Sunday, November 1, 2009
I found Hernando de Soto’s argument that the “Mystery of Capital” in developing countries results from their inability to create capital not only extremely interesting, but also very applicable to the Argentine situation. Below you will find a few excerpts and ideas from the text along with some commentary about the applicability in Argentina.
Resources are held in defective forms: houses built on land whose ownership rights are not adequately recorded, unincorporated businesses with undefined liability, industries located where financiers and investors cannot see them. Because the rights to these possessions are not adequately documented, these assents cannot be readily turned into capital, cannot be traded outside of narrow local circles where people know and trust each other, cannot be used as collateral for a loan, and cannot be used as a share against an investment.
In the west every piece of land, building, piece of equipment and store inventories are represented in a property document that is a visible sing of a vast hidden process that connects all these assets to the rest of the economy. Thanks to this representation process, assets can lead an invisible, parallel life alongside their material existence and can be used as collateral for credit. Third World and former communist nations do not have this representational process and as a result most of them are undercapitalized. Without representations, their assets are dead capital.
The issue of land tenure in Argentina is highly linked to the arguments de Soto makes. Within Capital Federal I can see on a daily basis the amount of “houses built on land whose ownership rights are not adequately recorded” and the problems that result from property rights loopholes and other complications.
In Argentina, property - whether it be condominiums, houses, or land – is extremely expensive in comparison to the United States. For example, the average price for prime agricultural land in the two countries during that mid 1990s ranged between U$S 3,900-4,200 per hectare in the states, and about U$S 3,500 in Argentina. While the prices are cheaper in Argentina, the GDP per capita is one fifth that of the United States, causing relatively similar prices to be out of the reach of an extremely large sector of the Argentine population.
In connection with the high cost of renting or owning land, we see a large amount of poor Argentines or immigrants to Argentina illegally inhabiting public or private land. Even if a family or individual is able to secure enough money to rent an apartment, they are often unable to do so because of the massive burden of the “garantias.” In addition to asking for a hefty deposit, most apartment owners require the renter to offer another property as collateral. Additionally, if the apartment is located within the capital, the other collateral property must be located within the capital as well. Thus, if a renter does not have a family member willing to sign their property as collateral it is virtually impossible to rent. This idea of “garantias” exists because of a loophole now allowing an apartment owner or the police to throw to evict their nonpaying residents if they do not have another place to go. After the crises of hyperinflation in 1989 and the collapse of the economy in 2001, property owners see these collaterals as necessary to protect their assets against squatters.
In addition, I asked my host family about an even more common land tenure issue, which is the illegal inhabiting of public lands. The government allows it to continue under the same practice of not leaving its residents homeless. This practice is most manifested in the building of “villas,” usually large slums consisting of precarious housing and who steal electricity from public sources. The commonness of villas is startling. Within the country, over 700,000 people live in these types of slums and over 120,000 in Buenos Aires alone. The villas cause enormous land tenure problems because they effectively render vast amounts of often very expensive land, useless. One of the largest villas, Villa 31, is juxtaposed with the one of the most expensive neighborhoods of the city – a nightmare for hardliner capitalists looking to take advantage of this valuable land. Similar situations occur outside the cities with residents illegally inhabiting public land in the jungles of the Misiones province and other areas.
Below is a photo of Villa 31
My “host-grandfather” is particularly affected by the land tenure situation because a small parcel of land he owns in “La Provincia” is currently illegally inhabited by squatters, but he is unable to dislodge them and sell the property.
More information about Argentine villas can be found here:
Although it does not seem to be extremely common, some people are able to acquire property via squatter’s rights. The law allows squatters to inherit the deeds to a property if they live there for twenty years and pay the taxes on that address. Thus, although they do not pay for the property, paying the taxes for twenty years allows squatters to become the legal owners of an abandoned building (extremely common in Greater Buenos Aires).