Mysteries of capital

or
mystification of legal property?
Franz von Benda-Beckmann

De Sotos Mysteries of capital is a visionary

plea to governments in the Third World and
the former Soviet Union to adopt formal property law in order to facilitate economic development. In particular, the potential for creating
capital out of the assets held under extra-legal property must be mobilized. For only formal legal property has the properties and functions that can lead to development. It does so,
according to De Soto, by fixing the economic
potential of assets; by integrating dispersed
information into one system that transcends
the typically local operations of extra-legal assets; by making people accountable; by networking people and protecting their transactions (p. 49 ff.). This form of property, De Soto
claims, caused the rise of capitalism and popular welfare in the West, and it needs to be introduced in developing countries and the former
Second World.
In particular, the opportunities of formal property must be opened up to the poor, the many
enterprising people operating in extra-legal
sectors. For, and this is the other grand message, the poor are not really poor. They are
enterprising, they save, and together hold vast
assets that constitute the largest possible
source of potential capital for development (p.
34). However, these assets are held in defective form (p. 5): as dead capital (p. 210). While
there is nothing basically wrong with such
extra-legal property, it is not sufficiently codified and fungible to have a broad range of

application aside from its own geographic parameters (p. 180). It cannot be turned into liquid capital and traded outside its narrow local
confines, nor be used as collateral for productive investment (p. 7). The marginality of the
poor and their assets is largely due to their
inability to benefit from the functions of formal capital (p. 66). So these assets have to be
legalized (p. 165).
While governments have formal property
laws and made attempts to open them up to
the poor, most citizens cannot get access, De
Soto continues (p. 153). The legal and administrative systems are bad, cumbersome, overbureaucratized (p. 156). Moreover, these laws
are not informed by the traditional laws and
the new rules emerging in the informal sectors
in the cities. For people have their own law (p.
170). Legal pluralism is ubiquitous. In order to
draw in the poor and their assets, the new property laws must be in reference to existing social contracts and legitimacy (p. 172), must
codify it (p. 57, 186). Governments must create
a social contract with extra-legal property and
capital (p. 158). Then the globalization of capitalism, which has so far failed in the Third World
and the former communist states, can become
complete (p. 211).
It is not easy to do justice to De Sotos challenging book in a couple of pages. Most of
his empirical observations and his critique of
legal policies are not really new for anthropologists or other social scientists who have

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done research and written on property rights

issues and legal reform in the Third World, a
wealth of data and ideas De Soto chooses to
ignore. So for me De Soto as the Haroon al
Rashid of the extra-legal sector is not really
impressive. This does not make his observations less relevant, of course. He has many
important things to say and if due to his popularity some of these messages should reach
the ears of economically and politically powerful actors, all the better. But I am worried by
his causal constructions about the relationship between formal property, economic development and poverty. I think that many of the
supposed causal links are implausible, that he
ignores or belittles some crucial issues and
substitutes them by wishful thinking. Moreover, there are some serious blind spots in De
Sotos tableau, all of which adds up to a mystification of legal property.
The first blind spot is that the people remain an undifferentiated category. De Soto
keeps talking about the poor, and the poor
are largely identified with those operating in
the extra-legal sectors. This oversimplifies the
problems of poverty. Within the extra-legal
sector, there are huge differences of wealth,
exploitation, and discrimination. While many
of whom he lumps together as the poor in
the extra-legal sector indeed are enterprising
businessmen and farmers, and while many poor
people save, there are millions of really poor
close to starvation, in India as many as hundreds of millions. Their assets do not add up
to much, and their assets would not change
value if legally clothed in formal property. A
formal title is not worth much, if the asset is a
dilapidated slum dwelling. Banks do not give
credit to poor beggars or a mortgage on a slum
dwelling located amidst thousand others. It is
not so much, and certainly not only, the legal
status of assets, but their value which counts.
The second blind spot is his inattentiveness
to differences in property rights and their functions. Although it is never explicitly mentioned,
formal property seems to have the characteristics of individual private ownership, and its
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primary function is the generation of capital.

Extra-legal property remains an undifferentiated category but seems to have the same,
though incomplete, function. In both cases,
other functions such as the significance of
property for the social continuity of groups,
for social security, as fall-back reserve are ignored. For people who have no alternative for
economic livelihood and survival these functions are crucial. In light of these functions,
the optimal use of property is often non-marketability. Moreover, De Soto connects his theory and expectations to abstract categories of
property rights. He gives little attention to the
actual distribution of property rights-relationships between actual property holders and
property objects, with other words the distribution of the wealth embodied in these property relationships. These relationships and their
functions are usually embodied in complex
property relationships with specific combinations of rights and obligations of individuals
and social groups (F. and K. von Benda-Beckmann 1999). They are interwoven with other
social relationships and cannot simply be
taken out of such system.
For De Soto, it is primarily the location in the
informal, the extra-legal sphere which is the
problem. He seems to assume that it would be
easy to legalize such rights without changing
them. Yet the experiences with land rights reforms show that, even with a well functioning
bureaucracy, the transformation of local property rights into actual private ownership
changes the nature of the rights and leads to
the exclusion of weaker and temporary property rights under customary laws, often held
by weaker members of society, amongst them
women and strangers. I share De Sotos view
that the reluctance of local people to transform their property into formal western property should not be looked for in culture (p.
225). It is often more peoples (in)voluntary
adherence to the functions of property and
the expectations of winning or loosing in the
process rather than a badly functioning bureaucracy, which makes them resist or adopt

governments and development experts programs for property rights reform. Experiences
with land rights reforms in many African and
Asian countries have shown that privatization
and registration of land rights have seriously
shifted the distribution of resources and led
to the accumulation of the means of production by small political-economic elites, at national as well as village levels. It is the combination of the inevitable transformation of customary property rights into western style private property and the differential access to
resources and state agencies that leads to the
to the situation that after reform there often is
less social justice and less legal security. Indeed, in many cases the introduction of new
legal rights magnifies prior forms of legal insecurity. Also in post-socialist states the experience with the privatization of state farms and
the introduction of western property show
growing inequalities in property holding and
increased legal insecurity (Hann et al. 2003).
The next major blind spot is the neglect of
states as property holder. Take Indonesia. De
Soto mentions (correctly) that so far only about
9 per cent of land has been registered. What
about the rest? Who owns what among the 90
per cent of the Indonesians who live in the
extra-legal sector? (p. 162) We are led to assume that it is extra-legal property that could
be mobilized by the poor if only it would be
formal legal property. But most of these resources are held in formal property, by the
state that is. In fact, in formal legal terms, the
state in most Third World states has become a
property monster. Colonial powers declared
vast resource areas (the so-called waste-lands)
to be state domain, and not simply assumed
sovereign regulatory but also proprietary
rights. This legal property policy has been
more or less continued by the postcolonial
states, which exploit their riches (timber, minerals, cash crop plantations) through state,
para-state or private (national, transnational)
enterprises on the basis of formal legal licenses
and concessions. Impressive amounts of capital have been generated that could indeed be

invested in development. But only a limited

amount has found its way into state budgets
for developing infrastructure, medical, educational or social services. If De Soto had listened well to the barking dogs in Indonesia
(p. 162), or read the local newspapers for that
matter, they would have told him that the major struggle in the contemporary politics of
property rights is about legitimate and democratic control of these resources. The conflict
is not so much over appropriate rights to
communal resources but over the question of
who holds the rights and who can enforce
them. This is another reason why local people
distrust the state property system. If in Indonesia people assert their rights based in (traditional) adat law, it is not because they are
old-fashioned, or feel so comfortable in the
extra-legal sector, but because adat law provides the basis for getting their expropriated
property back. In this respect, however, there
are considerable differences between the
former Soviet Union and Third World countries, between Third World states, within extra-legal sectors and between urban and rural
areas. In many Asian and African states, such
local legal forms, adaptations of their earlier
local laws, are still present and interwoven with
social and economic relationships, while in
many Latin American states, the major orientation of local people has been the law of the
state, and extra-legal forms largely emerged as
a reaction to inadequate state policies. There
also are important differences where governments indeed pushed large-scale redistribution of land and where they did not.
This brings me to serious omission number
three. Issues of the redistribution of land (or
wealth in general) are not addressed and are
not among his set of recommendations by
which the state of affairs is relatively easy to
correct (p. 227). De Soto is quite aware that
property can be used for thievery and dispossession, that there are sharks that skim off
wealth, that property can be used to exploit
and conquer (p. 223). And he realizes that controlling thievery depends more on the exer-

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cise of power than on property (p. 217). But

whenever the issue of redistribution of assets
is close, a very cautious language is used. Yes,
reform will mean tampering with the status quo,
which is a political task (p. 187). This is likely
to perturb the little niches of the wealthy (p.
188). So we must rearrange the twigs in the
eagles nest without irritating the eagle (p.
188). But redistribution is not an issue. No
need, De Soto says. Where is the major problem anyway? Has he not shown that the poor
are not really poor but have vast amounts of
resources? Therefore (assumption) we do not
have to worry too strongly about redistribution. Moreover, basic and stable human rights
guarantee access to property, rights enshrined in international law, more sacred than
the sovereign rights of states (p. 165, 217, 218).
But why, then, have they not functioned so
far? It is naive to assume that the introduction
of formal legal equality under conditions of
gross economic and political inequality would
lead to better conditions. The mystery here is
that this belief continues to be so strongly
held in the face of so much contradictory evidence.
Last but not least, the historical reconstruction of the European example needs to be
looked at with a fresh perspective. Was the
rise of capitalism and the arrival of high levels
of welfare for the poor primarily due to a specific property form such as individual private
ownership? The structure of property law has
certainly facilitated the tremendous economic
development of capitalism. But was this due
to Western states building their property systems by discovering their peoples law (p.
162), and did the poor therefore become
wealthy? There were other and possibly more
important conditions for the economic growth
in Europe (see, for example, Tigar and Levy
1977). European enterprises and factories had
access to cheap resources in the period that
European capitalist society was built. Labor
was cheap, labor conditions abominable.
There was open gender discrimination and
political discrimination on the basis of wealth
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differences. Raw resources could be easily obtained through the exploitation of the colonies and on the basis of very unequal terms of
trade in the world market. Moreover, mass
emigration was a safety valve through which
much of the pressures could be absorbed.
Superfluous, unemployed, disinherited Europeans could and did move to the United States
or the other colonies to build an economic existence at the cost of the local population there.
Facilitated by a modern banking system, capitalism was driven by industrial tycoons, not
by the poor. When discussing what we can
still learn from Marx (p. 212-17), De Soto does
not refer to the power of capital over labor. On
the other hand, it was largely due to the
struggle of socialist movements against the
power of unrestricted ownership rights among
legally equal persons that the striking economic inequality, which characterized the emergent industrial capitalism in Europe, was tempered and eventually gave way to a relatively
high standard of welfare for the majority of
the population. Perhaps we can learn more
from the European experience than we would
like to know. The parallels and differences
emerge from the economic and political starting conditions of capitalist growth. Many of
the relevant conditions are not given in contemporary Asia or Africa. And where they are
given they are universally regarded as highly
undesirable, such as child labor, inhuman labor conditions, the repression of workers associations, discrimination of women and harsh
political inequality. Most countries in the
Third World do not have overseas colonies to
exploit, and migration is ever more restricted.
European governments declare their countries
to be full and increasingly restrict immigration.
For these reasons, I see the De Sotos book
primarily as a mystification of property law. In
fact, it is one great illustration of property law
as scapegoat and magic charm (BendaBeckmann 1989). Poverty is seen as caused
by bad property law (both state and extra-legal), extra-legal property is an obstacle to de-

velopment, and good property law will bring

about development. This was the dominant
view held in the period when the legal systems of the newly independent Third World
states were being modernized. And it is the
same under the conditions of contemporary
neo-liberal globalization under which resources must become accessible to transnational markets. I have no doubts that formal property law has been, and can be, an important
means to shape and expand the development
of elites and emerging middle classes by harnessing its capital potential, but I cannot see
how this will ameliorate the economic conditions of the poor. That formal property and a
free market for it to circulate under conditions
of great economic and political inequality
should work to the benefit of the poor is wishful thinking to me. I think that it is scandalous
that the political aspects of property and the
issue of redistribution are so downplayed. This
goes for relations within the extra-legal and
legal sectors. It equally holds true for the wider
political and economic context formed by the
relationships between rich industrialized countries and the Third World. That European and
American economic systems can maintain their
effectiveness and dominance is certainly largely due to the fact that the terms of world
trade relationships are still highly unequal and
that cheap labor can be found in Asian and
Eastern European countries.

practice. Journal of Legal Pluralism, 28: pp.

129-48.
Benda-Beckmann, F. von and K. von Benda-Beckmann 1999. A functional analysis of property
rights, with special reference to Indonesia. In:
T. van Meijl and F. von Benda-Beckmann (eds.),
Property rights and economic development:
Land and natural resources in Southeast Asia
and Oceania. London: Kegan Paul: pp. 15-56.
Bruce, J. and S. Migot-Adholla (eds.) 1994.
Searching for land tenure security in Africa.
Dubuque: Kendall/Hunt.
Hann, C. and the Property Relations Group
2003. The postsocialist agrarian question: property relations and the rural condition. Hamburg:
LIT Verlag (Halle Studies in the Anthropology
of Eurasia, no. 1).
Tigar, M.E. and M.R. Levy 1977. Law and the
rise of capitalism. New York and London:
Monthly Review Press.

Acknowledgements
I thank Don Kalb and Keebet von Benda-Beckmann for their thoughtful comments on an
earlier version of this contribution.

References
Benda-Beckmann, F. von 1989. Scapegoat and
magic charm: law in development theory and

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