The Peruvian economist Hernando de Soto has been praised by Francis Fukuyama, Margaret Thatcher, Milton Friedman, and Bill Clinton, and travels the world spreading his central idea: that governments in developing and transitional countries should provide titles and property rights to those in informal settlements, to unlock the power of land ownership as a path to economic development. The de Soto formula, applied from Peru and Vietnam to El Salvador to Egypt, and more recently considered in places such as Afghanistan and Pakistan in part as an economic answer to terrorism, suggests there is $9 trillion in "dead capital" in the world's slums and shantytowns, and many aid agencies including the World Bank and USAID have supported programs in legalization and formalization. But, Lincoln Institute visiting fellow Edesio Fernandes asks, is the de Soto solution overly simplistic? Does it deliver what it promises?
Research suggests that many of those awarded titles fail to gain significant access to credit, Fernandes says. Title registration and legalization do not automatically lead to regularization, the consolidation and sustainability of settlements, or to reduced poverty, unless governments follow through with infrastructure, education, and support services. Giving titles to the poor may not be a silver bullet after all, according to a 2006 story in The Economist. One additional troubling issue is what Fernandes calls "eviction by the market," as when soon-to-be-titled properties in Rio favelas are turned into condos – or a view-rich hilltop hotel complex, as one German developer has proposed. Informal land prices shoot up at the mere mention of a legalization program, and there is some speculation that the promise of titling is actually spurring increased squatting.
"Titling is crucial, but alone it's not enough," Fernandes said at a Lincoln Lecture March 25 at Lincoln House (a video of the lecture will also be posted shortly at the Lincoln Institute Web site Lectures page). He suggests the combination of titling programs and preventive policies enabling legal access to land and housing; a more calibrated socio-spatial integration of consolidated informal settlements; and different kinds of titling such as lease-hold, special zones, or rental contracts, and a distinction between private and public land, that allows governments to better support the permanence of the communities. Also not to be overlooked: the self-organizing systems, predicted by Jane Jacobs, that emerge in informal settlements that are left informal, from building codes to rights of way – even the presence in some cases of an unofficial notary, as noted by Martim Smolka, director of the Program on Latin America and the Carribbean at the Lincoln Institute. De Soto in effect overlooks the fact that the consolidation of informal settlements are often associated to the emergence of a vigorous and quite stable property market supported by a surrogate titling system. While it may be too early to tell whether legalization and land ownership leads to more stability and wealth, Fernandes said, the question is whether the advantages of the de Soto approach outweigh the problems.