The Rational Optimist_ How Prosperity Evolves - Matt Ridley [150]
The world is your oyster
It is not as if Africa needs to invent enterprise: the streets of Africa’s cities are teeming with entrepreneurs, adept at doing deals, but they cannot grow their businesses because of blockages in the system. The slums of Nairobi and Lagos are terrible places, but the chief fault lies with governments, which place bureaucratic barriers in the way of entrepreneurs trying to build affordable homes for people. Unable to negotiate the maze of regulations that govern planning, developers leave the poor to build their own slums, brick by brick as they can afford them, outside the law – and then await the official bulldozers. In Cairo it would take seventy-seven bureaucratic procedures involving thirty-one agencies and up to fourteen years to acquire and register a plot of state-owned land on which to build a house. No wonder nearly five million Egyptians have decided to build illegal dwellings instead. Typically, a Cairo house owner will build up to three illegal storeys on top of his house and rent them out to relatives.
Good for him. However, entrepreneurs who start businesses in the West usually finance them with mortgages, and you cannot get a mortgage on an illegal dwelling. The Peruvian economist Hernando de Soto estimates that Africans own an astonishing $1 trillion in ‘dead capital’ – savings that cannot be used as collateral because they are invested in ill-documented property. He draws an instructive parallel with the young United States in the early nineteenth century, where the formal codified law was fighting a rearguard action against an increasingly chaotic confusion of informal squatters’ rights to property. More and more states were tolerating and even legalising pre-emption – ownership acquired by settling land and improving it. In the end it was the law that had to give, not the squatters – the law allowing itself to change by bottom-up evolution, not top-down planning. The retreat culminated in the Homestead Act of 1862, which formalised what had been happening for many years and signified ‘the end of a long, exhausting and bitter struggle between elitist law and a new order brought about by massive migration and the needs of an open and sustainable society’. The result was a property-owning democracy in which almost everybody had ‘live’ capital, which could be used as collateral for starting a business. Enclosure had played a similar role in Britain earlier, though lack of unoccupied land made the result far less equitable. Revolution eventually achieved property rights for the French poor, too, rather more bloodily, and would probably have done the same for Russians, but for the Bolshevik coup.
The importance of property rights can even be demonstrated in the laboratory. Bart Wilson and his colleagues set up a land of three virtual villages inhabited by real undergraduates of two kinds – merchants and producers – making and needing three kinds of unit: red, blue and pink. Since no village can make all three units, the subjects had to start trading among themselves and did. Unlike in the previous, simpler experiment (see pages 89–90) they graduated to impersonal, market-like exchange. But when the players had a history of no property rights – i.e., they were able to steal units from each other’s caches – the trading never flourished and the undergraduates went home poorer than if they had a history of property rights. It is exactly what de Soto and economists like Douglass North have been saying about the real world for some time.
(Incidentally, there is now overwhelming evidence