Wednesday, June 15, 2005

Land Reform.

A fellow by the name of Hernando DeSoto has been advocating radical land reform in the developing world for some time. Essentially he is pushing developing nations give title to the land on which people are squatting on. Needless to say this idea is unpopular with those who currently hold
title to the land.

Some may see this as a leftist redistribution plan and in a sense it is redistribution. Does this automatically mean it is bad? We need to think of one US act when making this judgment and IMO seriously think about the impact of that act upon our current economic situation.

That act is the Homestead Act. This is the original ownership society act and if one buys DeSoto's arguments one has to believe the Homestead Act more than any other single act is responsible for putting the USA onto its path to prosperity.

DeSoto argues land more than any other possession is convertible into capital. Give people land and you open up the capital vault to them. That land can then be used as collateral for capital used to start a business, expand a current business, purchase equipment to automate a
business, buy another business etc. A bank may be willing to give Midas a loan without collateral but most other people need a truly precious item to lay down as collateral and that is most often land.

Now, in the developing world many people live as squatters, that is on land owned by another person who does not enforce their property rights to the land (for whatever reason). So usually what happens is you have a collection of poor people living in squalid conditions in flimsy shacks. Now, these people are very poor but they are not without means.

Now, in the West (or at least in the USA) we have the concept of adverse possession. Adverse possession is when someone else camps out on a piece of land and takes care of it for a given amount of time and the owner does not take any steps to protect their property rights then after a set amount of time the squatter earns title to the land. It is not as simple as that as I do believe property taxation adds some twists and turns to it all.

Now, these squatter villages are in a position of adversely possessing the land they are living on and governments should enforce that adverse possession. It would give these people access to capital to take the businesses they do run to new levels of productivity. Of course, this
would be politically unpopular in the nations that take this idea up.

The wealthy landowners would resist. They want to have their cake and eat it too, so getting a government to pass such a program would be difficult. Another problem would be these landowners would probably start spending much more time and effort to enforce their property rights. The problem would be as the deadline looms property owners would start enforcing their property rights probably up to and past the point of brutality.