SAARC eviction and Property Rights

(Pic courtesy: The Daily Mirror)

In view of the SAARC summit, the Sri Lankan government decided to demolish the homes of a bunch of poor people living in 'unauthorized dwellings'. Apparently aesthetics are more important for the government than life and property of people. Writing on the topic, last Sunday's The Island makes a few interesting observations :

The houses that have been broken down were certainly unauthorized and built on state land by people who had no title to such property. But the responsible authorities permitted not just their construction but their consolidation. Water and electricity have been connected. The Colombo Municipal Council, the victims say, even made rating assessments! The occupants of these houses were not Johnnies come lately, some claiming to have lived there for 30 and 40 years. They had sunk roots in that neighbourhood, got their children into schools in the vicinity and had probably been even buying and selling houses there. [..]

The reality is that while those evicted are wrong-doers, if they have long been permitted to do what they have done, then the State and its various agencies are complicit. Out in the countryside when villagers encroach on state land and cultivate crops, such encroachments are often regularized by the authorities as it is recognized that these farmers really deserve the land they till. [..] [link]

The whole episode reminds me of the work of Hernando de Soto, the influential Peruvian economist who studied why capitalism didn't work so well in the developing world as it did in the west. His ultimate conclusion, articulated in his book, The Mystery of Capital, is simple. The reason why capitalism worked well for the west is because of it's legal institutions, or more specifically -- property rights. Much of the poor in the developing world doesn't have property rights. They may occupy a land, own a house, but they don't have the title to that property. This means that they can't get credit, can't make long-term contracts and they can't formally enter into business. De Soto argues the world's poor is essentially locked out the system while sitting on a mass of 'dead capital' which they can't profitably use, simply because, they don't own the right to property.

What should have happened then (and what De Soto has done in number of countries) is to come up with a systematic way which formalizes property based on existing understanding and "social contracts" that exists among people. What happened last week was the opposite -- instead of giving them a hand up in the ladder to prosperity, the government destroyed whatever little they had. It's a crime of the highest order.

Update (27/07/08) : Via indi.ca see this video of the police destroying the houses.

Note : I Don't have time to make a longer case for this. But do see the work of Darin Gunasekara, who created a stock market housing exchange in Sri Lanka along the same lines which de soto articulated. For more on De Soto's work check out his wikipedia page, and see this excellent speech by him in the ILD website, or better yet read his book.

In related news, I'm hitting two unbelievably busy weeks. Blogging will be slow.