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Latin America Can Slash Poverty with Property Rights

By: Guest Contributor - Mar 13, 2016, 9:33 pm
To secure property rights is to give millions of Latin Americans the chance to lift themselves out of poverty
To secure property rights is to give millions of Latin Americans the chance to lift themselves out of poverty. (Pulsamérica)

By Moisés Rendón

In 1763, immigrants to the North American colonies had more secure property rights than a native-born Venezuelan does in the 21st century.

Property rights in the US were “constituted, secure, and out of reach of oppression from the most powerful,” wrote a group of German immigrants even before America’s independence.

The concept of property rights runs in the blood of North America, fueling its market system, and helping the country to prosper.

While the importance of having well-defined and strongly protected property rights is now widely recognized among policymakers, Latin America lags behind on securing the property of its people.

Property Rights Lead to Prosperity

Property rights are the laws that allow individuals to manage, benefit from, and transfer property. Government enforcement of strong property rights is generally linked with more prosperous and developed countries.

As the 2015 International Property Rights Index (IPRI) shows, the five best performing countries have an average GDP per capita of US$72,000, whereas the five worst performing countries have an extremely low average of $3,900.

The Latin America and the Caribbean region ranks just ahead of Africa, and countries with ongoing-armed conflicts like Nigeria or Chad have better protection of land rights than Argentina, Haiti, and Venezuela.

Countries that flourish economically understand the difference between prosperity and poverty: property.

In Latin America, Venezuela and Argentina stand out for the consistent and institutional undermining of property rights.

Venezuela, where inflation levels reached 720 percent this year according to the International Monetary Fund (IMF), is ranked second to last on the protection of property rights in the region. In fact, more than 1,200 private companies were expropriated during Hugo Chavez’ administration from 1999 to 2013.

Similarly, Argentina has a poor track record of respecting property rights. In 2012 Repsol, a Spanish oil group, underwent the traumatic experience of seeing its subsidiary unit in Argentina nationalized by then President Cristina Kirchner.

The expropriation of private property is the perfect recipe to frighten off investors. With few exceptions like Colombia and Peru, Latin America has seen major capital flows trying to reach other, more investor-friendly regions.

Peruvian Success

On the other hand, Peru’s success in reforming and improving its property rights has helped to transform the country into one of the best-performing economies in the region.

In the 1980s, the Institute for Liberty and Democracy (ILD) helped to move Peru’s street vendors, transport drivers, poor farmers in remote areas of the Andes, and millions of other participants in Peru’s huge informal sector into the legalized economy.

Policy reforms like simplifying administrative processes, improving access to public information, unifying business registries, and democratizing rule-making have helped make Peru the second highest ranked country in Latin American and the Caribbean in the World Bank’s 2016 Doing Business report.

Hernando de Soto, ILD’s founder, affirmed that they have received more than 44 requests from reform-minded governments from all over the world seeking to learn from Peru’s positive experience on protecting property rights.

Peru’s policy reform, in fact, put Peru ahead of countries like Canada, the UK, and Japan on the Registering Property Indicator of the 2016 Doing Business report.

[adrotate group=”8″]Latin America, however, is still torn ideologically between defenders of free markets and those who still favor over-regulation. But some governments are seeking to strengthen property rights.

Brazil, which has generally demonstrated strong growth in the last decade, has room for improvement. The idea that rights serve a social function was first introduced into Brazilian legal culture in the early 20th century. Thus, Brazilian law punishes owners if their property does not serve its “social function,” thereby weakening the importance and value of private property.

Owners, for instance, are obligated to make their property productive, according to the state’s criteria, that is. In Brazil, state intervention clearly has a negative impact on the economy, and the lack of legal security frequently scares investors away.

As Venezuela’s economic crisis worsens, the newly elected National Assembly (dominated by the opposition) introduced a bill in February that grants property deeds to more than 593,000 holding owners — and now full owners — who benefited from one of the most popular policies of Hugo Chavez’s government: Misión Vivienda, a government program that gave houses (but not deeds) to poor Venezuelans.

The new objective is to democratize existing property, and provide house owners with access to the market by giving them, for example, the legal instruments to use their property as collateral for a bank credit and start a business.

The Way Out of Poverty

Since 2012, Latin America has experienced low growth averages: about 2-2.5 percent of GDP compared to a robust 5 percent during the previous decade. This slowdown has been caused by decreasing commodity prices, a lingering Chinese economy, and fewer investments.

Policymakers must now consider sustainable approaches for sustainable and inclusive economic growth. All countries in the region have an opportunity to learn from successful examples of property rights reform, as seen in Peru, to jumpstart development progress and drive investment back to the continent.

The recognition of the inherent and inalienable right to own property is stated in the Article 17 of the Universal Declaration of Human Rights (UDHR). The foundation of freedom, justice, and peace in the world relies on important institutions such as that of private property.

Prosperity and property rights are inextricably linked, and development actors worldwide increasingly accept this fact.

If governments across Latin America want to see their people lifting themselves out of poverty, respect for and formal recognition of private property is a crucial step in the right direction.

Moisés Rendón has a law degree from the Andrés Bello Catholic University in Venezuela and a Masters in International Business and Economic Law (LL.M.) from Georgetown University. He is a research intern at the Project on Prosperity and Development from the Center for Strategic & International Studies (CSIS) in Washington DC. Follow him @MoisesRendon.