Poverty and Property Rights

 

On my first trip to Ethiopia seven years ago, I took along a copy of Hernando de Soto’s book The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. I chose well. De Soto’s treatise on the primacy of property rights in fostering economic development provided a framework for understanding the dysfunction I saw in the slums of Addis Ababa.

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I vividly recall one house call to an HIV patient–we will call her Abebech–who lived in a “moon village,” so named because the hamlet sprouted one night on vacant land earmarked for a sports complex. The authorities blustered but never got around to demolishing the settlement, and so it grew, eventually to thousands of residents. Abebech warmly welcomed me to her house, an eight-by-six foot room with walls of dried mud she rented for $17 per month. Once we got through introductions and the state of her health, I asked what concerned her most.

“The rains will come soon, my roof leaks and I will be very cold,” she said, pointing to patches of sky visible through several quarter-sized holes in the ceiling.

Helpless no more! Finally, something I can fix. I’ll have that roof watertight in under an hour.

My elation at finding myself in the American cultural sweet spot—Problem Solver—evaporated before the translator finished rephrasing my offer into Amharic. I watched with dismay as Abebech’s face fell into a grimace.

“No, no, you can’t do that. If you fix the roof, I will be thrown out of my house!”

Huh? That’s crazy.

No, not crazy; not really—just very very sad. Abebech’s predicament, as de Soto details at length, was the logical consequence of the ownership uncertainty prevailing throughout the developing world. Eventually, with many delays for translation, I worked out the particulars. Abebech’s “landlord” was the man who erected the house. He leveled the ground, planted the eucalyptus framing poles, fashioned walls from sticks and mud, and topped the edifice with a leaky tin and plastic roof. But he had no legal right to the fruit of his labor. Actually, building Abebech’s “unofficial house” was a crime, since it was constructed on public land – and it is all public land in Ethiopia.

Where there is no legally recognized ownership, improvements to property need to pay for themselves instantly, as any personal investment can vanish in a moment. Because nobody knows when the government will get to the “sports complex” page in its five-year-plan, there is no way to amortize the cost of improvements, no valid collateral, and therefore nobody willing to lend money — and no legal recourse to resolve a dispute. Because capital improvements that pay off instantly are rare, very few improvements are ever made. Therefore, a moon village remains a slum in perpetuity, or until it is demolished. If, against all rational calculation, a house is upgraded—say a naïve American doctor happens to visit—the logic of a community without property rights dictates instant monetization. The rent increases today. If the tenant cannot pay, then she and her things are moved out in favor of another.

Abebech was understandably horrified because my solution would actually make her much worse off. She wanted empathy, nothing more.

Two years ago, Abebech’s moon village was leveled. The government gave the residents 72 hours to clear out before the bulldozers arrived.

From an investment standpoint, in Ethiopia as in much of the developing world, today is all there is; there is no tomorrow.

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  1. Claire Berlinski Editor
    Claire Berlinski
    @Claire

    George Savage:Claire, Ethiopia ACT’s staff is mainly Ethiopian–a big help when dealing with officaldom.

    How did you become involved with them? Was there something in particular that drew you to Ethiopia? The history is so fascinating, and there’s so much of it that I don’t understand: have you found a good history of the Aksumite kingdom, for example? All I know about it is that it existed and was extraordinarily successful, and then it disappeared. Why?

    Have you had the chance to travel beyond Addis? Is it a place where you can sense all that weird and mysterious ancient history?

    • #31
  2. user_51254 Member
    user_51254
    @BereketKelile

    Claire Berlinski:

    George Savage:Claire, Ethiopia ACT’s staff is mainly Ethiopian–a big help when dealing with officaldom.

    How did you become involved with them? Was there something in particular that drew you to Ethiopia? The history is so fascinating, and there’s so much of it that I don’t understand: have you found a good history of the Aksumite kingdom, for example? All I know about it is that it existed and was extraordinarily successful, and then it disappeared. Why?

    Have you had the chance to travel beyond Addis? Is it a place where you can sense all that weird and mysterious ancient history?

    I don’t have any recommendations for the Aksumite kingdom but I’ve found Harold Marcus’ overview of Ethiopia’s history a good resource and may contain better sources in the bibliography. I’ve always had the impression that he strikes a good balance between genuine interest in the people and history while also being fair and objective.

    • #32
  3. Howellis Inactive
    Howellis
    @ManWiththeAxe

    “Cutting for Stone” is the only book that I’ve read about Ethiopia, but I strongly recommend it.

    • #33
  4. skipsul Inactive
    skipsul
    @skipsul

    This has been a fascinating read – I’m going to recommend this entire article to a family member who is trying to set up a medical clinic in Ethiopia right now.

    • #34
  5. Bryan G. Stephens Thatcher
    Bryan G. Stephens
    @BryanGStephens

    Claire Berlinski

    I remember speaking to a top guy at–well, probably best not to say, but a very large and well-known American aid organization–who was just beside himself because the Turks weren’t giving them permission to load and unload supplies at the airport they needed to use. He was telling me that the bureaucracy was insane, he couldn’t figure out why they were making this so complicated, he’d been working on getting permission to fly this stuff in for months, he just couldn’t figure out what the problem was. When he told me this, I stared at him in incredulity–he couldn’t figure out why the Turks were acting like this, and I couldn’t figure out why he was surprised, why he was taking what they were saying at face value, and why he hadn’t just asked someone who might know how things there work.

    I believe it is true, but it is an example of how stupid other cultures are. No wonder that part of the world needs aid in the first place.

    • #35
  6. user_483582 Inactive
    user_483582
    @PepeLePew

    Claire, there are laws against bribery of foreign entities by U S persons. Even if there are exceptions or workarounds for charity efforts, we have a mindset that bribery is wrong. However, the Iraq war surge included a large bribe of various tribal units and it brought peace (for a while). Our Puritan- like disdain of bribery thus impedes charity!

    • #36
  7. Spin Inactive
    Spin
    @Spin

    I still think this is a great post.

    • #37
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