whythawk ratings: measuring effective development

Child slave, Zanzibar, circa 1890

Hernando de Soto, the Peruvian economist, declared that land ownership amongst the currently impoverished has the capacity to unlock trillions of dollars of "hidden capital". De Soto has visited South Africa on several occasions to present his ideas to government officials.

It appears that they have either not listened, or have concluded that they know better.

Speaking in Wallmansthal last week at a land hand-over ceremony, Agriculture and Land Affairs Minister Lulu Xingwana stated that, "Upon the date of transfer, the property shall not be encumbered, sold or otherwise disposed of without written consent from the minister."

Land, in and of itself, is simply a tool. It is not a magic tree that produces gold coins just by owning it. Only when you use it and develop it can it support you. Without full and transferable title you cannot offer your land as collateral to raise capital to improve your land.

By denying unencumbered title the state has achieved a contradiction: the land is yours, but you cannot use it. You are a slave to your property, not the other way round. In other words, the government just became the feudal overlord of a whole bunch of peasant farmers who are now indefinitely tied to their land.

Land does not confer wealth creation. House prices have risen steadily over the past decade but not as a consequence of simply being houses.

Companies, after the incredible interest rate hikes of the 1990s that saw lending rates reaching 25.5%, took advantage of lower borrowing costs to redevelop themselves. This spending helped other companies' profits, increased consumption as salaries rose and created a more confident and wealthier middle-class.

This middle-class bought houses. They borrowed more money against the value of their houses and improved them, raising property prices further and triggering a boom.

The long bull run of the past decade started with the ability to raise capital against the value of an asset and then invest that cash in the improvement of that asset. A factory owner who is unable to put his factory up as collateral when applying for a loan will not get a loan. All he can do is run it as it is until it no longer works.

Giving land to the landless does not make them wealthy unless they also have the right to sell that land. Neither does landlessness automatically make one poor. Many of the most highly-skilled South Africans are landless. They rent their apartments and earn their living by trading their knowledge and skills.

Land, like any tool, can be used to create wealth. Like any tool you must have both the desire and ability to use it.

The state desires to convert South Africa's landless poor into land-owning subsistence farmers. What happens if the people concerned want no such thing? What happens if what they really want is the rather more general (and more vague) "opportunity to earn a living"?

Then, at the first opportunity to do so, they will sell their newly-received land, and use the capital to do something else. By selling the land they allow another farmer to combine different plots to create a larger and more productive farm, and the seller can take their profits and use it to improve their own lives in some other way.

Xingwana is behaving like a smothering parent. She demands not just that the recipients of government benevolence appreciate their gift, but that they remain tied to that gift for all time. She wishes to make slaves of the poor.

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