Every single cow in Tanzania has an owner. Every plot of arable, grazable, usable and sometimes unusable land has a public or private owner with certain land-use rights. Every single village in Tanzania has a recordkeeping office that maintains some symbolic representation of who owns which cows, who owns what plots of land, and who owns other assorted income-generating necessities of some not-immediately replaceable value. Every single village has a adjudication process for settling disputes over who owns what in each village.
In the first of USAID’s 2009 Summer Seminars, Institute for Liberty and Democracy (ILD) Founder and President Hernando de Soto spoke about how ILD works with the poor around the world to verify the existence of such records, offices, and processes, and linked the financial crisis in developed markets to the struggle of countries such as Tanzania that wish to eradicate poverty. The challenge for both developed and developing markets, is about the lack of standardization.
Considering that often the first time assets and owners in developing countries are identified on paper is in court documents, de Soto explained that each village court has its own separate method of documentation. Financial institutions similarly have created proprietary systems for documenting and managing derivatives. Without standardized methods of appropriate documentation, de Soto argued, hard economic times will continue – for the poor and for financial markets.
When the only people who can verify what is owned and who owns what are the owner’s neighbors or employees, there is insufficient trust for market actors to cooperate and form productive relationships between unfamiliar parties. “If you look around this room, we could be anywhere,” de Soto said. “There isn’t anything in this room, that was built by a single person. It requires cooperation at a massive level to produce this kind of prosperity.”
Lack of trust keeps the poor poor by preventing them from easily exchanging goods, services and assets with people beyond their own villages or slums; and it freezes the credit markets when financial institutions can no longer rely on the publicly stated value of each others’ assets. The need for standardization, in reference to Wednesday morning’s seminar title, is what capitalists and slumdogs have in common.
Standardized documentation – pieces of paper, essentially – are what’s missing. Without them, $10 trillion in dead capital held by the world’s poor will remain underused and undervalued outside formal capital markets; while the $600 trillion in worldwide derivatives will remain toxic without globally recognized and promptly verifiable links to underlying real assets. It’s not so much an issue of private versus public ownership, de Soto said, but an even more basic question of clearly documenting what is owned – be they cows or derivatives.
Published Date: July 01, 2009