functions of property and the expectations of winning or loosing in the process rather than a badly functioning bureaucracy, which makes them resist or adopt 188

governments and development experts programs for property rights reform. Experiences with land rights reforms in many African and Asian countries have shown that privatization and registration of land rights have seriously shifted the distribution of resources and led to the accumulation of the means of production by small political-economic elites, at national as well as village levels. It is the combination of the inevitable transformation of customary property rights into western style private property and the differential access to resources and state agencies that leads to the to the situation that after reform there often is less social justice and less legal security. Indeed, in many cases the introduction of new legal rights magnifies prior forms of legal insecurity. Also in post-socialist states the experience with the privatization of state farms and the introduction of western property show growing inequalities in property holding and increased legal insecurity (Hann et al. 2003). The next major blind spot is the neglect of states as property holder. Take Indonesia. De Soto mentions (correctly) that so far only about 9 per cent of land has been registered. What about the rest? Who owns what among the 90 per cent of the Indonesians who live in the extra-legal sector? (p. 162) We are led to assume that it is extra-legal property that could be mobilized by the poor if only it would be formal legal property. But most of these resources are held in formal property, by the state that is. In fact, in formal legal terms, the state in most Third World states has become a property monster. Colonial powers declared vast resource areas (the so-called waste-lands) to be state domain, and not simply assumed sovereign regulatory but also proprietary rights. This legal property policy has been more or less continued by the postcolonial states, which exploit their riches (timber, minerals, cash crop plantations) through state, para-state or private (national, transnational) enterprises on the basis of formal legal licenses and concessions. Impressive amounts of capital have been generated that could indeed be invested in development. But only a limited amount has found its way into state budgets for developing infrastructure, medical, educational or social services. If De Soto had listened well to the barking dogs in Indonesia (p. 162), or read the local newspapers for that matter, they would have told him that the major struggle in the contemporary politics of property rights is about legitimate and democratic control of these resources. The conflict is not so much over appropriate rights to communal resources but over the question of who holds the rights and who can enforce them. This is another reason why local people distrust the state property system. If in Indonesia people assert their rights based in (traditional) adat law, it is not because they are old-fashioned, or feel so comfortable in the extra-legal sector, but because adat law provides the basis for getting their expropriated property back. In this respect, however, there are considerable differences between the former Soviet Union and Third World countries, between Third World states, within extra-legal sectors and between urban and rural areas. In many Asian and African states, such local legal forms, adaptations of their earlier local laws, are still present and interwoven with social and economic relationships, while in many Latin American states, the major orientation of local people has been the law of the state, and extra-legal forms largely emerged as a reaction to inadequate state policies. There also are important differences where governments indeed pushed large-scale redistribution of land and where they did not. This brings me to serious omission number three. Issues of the redistribution of land (or wealth in general) are not addressed and are not among his set of recommendations by which the state of affairs is relatively easy to correct (p. 227). De Soto is quite aware that property can be used for thievery and dispossession, that there are sharks that skim off wealth, that property can be used to exploit and conquer (p. 223). And he realizes that controlling thievery depends more on the exer- Focaal - European Journal of Anthropology no. 41, 2003: pp. 187-191 189

cise of power than on property (p. 217). But whenever the issue of redistribution of assets is close, a very cautious language is used. Yes, reform will mean tampering with the status quo, which is a political task (p. 187). This is likely to perturb the little niches of the wealthy (p. 188). So we must rearrange the twigs in the eagle s nest without irritating the eagle (p. 188). But redistribution is not an issue. No need, De Soto says. Where is the major problem anyway? Has he not shown that the poor are not really poor but have vast amounts of resources? Therefore (assumption) we do not have to worry too strongly about redistribution. Moreover, basic and stable human rights guarantee access to property, rights enshrined in international law, more sacred than the sovereign rights of states (p. 165, 217, 218). But why, then, have they not functioned so far? It is naive to assume that the introduction of formal legal equality under conditions of gross economic and political inequality would lead to better conditions. The mystery here is that this belief continues to be so strongly held in the face of so much contradictory evidence. Last but not least, the historical reconstruction of the European example needs to be looked at with a fresh perspective. Was the rise of capitalism and the arrival of high levels of welfare for the poor primarily due to a specific property form such as individual private ownership? The structure of property law has certainly facilitated the tremendous economic development of capitalism. But was this due to Western states building their property systems by discovering their people s law (p. 162), and did the poor therefore become wealthy? There were other and possibly more important conditions for the economic growth in Europe (see, for example, Tigar and Levy 1977). European enterprises and factories had access to cheap resources in the period that European capitalist society was built. Labor was cheap, labor conditions abominable. There was open gender discrimination and political discrimination on the basis of wealth differences. Raw resources could be easily obtained through the exploitation of the colonies and on the basis of very unequal terms of trade in the world market. Moreover, mass emigration was a safety valve through which much of the pressures could be absorbed. Superfluous, unemployed, disinherited Europeans could and did move to the United States or the other colonies to build an economic existence at the cost of the local population there. Facilitated by a modern banking system, capitalism was driven by industrial tycoons, not by the poor. When discussing what we can still learn from Marx (p. 212-17), De Soto does not refer to the power of capital over labor. On the other hand, it was largely due to the struggle of socialist movements against the power of unrestricted ownership rights among legally equal persons that the striking economic inequality, which characterized the emergent industrial capitalism in Europe, was tempered and eventually gave way to a relatively high standard of welfare for the majority of the population. Perhaps we can learn more from the European experience than we would like to know. The parallels and differences emerge from the economic and political starting conditions of capitalist growth. Many of the relevant conditions are not given in contemporary Asia or Africa. And where they are given they are universally regarded as highly undesirable, such as child labor, inhuman labor conditions, the repression of workers associations, discrimination of women and harsh political inequality. Most countries in the Third World do not have overseas colonies to exploit, and migration is ever more restricted. European governments declare their countries to be full and increasingly restrict immigration. For these reasons, I see the De Soto s book primarily as a mystification of property law. In fact, it is one great illustration of property law as scapegoat and magic charm (Benda- Beckmann 1989). Poverty is seen as caused by bad property law (both state and extra-legal), extra-legal property is an obstacle to de- 190

velopment, and good property law will bring about development. This was the dominant view held in the period when the legal systems of the newly independent Third World states were being modernized. And it is the same under the conditions of contemporary neo-liberal globalization under which resources must become accessible to transnational markets. I have no doubts that formal property law has been, and can be, an important means to shape and expand the development of elites and emerging middle classes by harnessing its capital potential, but I cannot see how this will ameliorate the economic conditions of the poor. That formal property and a free market for it to circulate under conditions of great economic and political inequality should work to the benefit of the poor is wishful thinking to me. I think that it is scandalous that the political aspects of property and the issue of redistribution are so downplayed. This goes for relations within the extra-legal and legal sectors. It equally holds true for the wider political and economic context formed by the relationships between rich industrialized countries and the Third World. That European and American economic systems can maintain their effectiveness and dominance is certainly largely due to the fact that the terms of world trade relationships are still highly unequal and that cheap labor can be found in Asian and Eastern European countries. practice. Journal of Legal Pluralism, 28: pp. 129-48. Benda-Beckmann, F. von and K. von Benda-Beckmann 1999. A functional analysis of property rights, with special reference to Indonesia. In: T. van Meijl and F. von Benda-Beckmann (eds.), Property rights and economic development: Land and natural resources in Southeast Asia and Oceania. London: Kegan Paul: pp. 15-56. Bruce, J. and S. Migot-Adholla (eds.) 1994. Searching for land tenure security in Africa. Dubuque: Kendall/Hunt. Hann, C. and the Property Relations Group 2003. The postsocialist agrarian question: property relations and the rural condition. Hamburg: LIT Verlag (Halle Studies in the Anthropology of Eurasia, no. 1). Tigar, M.E. and M.R. Levy 1977. Law and the rise of capitalism. New York and London: Monthly Review Press. Acknowledgements I thank Don Kalb and Keebet von Benda-Beckmann for their thoughtful comments on an earlier version of this contribution. References Benda-Beckmann, F. von 1989. Scapegoat and magic charm: law in development theory and Focaal - European Journal of Anthropology no. 41, 2003: pp. 187-191 191