Magic: How Slums Become Lovely Towns

An Economic Times article today, titled “Slums and economic stimulus”, says

If slum dwellers could be given property rights that are heritable but inalienable to the land on which they now have their make-shift homes, if these title deeds provide for being used as collateral, then immediately all of these people become eligible for drawing on the new housing loans…

The grant of property titles to the urban poor is again already part of India’s public policy. The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) explicitly advocates security of tenure at affordable costs as the first of a seven-point charter for the urban poor, which means housing improvement through assignment of property rights.

This recommendation in JNNURM has in turn been influenced by the experience of countries of Latin America of assigning property rights in favelas and barrios, Turkey in 1983 for its slums called gecekondu and the accepted logic that titles to homesteads is an effective route to improving housing and environment conditions in poor urban localities. Efforts at “social housing” through parastatals like state housing boards have not been able to address the problem in any large scale. ”

A great idea I think, unfortunately the author gets all mixed up with the nonsense of fiscal stimulus and government intervention. The basic idea is that slum dwellers dont invest in their property because there is no guarantee of being able to retain the future payoffs from their investments. Also, private firms cant buy large tracts of slum land to develop it. Hence poverty sustains itself.

This also explains why many slum dwellers would rather buy a TV than build a toiled, when the government goons come to break down your home, you can run with a TV but the toilets got to be left behind.

De Soto “Mystery of Capital” is a good book to begin with. He essentially argues that lack of property and contracts mean that literally billions of dollars worth of property is simply lying dead, instead of being entrepreneurially transformed into productive resources. The other side of the coin is the “Mystery of Labor”, why do the poor remain poor despite working hard for long hours. Its partly because they cant invest their small savings in high payoff projects. And partly because they cant borrow money despite having high payoff ideas. Both problems originate from lack of property titles, which means they cant back their contractual obligations and banks dont have a safeguard to lend against.

And of course there is nothing new in this. The whole history of industrialization can be captured in two words (1) property and (2) contracts (needless to say, the socialists and fascist at Delhi University dont teach this). Private property is merely a system where it is legal for people to help themselves!

Lastly, we dont need to worry too much about how to allocate property rights to slum dwellers in India. The Dharwi Slum Authority in Mumbai already has designed some kind of finger print reader or biological mapping device which they use to establish who lives where, and then use the information to reallocate land. Instead of this whole reallocation process, why not just assign property rights.

And if the socialists amongst us are not convinced enough, I propose an experiment. Choose any slum in India, and allocate property rights to the residents. And then compare this area to other slums five years hence. That ought to dispel any doubts.

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