Saturday, February 7, 2009

Malloy on DeSoto

Robin Paul Malloy (Syracuse) has posted The Mystery of Capital and Inequality of Outcome in Formal Porperty Ownership on SSRN.  Here's the abstract:

Hernando DeSoto has argued that economic development is linked to creating accessible representations of property so that more people can own property and engage in market transactions. He asserts that less developed countries fail to advance economically because they do not make it easy to access and prove title. The implication is that economic development problems can be solved by creating legal infrastructure that makes deeds, mortgages, and title information accessible, predictable, stable, and transparent. This essay, prepared for a forthcoming book on "Economic and Social Inequality" being edited by Jordon & Olgetree, raises questions about DeSoto's primary thesis. It does this by asking questions about disparities in economic outcome in a country such as the United States. The United States has the entire legal infrastructure that DeSoto finds missing in the developing world and yet we find that economic outcomes vary significantly between and among racial groups. A key area in which this is true is that of housing.

One conclusion to be drawn from this state of affairs is that while DeSoto's work presents a good starting point for thinking about the relationship between property law systems and development, it is not a cure-all because the presence of a stable, predictable, transparent, and generally accessible property law system does not ensure economic success for everyone working hard to achieve it. Similarly, in the developing world that DeSoto addresses it is not as if there are no legal forms for deeds, mortgages, and title records. The key is accessibility, and so attention must be paid to disparities in accessibility.

Perhaps DeSoto is correct with respect to the need for property law representations and infrastructure as the initial conditions for major economic gains in a developing country, but the question remains as to other steps that need to be taken beyond those outlined by DeSoto when dealing with continuing evidence of inequality of outcome in a mature and developed market economy such as that of the United States.

Ben Barros

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