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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.
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.Published in