Opinionista Ivo Vegter 23 October 2013

This land is my land: a revolution

On Tuesday, Free State premier Ace Magashule will formally hand over the first of 30,000 free-hold title deeds to residents on government land in Ngwathe municipality. As a case study in economic freedom, it does not come bolder, or more timely. But extending private property rights to township dwellers is only a first step.

“Parys is a mighty schoolmaster, a grand enlightener of the provincial intellect,” wrote the Victorian-era popular novelist, Mary Elizabeth Braddon.

“Parys is a moveable feast,” echoed the bibulous American literateur, Ernest Hemingway.

“It is the most extraordinary place in the world!” exclaimed the usually dour critic of modernity, Charles Dickens.

It is all these things, and more. As I write this, Joey Mochela, the mayor of Ngwathe municipality on the banks of the storied river Vaal, is welcoming the premier of the Free State, Ace Magashule, to the town of lights, the town of love, the town of Enlightenment, where today, the cry of “liberté, égalité, fraternité” rises from 30,000 revolutionary throats.

The reason for the celebratory mood is exactly 100 years after the passage of the infamous 1913 Native Land Act, the Bastille has fallen, and the people are free. Not only nominally free, in that they can vote who they would prefer to oppress them with their bureaucratic rules, regulations, corruption and taxes, but truly free, in that they are kings of their own castles.

As of Tuesday, all permanently occupied land in Ngwathe, which includes Parys and its township, Tumahole, will be converted to “unambiguous, freely tradable, lettable and mortgageable ownership at minimal or zero cost to owners.”

Conceived by the Free Market Foundation, in partnership with the Law Review Project, consultants Ernst & Young, bankers FNB, and law firm Routledge Modise, the Ngwathe land reform project is today handing over the first of 30,000 title deeds.

According to its backers, “the project will make Ngwathe the first local government in which all black-held land is held under full unrestricted freehold title indistinguishable from title in historically ‘white’ areas, thereby eradicating a century of land tenure discrimination against black South Africans.

“Ngwathe is committed to promoting genuine economic freedom for its residents by granting them secure and freely tradable property rights. This will enrich and empower disadvantaged communities. Tradable land, even without the need to use it as security, makes communities ‘bankable’, facilitating access to a range of financial services and ensuring economic growth.”

The restricted ownership that usually accompanies housing projects and other land reform projects, such as those under the Reconstruction and Development Programme (RDP), has a number of iniquitous effects. While it does put a basic roof over a family’s head and confers “security of tenure”, owners usually may not, for a set period of time, sell their property or let it out.

This makes low-cost housing in the townships “dead capital”, in the phrase made famous by Peruvian economist Hernando de Soto, the president of the Institute for Liberty and Democracy. Because it is encumbered, it cannot be used as collateral to raise capital for expanding their home of funding a startup business. Worse, it can lock people into unemployment, because they are unable to move to where employment is available without losing their house.

Moreover, these houses are usually located on land owned by local, provincial or national government. That makes the people who live there mere serfs, dependent for their security of tenure on government bureaucrats. Many are loyal to their masters and vote for them purely out of fear of losing their patronage.

De Soto views capital not merely as an accumulated stock of assets, often represented in terms of money. Capital consists of those assets that have the potential to be deployed to create new production and increase productivity. Not all money is capital, not all assets have this potential, and not all this potential is realised. Assets that cannot be used in this manner, De Soto calls “dead capital”.

His key realisation is that the mechanism by which capital is embodied in assets that stimulate production lies in the practice and institutions of private property ownership. The lack of formal title and the processes to efficiently administer them is why in many societies, production is limited to small local networks of trusted trading partners, he argues.

A superficial reading of De Soto suggests that all that is required to unlock the vast potential of assets in poor and developing countries is to confer legal title to assets such as land and houses. This is not a new idea, however, and several critics have emerged, predominantly from the political left, to claim that this theory has serious shortcomings.

One of the more thorough of these is Celestine Nyamu-Musembi’s working paper for the Institute of Development Studies at the University of Sussex Brighton.

She identifies five problems: “First, legality is constructed narrowly to mean only formal legality. Therefore legal pluralism is equated with extra-legality. Second, there is an underlying social evolutionist bias that presumes inevitability of the transition to private (conflated with individual) ownership as the destiny of all societies. Third, the presumed link between formal title and access to credit facilities has not been borne out by empirical evidence. Fourth, markets in land are understood narrowly to refer only to ’formal markets’. Fifth, the arguments in favour of formulisation of title as the means to secure tenure ignore the fact that formal title could also generate insecurity.”

Another erudite broadside against De Soto came from John Gravois, writing in Slate magazine: “De Soto’s ideas have been packaged and peddled all over the Third World … as the new conventional wisdom for fighting poverty. … But on the ground, it turns out that de Soto’s ideas are doing very little to solve the actual problems of poor people. … De Soto is right to point out the importance of legally sorting out who owns what in the Third World. Secure property rights probably are indeed, as he puts it, the ‘hidden architecture’ of modern economies … But he has botched the details, especially by pushing one solution – individual property titles – for all different kinds of poor people in all different kinds of poor places.”

The problems with such criticism are expressed well in a rebuttal to Gravois penned by Ivan Osorio of the Competitive Enterprise Institute.

He notes that characterising De Soto’s work as a simple one-sized-fits-all solution, namely title deeds, is a straw man. The truth is more prosaic, as one might expect in a complex world. Formal title and private ownership are necessary conditions for reviving dead capital, but they are not sufficient.

De Soto based his work on many individual case studies, each of which have different characteristics. He emphasised the importance of an efficient legal system. He did not deny the importance of other factors for capital formation, such as secure income. Bureaucratic costs, delays and difficulties can undermine the ability of a property owner to efficiently deploy it as capital. And, of course, nobody expects the benefit of economic productivity to be uniformly distributed among all property rights holders. Some people use their assets productively, while others do not.

Leon Louw, executive director of the Free Market Foundation, recounted many challenges in the establishment of title deeds to land and housing in Ngwathe. Many of them involved stifling bureaucracy, such as requiring electrical compliance documentation for properties without electricity and tax clearance certificates from indigent people who never registered as taxpayers.

A similar tale of planning permission hell was related to me by a local property developer who was trying to help one of his employees turn his shack into a more durable home with all basic amenities.

“The system is set up for middle-class people who already are in the formal economy,” Louw says.

The Ngwathe project is being treated as an important case study in converting black-held land into full ownership, according to Louw. As such, every step and every challenge has been recorded in a manual on title conversion. It will include tips on making title conversion fast and cheap. The aim is to create what the project partners call “a case study and implementation manual for the project to be replicated throughout South Africa, in which most black South Africans occupy land under a complex variety of restrictive tenure and titles.”

Louw says he’d like one of the recommendations to be that instead of a complicated process of conveyancing or upgrading title rights, qualifying home occupants simply receive deeds created at the stroke of a pen.

Although an authoritative land ownership survey remains a pipe dream, it is well known that municipalities, provinces and the national government own vast tracts of land. Many townships are located on such land. Some local governments are willing to give effect to private title, but are stymied by higher spheres of government.

Ngwathe’s land reform project is a first step. It success will depend crucially on the development of efficient institutions to support the protection and exercise of private property rights. But it is the first step in a revolution.

Like in 18th-century France, the revolution did not end with the storming of the Bastille. A great many internal and external threats undermined the beauty of the Declaration of the Rights of Man. Ultimately, personified by Robespierre and Napoleon, terror reigned. The lesson is not that freedom is not just, or not desirable. The lesson is that it is fragile. Once established, liberty requires durable and efficient institutions to advance and protect it.

“It is the common fate of the indolent to see their rights become a prey to the active,” warned John Philpot Curran, an Irish politician and judge. “The condition upon which God hath given liberty to man is eternal vigilance; which condition if he break, servitude is at once the consequence of his crime and the punishment of his guilt.”

In their celebration of becoming free-hold masters of their own property, the residents of Ngwathe would do well to remember this. Much can still go wrong. De Soto’s proposal is not a quick fix. It will require care and dedication. But as a first step on the road to economic freedom, it is glorious. On Tuesday, Parys truly did become our City of Light. DM


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