TCS Daily

The Opportunity in Haiti

By Peter F. Schaefer - September 23, 2010 2:15 PM

Coat of arms of Haiti

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A pledging session earlier this year promised billions of dollars for Haiti's relief and reconstruction. But an article in the Washington Post on foreign aid ("Billions pledged, but little rebuilt in Haiti") notes that "Of the $5.3 pledged to Haiti for 2010 and 2011 only about 10% has been disbursed..." The biggest single problem Haiti faces is rebuilding shelter, but the PBS Newshour reported that a major problem with doing this is that there are few official land records and those which exist were mostly destroyed. And PBS went on to say that the Haitian government is reluctant to seize land through eminent domain. The headline of a recent LA Times article sums it up; "Reconstruction of this earthquake-crippled nation hangs on a simple, potentially explosive question: Who owns the land?" President Rene Preval answers this question saying "The problem of title of ownership goes back 200 years in Haiti." The problem of informal settlements is not just Haiti's problem but is universal in all poor countries.

But Haitians live in tents while we search for answers and the good news that that there is a way to solve this problem without seizing land; a way which could not only stabilize property rights; a way which could clear the legal path to reconstruction; and a way which could generate substantial private financing.

Over the last 60 years the West has provided Haiti with massive foreign aid to build infrastructure, stimulate private investment and promote good governance. But Haiti has been the graveyard of every sort of notion about how wealthy countries can help poor countries. And now some Western development experts are actually saying that this disaster is really an opportunity; a clean slate and so a chance to "get it right." But what is the "it" we are going to get right? What haven't we tried?

Other experts rightfully despair that Haiti's prospects are grim. According to recent reports, it may require $14 billion just to get the country back to square-one. This has stimulated some out-of-the-box thinking such as rebuilding the phone system wirelessly instead of running new copper wire. While this is smart - in fact many poor countries which never had phones have gone wireless - most of this "new" thinking reflects desperation not creativity. Proposals like opening our borders to Haitian immigrants or merging Haiti with the Dominican Republic (the DR) are just nutty. The enormous social and economic cost of the Mariel "boat-lift" a generation ago should demonstrate the unacceptable cost of such ideas of open borders with poor countries. In fact, the decision of many US hospitals to deny services to Haitians would be just a small foretaste of the problems we would face. And the DR is a Spanish speaking country who in 1937 slaughtered 20,000 Haitians who resided there, something still remembered by living Haitians. But it is our failure to help Haiti which has spawned these wild ideas so a better approach might be good ideas.

While it is clear that a large part of the urban population needs shelter Haiti's problem is not just a roof over their heads or insufficient handouts from benevolent Americans. Haiti's problem is that it has never had a productive economy which could attract much investment by either foreign or domestic private investors. This is largely because Haiti does not have a rule-set which governs commerce efficiently and predictably. Haiti's economy is mostly informal and so the rules-of-commerce are largely improvised, thus inviting corruption which is stacked on top of the inefficiency.

There is a solution however. Last summer Senator Richard Lugar released a report recommending that President Preval eliminate the bureaucratic constraints ( which overwhelm any kind of long-term capital investment in Haiti. First among his four main recommendations was "Reform and modernize the property titling system, so that Haitian citizens, new investors, and NGOs can possess a clear title to property that they purchase or lease for their facilities."

This recognizes that only the private economy, financed by international capital markets, has the resources and skills necessary to rebuild Haiti. Adequate private investment would not only create a process which could rebuild the physical damage, but could also create a self-sustaining economy that would endure beyond reconstruction thus providing livelihoods not just handouts.

Senator Lugar and his staff are familiar with a study by a Peruvian think-tank published in 2000 which measured Haiti's urban property as being 68% informal. What this means is that over two-thirds of the people do not hold title to their homes and are, in a legal sense at least, squatters. "Informal" does not mean that the occupation of their house is contested; their tenure is generally secure, albeit extralegal.

Rather, what it means is that their extralegal houses cannot be easily sold to anyone except people they know, and so have limited market value and no loan value. An intact house might be sold to a friend for the value of labor and materials needed to build it, but no matter how nice the house, they cannot legally pledge it as collateral for a loan because the resident doesn't own the land on which his house sits. Because they do not have title to the land under the rubble pile, private, commercial reconstruction is simply not possible.

The developed economies are still emerging from a near-depression which was not the result of a lack of business activity but rather a lack of credit to finance business due, largely, to impaired collateral. Now imagine trying to stimulate growth in an economy with no collateral and you will understand Haiti's real problem.

Recommending property rights has been a part of the development dialogue for a decade now and US taxpayers have committed well over $100 million to its promotion. Yet, so far, it mainly generates recommendations, such as the Lugar Report, but not action which is what is needed in Haiti. But the good news is that creating titles is not especially difficult, it won't cost the government much, and it won't take decades to do.

Practical action will allow the Haitian citizens to make those millions of autonomous decisions which are essential to fix a problem whose scope is simply beyond the intervention of aid agencies no matter how enlightened or well intended. To do this Haitians need help to create a system which will provide the occupants with titles to the actual land on which their homes once sat.

There are quick and effective techniques for communities to self-map the property lines, to adjudicate disputes internally and then validate those lines using simple, cheap GPS systems. This is, in fact, largely how the North American continent was settled. Towns largely began with community registries that reflected the consensus of neighbors as to property lines which were later simply validated by governments when their authority was extended to that area. In fact the jury system began in 13th Century England to solely to allow neighbors to affirm who last had peaceful possession of property, not who had title which didn't even begin being used until the 16th Century. In North America this was the main a settlement pattern for nearly three centuries.

If the Haitian government is slow to confirm community tenure, then the data could be entered into a community registry as it once was in the US. The political reality in Haiti would be just the same as it was in post-statehood California; it would be bad politics not to make the community registry into the official registry. And then the local banks, credit unions and foreign microfinance organizations could use it to validate collateral.

Rather than trying to build houses directly, the foreign aid agencies could help create these registries, train lenders and then help Haitians establish rules to enforce reasonable lending discipline. This would allow private capital markets to provide wholesale loans to these local lenders, who would base their micro-mortgages on less risky (and so less-costly) formal collateral. In this way Haitians themselves could control the reconstruction of their country by following the same path to acquiring long-term credit which every modern economy uses.

In addition to promoting a sensible and timely process of reconstruction such an approach would have long-lasting impacts that just might allow Haiti to shed its title as an economic "basket-case" and finally begin a process of modernization. In the medium term it would create livelihoods for Haitians as they worked on clearing and construction or rehabilitation. And then with urban titles, developers could acquire land directly from small owners for new development in a rational way that benefited the developers and the newly validated owners.

Haiti isn't the only poor country without the sort of formal rules of commerce which, mainly, protect property rights and contracts. Every poor country lacks the widespread application of formal rules which are necessary - not sufficient, but certainly necessary - to achieve modernity. Haiti should be a tourist mecca just like the other half Hispaniola. With these reforms in place the physical Haiti could be rebuilt rationally, while at the same time the civic cooperation needed for mapping and reconstruction could establish the foundation of a modern civil society.

Peter F. Schaefer has worked in poor countries as a businessman, aid official, soldier and researcher. He is the author of the chapter on property rights in the book Can Latin America Compete? He runs a company which works in poor countries to register property and provide credit.


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