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'Prosperity is about the ability to combine'

July 01, 2010 11:11 IST

Hernando De SotoPeruvian economist Hernando De Soto, now in New Delhi to advise the Indian government on urban housing and property right issues as part of its agenda for a slum-free India, says that the trick is in offering a buffet of choices to the people.

In a conversation with Sreelatha Menon, he says anything that brings assets to the poor is great, but the poor also need an access to macrofinance.

Edited excerpts:

You have been known for your belief in property rights and titles as a means of empowering the poor. Would you be taking this position when you offer advice to India on slums and urban housing?

The first thing we propose is that one should find out what the existing arrangements of the poor are and to what extent these are outside the legal system.

That is the only way to find out what you have to give to them.

When you go to them, give them what they expect and a legal environment where they can change their mind and adopt legal ways.

They all want alternatives but there should be a legal environment that allows these.

In the West, they can decide what they want -- be it cooperatives, or corporations or family businesses or so on. In the US, 70 per cent of the dairy production is by cooperatives.

The important thing is to give them a buffet. Or policymaking becomes a competition among intellectuals, with little to do with ground reality.

When we provided assistance in other countries, we found that the expectations and needs varied. In Tanzania, 11 per cent of the population preferred communal and tribunal property while others wanted private property.

Therefore, the formula is you don't choose. Let people choose.

But why insist on titles? Because the need for housing in cities is infinite now. Shouldn't a secure tenure suffice? For people in cities are migrants with homes in villages.

If you go to Dharavi in Mumbai, you'll see people are buying and selling even without titles. Imagine I am selling this hotel. And Bill Gates is buying it.

I ask for a huge amount. But I will not get it as I have no title. So, the poor also buy and sell at lower prices.

What do you think about the government's new plan for a slum-free India called the Rajiv Awas Yojana which is being launched. Your Institute for Liberty and Democracy is being consulted on this.

First, we don't have an opinion on India. We are only trying to offer the benefit of our experience. So, we can help you look at legal prescriptions and the consequences of adopting a path.

This means finding out about the poor and how they relate to the Indian law. Will they be able to use their property for credit? Essentially, prosperity is about your ability to combine.

Look at a pencil. It is a combination of several things from several places. . . the wood is from somewhere, the dye from somewhere . . .ll that you have is a result of a combination.

What is the capacity of the poor to combine? When we talk about Karl Marx's division of labour, we are talking about combination.

We all specialise.

As classical economists, we look at how much the poor are able to combine. If the law says you can't do certain things, that means you remain that much poor. When I look at rich Indians, they combine and recombine more.

The poor the opposite.

Above all, I believe in democracy. So, whatever our ideas, it is the choices of the people that matter. Whether it is rented housing or titled ones.

First of all, we need a good diagnostic of what is going on. What is the capacity India has of creating rented homes?

But by and large, in various societies, systems came with the ownership of property. We ourselves don't know housing.

Our speciality is the law related to property. We can use our expertise in getting a law that is well debated. We can bring to the table questions that will help take better decisions on property rights.

Nothing seems to stop migration from villages. How can you find enough houses for everyone if this continues?

Migration is a universal problem. It is happening in China and Latin America. Today, 78 per cent of Peruvians are in cities while they were just 30 per cent when I was born.

In the US, people on the farms are just one per cent. There is a reason.

They are very poor. They have not read books on economics.

They believe that their standards would go up in cities. When Henry VIII in the 16th century launched the Poor Law, which was about subsidising people to stay back in villages, people gladly took the subsidies but migrated nevertheless.

Every city which has tried to stop migration has failed. The tendency will be for people to cluster together.

What about the National Rural Employment Guarantee Scheme giving 100 days of work? It does not seem to stop people either.

It is a good idea. But be prepared for an urbanised India unless you are different from the rest of us, coming from an Avatar or Pandora!

The idea is to have better cities. Maybe we can also go back to the countryside in a distant future like the Americans are doing now and work from home.

Do you think microfinance is a good enough tool to put capital in the hands of the poor, especially in the absence of financial inclusion and lack of banks to cover rural areas?

It is a wonderful idea. Anything that brings assets to the poor is great.

But the poor also need access to macrofinance. In the US, a lot of companies you see today -- Apple or Buffet's firm -- all started in garages. You need property to raise capital. For money you need papers, an address.

In the rural areas of many states, extremists and Naxals are holding sway.

These are places where there have been a lot of land issues, with industry, government often together willing to acquire land for various projects like dams, mining and power plants.

People have titles but they are caught between Naxals and state.

If I were a mining company and I need space, I would go to the villager and quote my price directly. If he refuses, I raise the price higher and higher till he sells. Why don't they do this?

Why do they ask the government to come in? I know what could be the probable reason.

The title may not be clear. So, probably the companies want to talk to the government.

If you gave people clear rights to property, it is hard to displace them if they don't want to move.

If you have this problem, it means your titles are not clear. If we do a survey here, we will find immense amount of conflict over land everywhere. It is all due to undefined titles.

Have you met political leaders like Rahul Gandhi and what do you think about their views on the subject?

I have met him for barely two hours. He has a political mind and we would be meeting again.

Image: Hernando De Soto

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