xtitsx: (Default)
( 9 Mar 2017 07:33 pm)
we had to read a book called The Mystery of Capital by an Peruvian Economist named Hernando de Soto for Property class.
[see Tuesday's post]
our Professor then gave us an assignment to analyze one of the concepts we've learned about thus far through the lens of de Soto's central thesis that property rights are the key component to a successful capitalist economy.
so i did that.

When pondering global wealth inequality it is all too easy to fall into one of two reductive traps about why the West seems to thrive and the rest of the world lags behind. The first, more obvious trap is that people in the developing world are either too lazy or too backward to pull themselves out of poverty and create modern utopias in our image. Basic common sense tells all but the most enthusiastic racist that that cannot be the case. The second trap that tends to snare those of us with the best of intentions is that the developing world is in the state that it is in today because of centuries of rape and pillage by the colonial West. This view is not entirely untrue, the colonial era certainly left deep, ugly scars, though that view paints the developing world as hapless victims of Western exploitation and does not account for the agency and ingenuity of the billions of people who make up the developing world's economies. Through meticulous research, Hernando de Soto documents that the huddled masses who make up the bulk of the developing world collectively hold a staggering amount of wealth. Push-cart entrepreneurs, street hustlers, counterfeiters and bootleggers, informal factories set up in shantytowns, are all a part of a thriving and bustling informal economy in every major city in the developing world. The question is then begged, what is it that prevents these would-be capitalists from bringing their ingenuity out into the world of the global economy?

The central thesis of Hernando de Soto's The Mystery of Capital is that formal property institutions -recognizable deeds, centralized registries, regimented mechanisms for transfer and official avenues for dispute resolution- are the secret ingredient that can make or break a capitalist economy. States that have an effective and efficient legal structure in place to formally manage property rights can unlock the potential of its citizenry to accumulate and multiply wealth in a way that systems with underdeveloped property systems cannot. Efficient formal property structures provide an avenue for the lumpenproletariate to establish trust and leverage what property they legally hold to secure loans to serve as start-up capital for enterprises that can multiply their wealth. States that have inefficient or obtrusive or non-existent formal legal structures in place to manage property rights drive their citizenry to inhabit and trade within an informal sector where trust is limited, credit is rare and opportunities become scarce. A well-established, entrenched rule of law and the culture it creates are thus the key to turning property from a tangible possession to an abstraction capable of unlocking capitalism's real potential.

There is great hope to be found in de Soto's The Mystery of Capital. de Soto reminds us that the developing world is in the throws of its own industrial revolution. That the formal, legal property systems that define the West and our customs and traditions of abiding by that rule of law, are the product of hundreds of years of developing from an agrarian to an industrial and now post-industrial society. The developing world is advancing through that evolution in decades. An optimist would take comfort in the hope that in time, the formal mechanisms for managing property will supersede the necessity of the informal sector, allowing capitalism to thrive in the developing world. A pessimist would say it is a difficulty bordering on cruelty to watch and wait.

While the central thesis of de Soto's The Mystery of Capital is sound, there seem to be glaring gaps in the otherwise-happy marriage between capitalism and the rule of law in the West. Adverse Possession is a doctrine that allows a party with no legal interests in a particular parcel of property to lay claim to it after performing a prescribed set of formalities. Generally, a party claiming adverse possession must inhabit the land they are claiming openly and notoriously for a period of time normally not less then ten years, with hostility to the interests of the legal property owner. This mechanism for state-sanctioned thievery seems out of place in a modern, formalized legal structure. One would think that, given the great success the West has had with its respect for formal property rights, a practice as base and lawless as encouraging parties to grab what they can from each other and hope they don't get challenged would have fallen out of practice with the decline of the Old West. Upon closer analysis, however, Adverse Possession serves an important niche in a formalized legal property system, churning the mulch on decaying title and allowing new life to flourish. Adverse Possession provides a legal, recognized mechanism for entrepreneurial parties to repurpose property that is otherwise going to waste and put it to some more productive use. After demonstrating to a court that they have met the not-at-all-easy standards to make an Adverse Possession claim and after having title and deed quieted and formally recognized in their name, the claiming party can then rest assured that the original owner might not come back one day several years later to attempt to reassert their interests, and can move forward, secure in their legally-recognize ad protected rights. Whereas in systems with less formalized property laws this situation might degenerate into criminality or a clan feud, in the West, formal property structures allow for the peaceable transfer of property from atrophy to utilitarian usage.

While Adverse Possession may have a place in a formalized legal structure, it has two much more sinister cousins that portend a much darker interpretation of the West's legal property traditions; Eminent Domain and Civil Asset Forfeiture. Eminent Domain is a concept in property law in which the State may expropriate property from private ownership with or without consent, in exchange for “fair” compensation. Of course, when one party does not give consent, no amount of compensation is “fair.” Allowing the State to undermine the private property rights of the citizenry seems to go against everything de Soto articulates that the West is doing right. It erodes the confidence of legal property structures and destroys the trust and predictability that are vital components for Capitalism to thrive. This kind of State thuggery is more appropriate for Communist China or the Soviet Union. Civil Asset Forfeiture allows agents of the State operating under color of law, to seize whatever property they like, from cash to cars to houses, without writ or warrant, requiring only the vague inclination that something fishy might be going on. This practice is little more then piracy and is totally incongruous in a system where mechanisms for the transfer of property are otherwise governed by the rule of law.

While the West has undeniably benefited in many ways from the formalist, legalistic mechanisms of property law, there are gaps in the system that make it appear to certain people in certain situations that the systems in place are not there to allow them to spin profit from their assets but are in actuality a cudgel wielded by people in power to rob them of what little they have. People who find themselves on the wrong end of the formal legal infrastructure may well wish that they inhibited a system that was not so ridged, not so powerful, where the only thugs and pirates they have to worry about are the regular variety, not ones who work for the State.

//[ab irato ad astra]

September 2017

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