Thursday, February 3, 2011

The real problem with Egypt—lack of property rights

I highly recommend the article by Hernando DeSoto in today's WSJ, "Egypt's Economic Apartheid." His research has uncovered a huge source of poverty of misery in many countries around the world, and unfortunately not much has been done to fix these problems. The word needs to get out. Some excerpts:

It is worth noting some of the key facts uncovered by our investigation and reported in 2004:
Egypt's underground economy was the nation's biggest employer. The legal private sector employed 6.8 million people and the public sector employed 5.9 million, while 9.6 million people worked in the extralegal sector.
As far as real estate is concerned, 92% of Egyptians hold their property without normal legal title.
We estimated the value of all these extralegal businesses and property, rural as well as urban, to be $248 billion—30 times greater than the market value of the companies registered on the Cairo Stock Exchange and 55 times greater than the value of foreign direct investment in Egypt since Napoleon invaded—including the financing of the Suez Canal and the Aswan Dam.
Without clear legal title to their assets and real estate, ... entrepreneurs own what I have called "dead capital"—property that cannot be leveraged as collateral for loans, to obtain investment capital, or as security for long-term contractual deals. And so the majority of these Egyptian enterprises remain small and relatively poor. The only thing that can emancipate them is legal reform. And only the political leadership of Egypt can pull this off.


Benjamin Cole said...

Interestingly enough, Thailand has been codifying its property records, with the result that newly minted "land owners" (they always owned the land, but informally, going back generations) can then borrow against the asset.

However, not all is sweet. Once property rights are codified, some people can get pushed off of land they have worked for generations.

In a corrupt society such as Egypt, I wonder who will end up really owning the land?

Douglas MacArthur instituted "land reform" in both Japan and the Philippines, entitling average people to land.

Benjamin Cole said...

And in Islamic countries, property rights may be the least of it. This from the Wall Street Journal, on Afghanistan:

KABUL—The U.S. government and some international Christian organizations are pressing Afghanistan to release two men who converted to Christianity, were arrested on apostasy charges, and could face the death penalty if convicted.

The U.S. has called on Afghan authorities to respect the Universal Declaration of Human Rights, a document endorsed by Afghanistan that upholds freedom of religion. "We continue to call for their release, and frequently raise this issue with the highest levels of the government of Afghanistan, expressing our strong concern," said Caitlin Hayden, spokeswoman of the U.S. Embassy in Kabul.
Afghan officials have been unapologetic. "The sentence for a convert is death and there is no exception," said Jamal Khan, chief of staff at the Ministry of Justice."

I don't see how Islamic countries will ever prosper. I also don't know we spent $3 trillion on Iraqistan, when this is the result.

Benjamin Cole said...

Dow up again today, despite a.m. tackle. This bull is so strong, it gains yards even when tackled behind the line of scrimmage (well, it is Super Bowl-time).

Get out of the way of this bull.

Anonymous said...

Property rights + independent judiciary + lawyers to enforce the rights would be the precription.

Lori said...

What pushed the average Egyptian over the edge was the fact that in the last 6 to 12 months, Egypt's politicians raised taxes on everything from steel, cement, molasses, business transactions, air flights, and cigarettes.

As did Tunisia and Palestine.

Lets pray that the Society Of Muslim Brothers does not co-op the tea party event.

Frozen in the North said...

Yes, sure I'm sure that the lack of property rights is an important issue, but there's also the small fact that Egypt is run by a kleptocratic dictatorship!

Lori said...

Frozen North,

That is true.

Just as the Arafat family did with their 3 billion, the Mubarak boys are packing up, and packing it in, and on their way to Paris.

To be quickly replaced by the next admin of crooks.

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