19 March 2012

Are Property Rights the Path out of Poverty?

Adam Davidson of NPR's Planet Money pens a review of Daron Acemoglu and James Robinson's new book Why Nations Fail for New York Times Magazine. The review is largely about the work of Acemoglu and his contribution to reshaping how we think about failed states.

A short summary of the books thesis:
But through a series of legendary — and somewhat controversial — academic papers published over the past decade, Acemoglu has persuasively challenged many of the previous theories. (If poverty were primarily the result of geography, say, or an unfortunate history, how can we account for the successes of Botswana, Costa Rica or Thailand?) Now, in their new book, “Why Nations Fail,” Acemoglu and his collaborator, James Robinson, argue that the wealth of a country is most closely correlated with the degree to which the average person shares in the overall growth of its economy. It’s an idea that was first raised by Smith but was then largely ignored for centuries as economics became focused on theoretical models of ideal economies rather than the not-at-all-ideal problems of real nations. 
Consider Acemoglu’s idea from the perspective of a poor farmer. In parts of modern sub-Saharan Africa, as was true in medieval Europe or the antebellum South, the people who work the fields lack any incentive to improve their yield because any surplus is taken by the wealthy elite. This mind-set changes only when farmers are given strong property rights and discover that they can profit from extra production. In 1978, China began allowing farmers to benefit from any surplus they produced. The decision, most economists agree, helped spark the country’s astounding growth. 
According to Acemoglu’s thesis, when a nation’s institutions prevent the poor from profiting from their work, no amount of disease eradication, good economic advice or foreign aid seems to help. I observed this firsthand when I visited a group of Haitian mango farmers a few years ago. Each farmer had no more than one or two mango trees, even though their land lay along a river that could irrigate their fields and support hundreds of trees. So why didn’t they install irrigation pipes? Were they ignorant, indifferent? In fact, they were quite savvy and lived in a region teeming with well-intended foreign-aid programs. But these farmers also knew that nobody in their village had clear title to the land they farmed. If they suddenly grew a few hundred mango trees, it was likely that a well-connected member of the elite would show up and claim their land and its spoils. What was the point?
The Seattle-based NGO Landesa is one of the leaders in working with nations to ensure that property owners have land rights. This video tells the story of how the NGO is partnering with the government of Rwanda to ensure that people get owner's deeds to their own lands.
It looks a bit like the Girl Effect video that has made the popular rounds over the past few years. The timeline of what could be when a family owns their land is inspiring, but rather simple. The theories of Acemoglu about state failure seem to confirm the premise of Landesa and the video.  

When I get the chance, I want to get my hands on the book to learn a bit more about this myself. I am curious to what extent land ownership will lead to development. One advantage that I have not heard mentioned is that it should help to stabalize the microfinance industry. Clients who own their own land have equity which can in turn help MFIs evaluate and protect themselves on loans. It could be possible that such equity could drive down rates as the ability to collect becomes easier. Naturally, the issue of foreclosure would come into play which is a nasty and drawn-out process (at least in the US).

I will turn to the wisdom of the crowd to share their inputs and experiences. What do you think?