Hernando de Soto’s major contribution to development studies and practice is the idea that there is so much capital locked away in the backyard of developing countries, and that only a few things need to be done to unlock the capital and make it work. His book, The Mystery of Capital, is about why capitalism works in some countries and not in others. His answer: property rights.
Let’s think of it this way. Basic economics and finance say that in order to get a loan one has to have a collateral. But it is pretty obvious that a large majority of the poor people in the world – most of whom live in the developing world – do not have any collateral. Which means that even when they have beautiful business ideas they are unable to develop them; and when they are able to develop them they are unable to do so in any meaningful way. Therefore, petty traders remain petty traders because they are unable to expand their businesses, which is in turn because they are unable to secure loans that will help them expand their business. This, conventional wisdom says, is because of the lack of collateral.
Mr. de Soto writes of the hidden capital that is lodged in the body of properties that might not be easily transferable because of the property rights regime of a country, or because of the problems involved in laying claims to a property. For, if one is to make ones property a collateral one has to be able to show that the property belongs to one. In many parts of developing countries houses are built on ancestral lands, and the houses never really have ownership because there was never any reason for the owner to show that they own them.
Even more important than the fact that a property is not ‘owned’ in a legal sense is the problem with ‘owning’ the property. That is the thrust of Mr. de Soto’s argument. If a property is not ‘owned’ how easily can it become owned? If a house – or a shack – does not ‘belong’ to a person, how can it be made to belong to them? The ease or difficulty of that process, according to Mr. de Soto, is what makes a country successful in capitalism.
It is through this lens that I read the government’s plan to review the country’s land laws. According to the current land laws – the Land Use Act of 1990, which is based on the Land Use Decree of 1978 – land is ‘to be held in trust and administered for the use and common benefit of all Nigerians’ by the government. It is held in urban areas, by the state governor, in trust for the people, and in rural areas, by the local government authority, also in trust for the people. Land Use and Allocation Committees advise state governors on land issues, and each local government has a Land Allocation Advisory Committee. The committees help the government issue certificates of occupancy.
The main reasons given for setting up the Presidential Committee on Land Reform include a desire to have a smoother way of land administration, one that is not fraught with frustration. As far as I have seen, there does not seem to be any aim to change the ownership structure. The chair of the committee, Prof. Akin Mabogunje, has been quoted as saying that land is a very important factor in poverty alleviation and it would be great for owners of land to have deeds and certificates of occupancy to their land. This is the point where it ties in with de Soto’s idea.
One suggestion that I have for the committee – which incidentally comes from de Soto himself – is for them to watch and study the way people make use of land and the way they deal with issues concerning rights to land by themselves. It should be remembered that there is always what anthropologists refer to as legal pluralism, a situation where there is more than one legal system in operation. They should also consider that the formal laws that work best are the ones that are able to adopt the rules that are in actual operation, the ones we normally describe as informal.
Land cannot be reduced to a certificate of occupancy, and the de facto use of the land, and the way the law affects the lives of the people, is far more important than a piece of paper. If they let those considerations underline their deliberations then there would not be any need for me to write another column a couple of years down the road, on this same issue, with these same suggestions.