“Dead Capital” is capital in the form of unregistered real property, and is considered lost value because the landholder is unable to transfer or leverage his property for capital or capital access. For instance, homes that are unregistered and extra-legal receive little or no infrastructure, are valued less, receive less investment and represent potentially areas of vulnerability for those who dwell in them. Globally, the estimated value of unregistered, yet inhabited property is $9.3 trillion in value held by primarily poor people.
The issue of “dead capital” is one that is particularly interesting because it has been treated as a human rights policy issue for a long time, as a “right” to housing for example, under the economic, social and cultural rights framework of international treaties like the ICESCR (International Covenant on Social, Economic, and Cultural Rights). However, in exploring the topic in greater detail, it is questionable whether “rights” frameworks are in fact that most effective way to ameliorate the problem. For instance, what happens when a justiciable “right” has weak (or no) enforcement mechanisms at a governance level? It is interesting to ponder why there hasn’t been a greater shift in the human rights world toward an economic development-oriented / market-based approach that would create value out of “dead capital.”
The causes of dead capital are complex and culturally unique, yet there are several overarching themes that extend across regions. Generally, as explained by economist Hernando de Soto, 4 billion people in the world actually live outside of the formal legal system and formal economy. These people run businesses that are extralegal in nature, belong to a host of informal economic and social relationships, and live on land that has not been registered. This land may be lacking title completely, be squatter-settled privately owned land (though the title holder may have been absent from the land for many years) or may be technically public land. One problem common to formalizing private and publicly owned squatter land is that governments prefer the ambiguous legal standing of the land, as they may evict tenants arbitrarily and opportunistically. (This is particularly problematic in the context of mega events or private investment).
Urban slums have grown exponentially in recent years, largely as a result of FDI entering developing world economies. With the lure of jobs to cities through the boom in overseas manufacturing and the global corporatization of traditionally rural, agricultural areas, the flow of people to urban slums has grown. At the same time, many of the smallholder farmers remaining in rural areas are left with ambiguous land status, and are extremely vulnerable to displacement by global agribusiness firms. Many of these developing countries are plagued with poor and inefficient governance that has failed to evolve alongside marketplace actors. (For instance, when the United States’ property law system evolved, the new government rather quickly adopted the informal land practices that developed among settler-squatters, paving the way for a robust feedback system between market participants and the government).
Additionally, these same governments often suffer from a lack of institutional capacity to reform the system. The time, money, and process required to survey, map and record densely populated plots of land is resource-intensive and the economic incentives for doing so are not immediately apparent.
The benefits of land formalization are dramatic. With formal title, residents are more likely to improve their own land, and invest in local businesses and communities. In urban areas, formal land ownership can result in increased community infrastructure, such as sewage lines, street lights, and paved roads. In both urban and rural areas, titled land means better food security, as local farms can continue to thrive and feed local economies without being ejected by a bad government policy or a foreign investor (Note: these things still happen, in contravention to the law, of course, but formal title ownership serves as an additional layer of protection for small farmers).
Perhaps the most exciting benefit are those that are secondary in nature. With title, people can sell their homes and relocate for opportunity elsewhere. They can leverage their property for security to invest in a business or pay for a child to go to school. Additionally, formalization leads to an increase in collateral service industries, including home surveying, mortgaging and home construction. As security grows, long-arm market trust can grow—a crucial ingredient for long-term economic development. Finally, with greater market trust, and the availability of security, comes a more welcoming investment climate for foreign and medium sized enterprises.
The single most important factor in addressing dead capital is one of education for stakeholders and international policy influencers. As described, dead capital is complex, varies greatly with regional and cultural variations and is “unsexy” in nature because it is a largely a problem of bureaucratic and legal process and procedure. (It is also a heavily political issue, which is another reason why education and awareness is so important). As western policy makers, the issue is particular difficult to grasp, because the property system has been so reliant on extralegal relationships. These community-based relationships have developed to provide access to capital, provide protection and security around extralegal business arrangements, and facilitate transactions. While these relationships are important sources of stability in an otherwise uncertain business climate, they often impede market efficiency by skewing the value (sometimes arbitrarily) of services being delivered. Although the ultimate goal in improving the land registration system is to streamline process and procedure, these networks must be taken into account and integrated into the legal system (this is exactly what happened in the US example).
Streamlining process will also lead to much needed transparency and government accountability. By creating digital land records repositories (read about the Andhra Pradesh example), human error is eliminated, the time spent doing title searches and manual registrations is minimized, and any middle man or government official who could charge a bribe to perform the registration is cut out of the picture. The digitizing process (i.e., digital fee assessments with built in assessment algorithms) also cut out the opportunity for selective value assessment. Finally, records may be accessed in local languages.
At Live Capital, our first project is to prepare a submission for the Center for Urban Pedagogy’s “Making Public Policy” poster project. The poster would be a visualization of the problem of dead capital globally, societal implications of the problem, and possible solutions. I am very excited about the opportunity to mash up a very traditional policy and legal issue with design and a design thinking perspective. Please feel free to share any thought, opinions or ideas with us / me about dead capital or another policy issue that would benefit from a design perspective.