What tenure security? The case for a tripartite view

Economics textbooks invariably describe the important economic choices that all societies must make by the following three questions: What goods are to be produced? How are these goods to be produced? Who is to get what is produced? This way of stating social choice problems is misleading. Economic organizations necessarily do resolve these issues in one fashion or another, but even the most centralized societies do not and cannotspecifythe answer to these questions in advance and in detail. It is more useful and nearer to the truth to view a social system as relying on techniques, rules, or customs to resolve conflicts that arise in the use of scarce resources rather than imagining that societies specify the particular uses to which resources will be put.

Hernando de Soto's new bestseller, The Mystery of Capital , attributes the failure of capitalism in the Third World to the lack of property titles. Many governments around the world are following this advice and are busy distributing legal titles to self-help families. Using data gathered in the now legalised self-help settlements of Bogotá , the paper questions a number of the alleged benefits of legalisation. It shows how sales are more common when people lack legal title, how informal finance is available at the commencement of an illegal settlement and how little formal finance is forthcoming after legalisation. Most importantly, it shows that there is little sign of a secondary housing market. And, if there is little possibility of selling a house, home ownership in the self-help suburbs can offer little in the way of capital accumulation. It is hard to make money from a house that cannot be sold. Perhaps, de Soto's argument is less a panacea than a populist dream.