Hernando De Soto has written that third world nations needs to unlock the Mystery of Capital to bring to life $9.3 trillion worth of dead assets:
Much of the marginalization of the poor in developing and former communist nations comes from their inability to benefit from the six effects that formal property provides. The challenge these countries face is not whether they should produce or receive more money but whether they can understand the legal institutions and summon the political will necessary to build a property system that is easily accessible to the poor.
In short, to create the legal environment where people can turn their property into a fungible asset by being guaranteed ownership through a functioning legal system where it can be used as collateral or as credible currency.
The difference between a property owner in Iceland and a favela in Lima is that the Icelander holds legal documents stating his ownership of his property which is backed up by the system. In third world nations, there is often little to protect the individual from those in power taking his property without compensation. The institutions of those countries do not function for the benefit of their citizens.
How can this be fixed? Several decades of foreign aid have so far brought much disappointment. The donor might have good intentions, but local leaders are often the problem. And it does not take a dictator to keep his country down, the people can do this through democracy themselves.
Stanford economist Paul Romer had an idea.
Rather than betting that aid dollars can beat poverty, Romer is peddling a radical vision: that dysfunctional nations can kick-start their own development by creating new cities with new rules—Lübeck-style centers of progress that Romer calls “charter cities.” By building urban oases of technocratic sanity, struggling nations could attract investment and jobs; private capital would flood in and foreign aid would not be needed. And since Henry the Lion is not on hand to establish these new cities, Romer looks to the chief source of legitimate coercion that exists today—the governments that preside over the world’s more successful countries. To launch new charter cities, he says, poor countries should lease chunks of territory to enlightened foreign powers, which would take charge as though presiding over some imperial protectorate. Romer’s prescription is not merely neo-medieval, in other words. It is also neo-colonial.
This is not as outrageous as it might seem at first. Lubeck and Hong Kong provided successful examples. Romer even got quite far in convincing the government of Madagascar and president Marc Ravalomanana of testing this unconventional arrangement. After having seen more conventional approaches fail, the government suggested that it should try out two charter cities.
To boost investment in agriculture, they were ready to lease a Connecticut-size tract of land to Daewoo, a South Korean corporation, for 99 years. To boost investment in export industries, they were thinking about inviting a tiny Indian Ocean neighbor, Mauritius, to administer an export-processing zone on Malagasy territory.
The carrot was increased prosperity for the people of Madagascar and the know how and institutional protection provided by those with the knowledge.
Even as Romer was meeting with Ravalomanana, the president’s main political opponent was sniping at the proposed lease of farmland to Daewoo, and the idea of giving up vast swaths of territory to foreigners was growing increasingly unpopular. The arrangement was denounced as treason, and public protests gathered momentum, eventually turning violent. In late January 2009, protesters tossed homemade grenades at radio and TV stations that Ravalomanana owned; looters ransacked his chain of supermarkets. In February, guards opened fire on marchers in front of the presidential palace, killing 28 civilians. At this, units of the army mutinied. Soon, Ravalomanana was forced out of office.
The first action of the new government was to cancel the Daewoo project, and Romer’s plans in Madagascar were put on hold indefinitely. But the larger question was what, if anything, this disappointment signified for Romer’s whole approach. The riots appeared to demonstrate the explosive sensitivities surrounding sovereignty and land—sensitivities that are not confined to Madagascar.
Indeed, versions of the Daewoo story have played out elsewhere. In the late 1990s, for example, Fiji’s government decided to bring in a British nonprofit to manage its mahogany forests, and an indigenous leader launched a revolt under the slogan “Fiji for the Fijians.” The rebellion was hypocritical: as the Oxford economist Paul Collier recounts in his book The Bottom Billion, the indigenous leader had himself backed a rival foreign bid to manage the mahogany. But the venality of the rebels’ motivation didn’t change the fact that a demagogue could easily attract support by railing against territorial concessions to foreigners.
At what point do national borders become fences? A toddler born in India by a surrogate mother to Icelandic parents is held back from coming to Iceland by national bureaucracy. Icelandic officials blame Indian officials, the parents claim that the hitch is in Iceland. Actors are accused of holding self interests (parents) or ideology (minister and assistant) above the child’s interests. The parents went to India knowing that surrogacy is not allowed in Iceland. But it is in India. The assistant to the minister of the interior whose ministry is supposed to provide the passport has likened surrogacy to prostitution and human slavery in print before. The minister himself, Ogmundur Jonasson has been a vociferous opponent of membership to the European Union on grounds of sovereignty. Understandably, they are afraid of what floodgates might open with this decision.
Meanwhile a toddler that knows nothing about the intricates of national laws and globalization is stuck on one side of the fence. Is he one of us or one of them?
Us and them. It is a comfortable position for those who seek to maintain national borders for their own interests. Those who belong to us can bankrupt our nation and sell off its resources as they wish, yet woe to those foreigners who want our jobs, resources etc.
Last night I debated the surrogacy issue with my girlfriend. I do not have strong opinions either way on it but I feel like it is one of those uncomfortable issues that politicians avoid approaching and would rather ignore or take ideological and populist stances, like legalization of marijuana, prostitution etc. The victims, like the people of Madagascar and the toddler in India are stuck behind these fences as local politicians can not deal with international realities. At least we concluded that it was quite uncomfortable to oppose surrogacy on the grounds that people in the developed world are using the misery in the third world to their benefits, while wearing clothes from Primark, H&M and sneakers from Nike.
In a class on development last semester I suggested a solution to the problems of the third world. Eliminate borders and allow the free movement of people. Then most of the people in the third world would just move to the first and there would be no more problems of the third world. Alternatively we could just keep them away from us and go grab a coffee. And stop getting ulcers over whether it is fair trade or not.
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January 14th, 2011 → 3:35 pm @ Dadi
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