Property Rights & Resilience

Stephen DeAngelis

December 29, 2006

Last month I discussed a list of programs highlighted by Tina Rosenberg that have proven themselves effective in helping fight poverty [Programs that Fight Poverty]. One of those programs was giving people an ownership stake in their community’s future.

“Look around the edges of any large third world city and you will see vast settlements built by the residents themselves. Migrants from the countryside claim empty plots in nighttime land invasions, put up a blanket with a pole or a cardboard roof and begin stockpiling bricks. Their livelihoods are similarly jerry-rigged. A man will nail together a booth, at which he can sit and repair his neighbors’ shoes. A woman will open a window to the street to turn her living room into a mini-bodega, selling cooking oil and rice. Most people surveying these kingdoms of dust and hope see only poverty. But Hernando de Soto saw something else – untapped wealth. Mr. De Soto, a Peruvian economist, realized that the world’s poor own trillions of dollars’ worth of assets. But their houses, plots of land and businesses lacked formal title – and so could not be used to do all the things that people in wealthy countries do to turn a little money into a lot of money. …  To change this, Mr. De Soto founded an organization in Lima called the Institute for Liberty and Democracy. It carries out research on the informal sector. But the governments of Peru and El Salvador have also hired the I.L.D. to run registries that give poor people simple, quick ways to get title for their land, homes and businesses. It also helps them use those titles productively. In other countries, I.L.D. is helping governments design such agencies or train government officials to do this work. … Getting title, of course, does not mean that poor people can necessarily turn it into higher incomes. To use newly legal assets, the poor must still contend with banks that won’t lend to them, and courts that require bribes and put up other hurdles. Tackling these issues may help solve one of the most vexing drawbacks of globalization and the market economy – in much of the third world, they have tended to benefit only the wealthiest. But establishing property rights is a necessary first step.”

Monte Reel, writing in the Washington Post, notes that some big corporations still persist in efforts to swindle indigenous populations even if property rights legislation is in place [“In Chile, Precious Lands Often Go for a Pittance,” 26 December 2006]. The victim in Reel’s story isn’t exactly a peasant farmer or one of the urban poor. He is a college-educated mineral speculator named Rodolfa Villar, who himself takes advantage of Chilean law to buy mineral rights on property he suspects contains valuable deposits. The article talks about how Villar thought he was selling mineral rights he had obtained on 20,000 acres to the Canadian firm Barrick Gold Corporation for a million dollars. When the contract turned out to be worth only $19, Villar sued.

“This year, a Chilean judge ruled in his favor, saying that the company had essentially swindled Villar, and ordered the lands returned to him. Barrick officials say the ruling, which they have appealed, is unlikely to derail the mining project. But the case has angered some Chileans and others who complain that foreign mining companies are exploiting local landholders. Much of Latin America has experienced a mineral boom in recent years, with metal prices climbing and governments eager to generate tax revenue and other income from large-scale mining projects. The region is home to more mineral exploration than anywhere else in the world, but a corresponding increase in scrutiny from nongovernmental organizations and public interest groups has heightened tensions. And although many companies have developed ‘social responsibility’ policies to smooth relations with local landowners, such efforts rarely eliminate the problems. ‘Disputes like this between mining companies and landholders are quite common,’ said Keith Slack, senior policy adviser for Oxfam America and director of its ‘No Dirty Gold’ campaign, which opposes mining policies that harm the environment or displace locals. ‘What happens is a mining company will negotiate with a local landowner, and the landowner will later say he didn’t get a fair deal. The company will say it paid a fair market price, but in those remote Andean mountain areas, there’s no real land market and it’s difficult to say exactly what a fair price would be.’ … The land claimed by Villar sits on the perimeter of Barrick’s Pascua-Lama mining project, which straddles the Chile-Argentina border and is expected to yield as much as $18 billion. … In Villar’s case, Barrick’s lawyers had argued that the price was not out of line with those offered in other deals it had made with landowners . Company spokesman Vince Borg said the low price reflected the value of the lands to the company; they are not crucial to the livelihood of the mining project, Borg said. But the judge didn’t accept those arguments, saying that merely repeating such acts does not make them legally just. … ‘The fact that in other occasions the company has signed contracts that have stipulated similar prices is not an absolving excuse,’ Judge Mar?a Isabel Reyes Kokisch explained in her ruling. ‘… It doesn’t legitimize or convert them into valid legal acts.’ According to Borg, the Villar case is a ‘nuisance suit’ and he is a ‘claim jumper’ — someone who tries to steal mining rights from their rightful owners. But Villar paints himself as a mining expert who has a good sense for the lay of Chile’s land, and a very bad sense for business.”

The mining operation in and around the area where Villar owns property has received a lot of attention from environmentalists, according to Reel, as well as those looking to protect the legal rights of landowners. Environmentalists remain concerned about glaciers in the area that the mining company planned to remove in order to extract mineral deposits. The project was approved when Barrick Gold promised not to disturb the glaciers, which are a valuable source of water for the area. Some may see the mining operation as part of the downside of globalization, but mining (and exploitation of natural resources) has been occurring for millennia. I think the story actually shows one of the upsides of globalization. One of the benefits of globalization is that communities who connect with the rest of the world often find themselves in a better position to defend their rights and avoid exploitation. One reason is that they are often joined by non-governmental organizations who have developed strategies to protect their rights. As noted by Reel, this has resulted in many corporations adopting social responsibility policies. Resilient corporations are also socially responsible because they take a long view of the competitive landscape. Development-in-a-Box helps groups take a long-view by ensuring that best practices are adopted early in the development process. Barrick Gold can’t be pleased with the negative publicity this case is bringing them, nor will they enjoy the increased governmental scrutiny that is likely to greet them in the future — from both the Chilean and Canadian governments. Its investors might have grown rich exploiting mineral rights, but such practices cannot be sustained over the long run.