Mysteries and Myths: De Soto, Property and Poverty in South Africa

Hernando De Soto’s influential book The Mystery of Capital offers a simple yet beguiling message: capitalism can be made to work for the poor through formalizing their property rights in houses, land and small businesses. Yet this paper presents evidence from South Africa to suggest that many of de Soto’s policy prescriptions may be inappropriate for the poorest and most vulnerable, and could have negative impacts on their security and well-being. The authors draw on case studies and the literature to show that:• Titling does not necessarily increase tenure security or certainty; in many cases it does the opposite.• Formalisation of property rights does not promote lending to the poor. Rather than turning their property into ‘capital’, formalisation could increase the rate of homelessness.• Formalisation through registered title deeds creates unaffordable costs for many poor people.• Informal property systems currently support a vibrant rental market; formalisation could undermine this, producing unintended negative consequences for the poor.• ‘The poor’ are not homogeneous and those in the extra-legal sector should be differentiated according to income and vulnerability status.• Such an approach does not mesh with rural common property resources which are never exclusive to one person, and which have fluid boundaries and flexible rules.Policy makers must resist the temptation to seek simplistic solutions to poverty of the kind offered by de Soto. Poverty reduction efforts of the scale required in South Africa and elsewhere require a great deal more than securing property rights in the manner prescribed. Tenure reform remains necessary and important, but is far from sufficient. In addition, it must be recognised that restructuring the dominant frameworks of property law and administration, so that they work to support the interests of the poor, is no easy task.