Introduction to the debate, review of the thesis of Hernando de Soto in light of the analysis by Naomi Klein.


Introduction to the debate in HIC

Review of the thesis of Hernando de Soto in light of the analysis by Naomi Klein.

We would like to invite all HIC members and everyone else involved in the issue, to confront the ideas, views and experiences in this column based on the arguments of the Peruvian economist Hernando de Soto, as well as to consider the ideas put forth by Naomi Klein of Canada.

As an introduction, and to document the debate, we want to summarize the article by Naomi Klein “Disowned by the Ownership Society”, published in the newsmagazine The Nation, which was presented on HIC’s webpage.

In the title of the article, Naomi Klein explains her thesis: the American people have been deceived with propaganda regarding the dream of having one’s own home. This has been the result of political patronage of conservatives in order to win votes and create a society based on “the American dream” suggesting that even the lower-middle class could buy a home, and therefore cease thinking as the proletariat and instead think as owners/proprietors.

Mrs. Klein shows that this idea has been a trap, as evidenced by the collapse of the real estate market, and the loss of shares and pensions as seen in the case of Enron. In addition, the acquisition of property titles does not solve all the problems of the law income people. Moreover, in the United States, under the Bush administration this promise of achieving a society of owners has not proved successful, instead it has created a fragmented society between the “haves” and “have-nots.”

Naomi Klein concludes her article stating that since the establishment of this “society of owners” has not been feasible, a class-based society continues with all of the conflicts inherent in such a system.

It is also worthwhile to present the arguments of Hernando de Soto. Following, we provide a link with information on the work of the economist.

Thus, we analyzed the position of Mr. Soto in relation to the private ownership of housing as an axis of development. For the Peruvian economist whose analysis is based on classic economic principles, the market self-regulates without the need for intervention, and private property is the only guarantee for the eradication of poverty because it achieves change in the consciousness and behavior of the poor. He goes further, and affirms that one would have to assume that the development of capitalism in the twenty-first century could simply be based on the value generated by the formalization of property rights.

His arguments are based primarily on the observation that in developing countries the informal economy is extensive, and is what he calls “dead capital”[1] that slows the capital development of countries, a sum of 14.7 trillion U.S. dollars, a figure similar to the total value of companies listed on the stock market in the 20 most developed countries[2]. Consequently, it is assumed that the passage from informality to formality generates changes of consciousness and actions that reduce poverty in the areas of employment and housing, among others.

It is interesting to reread these arguments now, clarifying the position of Mrs. Klein in terms of private property. In this regard, we will begin by explaining that even if Mrs. Klein did not focus her analysis in developing countries (She analyzes American society under the administration of George W. Bush.) the analysis makes sense, and is a contrary voice to the arguments set out by Mr. De Soto.

Mrs. Klein explained that private property, especially housing matters is a political issue used by governments from the Right to keep their votes. But the question is what are the social effects on those who become homeowners? Does private property generate more citizenship, integration and reduce poverty?According to the results offered by Mrs. Klein of her investigation, the answer would be “no.” She affirms that the propaganda of privately owned property is a myth to put an end to the class struggle. As they become owners of a house, the poor are acquiring a mentality of property owner, which leads them to cast their vote to spokespeople of such ideas.

Efficient poverty reduction strategies based on housing are not based on private property. Beyond “ownership”, the civil society organizations that promote the right to housing work with the concept of Social Production of Habitat (SPH). Given the complexity of the topic[3], the idea is not to go into detail, but stress that:

— The vision of the SPH is totally different from the proposal of De Soto,

— SPH is an efficient tool in the fight for decent housing and poverty alleviation.

This concept, which seeks to improve the habitat and thus the daily lives of the poorest, is opposed to the propaganda of private property due to its collective nature. Taking into account the diverse experiences of SPH in different parts of the world[4], it seems to be an efficient alternative that generates more social ties, self-improvement, and self-esteem because the affected are also the same people who are involved in the development of their housing.

It is interesting to show that the arguments of De Soto follow the same roots as the criticisms often made of the SPH. In this way, the major criticism is that the SPH produces more informality, the main concern of De Soto. However, studying cases, it is possible to infer that this is not as suggested. For instance, materials are purchased on the official market and the land is regularized after a while.

The big difference and opposition to the theory of De Soto is its profitless end. This fact makes a critical difference in the full conception of housing: to see housing as a human right or a commodity.

Furthermore, it should be noted here that in the event that the poor become homeowners, this does not mean a departure from informality. The vision of housing considered as simply a roof and walls, rather than as a package that includes the public services, and human rights such as economic, social and cultural rights, prevent a true departure from informality. Thus, the handing of ownership of your home to a family does not automatically guarantee a decent life: this family will have to remain stealing electricity or water since these basic services are not regarded as significant in the departure from poverty and informality.

De Soto’s thesis generates short-term solutions to the poverty conditions of many people, and is based on a partial view of reality that is very ideological (various authors criticized many books of De Soto for his lack of rigor in their surveys).

For its part, the concept of SPH generates a dynamic solution based on the experience of low-income people, and has a more inclusive and comprehensive vision. It sees the concept of housing as holistic, including many human rights such as health and education.

We thought it is interesting to compare the article by Naomi Klein with the frame of De Soto since they are two thinkers currently in vogue and that show opposing sides on the same issue. Thus, establishing the argument Mrs. Klein as a stand opposite to the widespread (and economically powerful) vision of De Soto, and that organizations such as ours find dangerous in the every day work realized to fight for adequate housing for all.

We hope that these first reflections open the doors to a debate that will be published in this space of dialogue.

From HIC-GS, in solidarity.

[1] “Dead capital”: huge active residue of potential richness which can not be transformed into capital and which keeping marginalized classes into a state of perpetual poverty.

[2] The Mystery of the Capital, interview of de Soto, also see that article

[3] Various texts about this subject can be found in the HIC SPH section

[4] From Marginality to Citizenship: 38 Cases of Social Production and Management of Habitat, Enrique Ortiz y Lorena Zárate (ed), Habitat International Coalition, Barcelona, 2006.