PSD Blog - The World Bank Group

China's revolution in access to finance

China looks set to see a boom in access to finance since the passage in 2007 of the Property Rights Law. Last week, the Financial Times reported on the newfound ability of farmers to monetise their land. Some farmers are selling to larger, more efficient companies, while others are taking advantage of the opportunity to use their land as collateral:

...the application of a monetary value to land usage rights is creating fertile ground for the spread of financial services to the poorest. Most farmers have never had access to loans but Beijing is backing a flurry of initiatives to change this. To dramatise the point, Wen Jiabao, the premier, recently had an impromptu, televised chat with a somewhat startled, straw-hatted, 67-year-old farmer, Pan Jinmu, who had walked into his local bank in Zhejiang province to get a Rmb5,000 ($732, €499, £461) unsecured loan.

The Access to Justice Programme in Pakistan

To reduce the enormous backlog of court cases, Pakistan enacted the “Access to Justice Programme” in 2002. Case-flow management techniques were taught to judges in 6 pilot districts out of 117, with the aim of facilitating rapid case disposal. Beyond this immediate aim, a more efficient judiciary can also have important economic effects by, for example, providing more secure property rights and better enforcement of creditor rights. Greater security of property rights increases the return from investment, which encourages entrepreneurship, and the better enforcement of creditor rights makes it easier for banks to lend to current and future entrepreneurs. In short, one would predict an increase in entrepreneurship as a result of a more efficient judiciary. Did this prediction come true in Pakistan?

Do we need to worry about enforcement of laws?

It goes without saying that rules, laws and regulations are meaningless if they are not enforced. Yet, the bulk of the literature on the effects of various laws is completely silent on the enforcement issue. The implicit assumption is that measures based on laws on the books are a reasonably good proxy for actual enforcement of laws and so an explicit reference to enforcement is not required. Is there any reason to think this is a plausible assumption?
 
A handful of studies that focus on enforcement suggest the answer is no. For example, Ben-Bassat and Dahan (2008) look at constitutional commitments to social rights in 68 countries. The rights studied include the right to social security, education, health, housing and workers’ rights. The study finds that commitments are binding on public policy only for social security and not the rest. While the study does highlight the gap between laws on the books and their enforcement, it is difficult to infer if the gap is due to enforcement constraints per se or simply cheap talk by politicians with no intention to enforce, ex post.

Supply and demand of property rights

Famed Peruvian economist Hernando de Soto has argued forcefully for the protection of property rights as a key ingredient in economic development. His book The Mystery of Capital became a big hit with its argument that the poor had plenty of capital but that the lack of property rights meant it was unusable. De Soto hammered home this point again with the publication of Making the Law Work for Everyone. While there is general consensus on the importance of property rights, there is still a huge, unanswered question: How do we create them?

In India, it's all about location, location, location

The Financial Times reports today that Tata Motors, the company behind the Rs100,000 (US$2280) Nano mini car, has faced protests over the location of its factory. Some 2,000 state police blocked the road to the factory in West Bengal. Protestors are concerned that farmers have been unfairly displaced from Tata's 1,000-acre site. On the upside for Tata, FT reports that it has received proposals for relocation from at least nine Indian states. I guess the diminutive Nano is in demand. This doesn't seem to be the only case in India's recent history of such protests, though.   

   

Baobab, the tragedy of the commons, and international trade

Just recently, the EU approved the extract of the baobab fruit as an ingredient in foods in the European market. If you're like me, until today you had never heard of the boabab fruit (pictured right). According to the proprietor of the African Kitchen Gallery Restaurant in central London, "It is very nutritious, full of vitamin C and vitamin A. It has a very special flavour, but the closest I can get to it is jackfruit, which is like melon." That doesn't sound too bad to me.

Over at the Cheetah Index, blogger Chido Makunike has a mixed reaction to the EU's approval (Hat tip: Global Voices Online): 

Corruption in the water sector

Transparency International has just released its annual corruption report, and this year's focus is on corruption in the water sector. Undoubtedly, the 398-page tome will draw a lot of attention to what Transparency International makes clear is a crisis:

In developing countries, about 80 per cent of health problems can be linked back to inadequate water and sanitation, claiming the lives of nearly 1.8 million children every year and leading to the loss of an estimated 443 million school days for the children who suffer from water-related ailments.

Property rights for all!

The Legal Empowerment of the Poor (Hat tip: CIPE Development Blog)

The Commission on Legal Empowerment of the Poor, co-chaired by Madeleine Albright and Hernando de Soto, just released this report on Tuesday. The report looks at creating property rights at the bottom of the economic ladder. From the executive summary:

…[I]t is not the absence of assets or lack of work that holds [the poor] back, but the fact that the assets and work are insecure, unprotected, and far less productive than they might be…In too many countries, the laws, institutions, and policies governing economic, social, and political affairs deny a large part of society the chance to participate on equal terms. 

Petrostate: Putin, Power, and the New Russia (Hat tip: Johnson’s Russia List)

On a very different note, author Marshall Goldman discusses his recent book on energy politics in Russia at an event today at Radio Free Europe/Radio Liberty. The book promises an interesting read on the corrosion of property rights at the top of the economic ladder. From the description:

The book provides an informative overview of oil in Russia, traces Vladimir Putin's determined effort to reign in the upstart oil oligarchs who had risen to power in the post-Soviet era, and describes Putin's efforts to renationalize and refashion Russia's industries into state companies and his vaunted "national champions" corporations like Gazprom, largely owned by the state, who do the bidding of the state.

Oil, oil everywhere…

In just the last two days, two articles have pointed to growing pressure for greater state control of energy resources. In Brazil, the state-owned oil company Petrobras (subscription required) has been pressuring the country’s Congress to change the rules of the game to its benefit. Currently, foreign oil companies bid in auctions for exploration rights, paying a combination of an upfront fee and royalties on any discoveries. However, a huge discovery last year by Petrobras has upped the stakes. Petrobras wants to force all new explorations to be carried out as joint ventures, a la Venezuela and Nigeria.

A case in Russia is also pointing to continuing pressure for state control of the energy industry (subscription required). TNK-BP, a joint venture of British Petroleum and Russian-owned Alfa-Access-Renova, has seen a falling out between its foreign and Russian shareholders. The details of the case are truly convoluted, but the main contention is this: The shareholders of Alfa-Access-Renova would like to sell their shares to one of the state-owned oil companies, but they need to achieve a takeover of TNK-BP before handing the joint venture over.

Land, the single greatest asset for the poor

In 2006, the income of Chinese urban residents was 3.28 times that of the rural ones, where 700 million farmers or 56 percent of total population live.

The new survey from the Cato Institute shows how secure land rights can reinvigorate China's rural economy. The graph (below) displays a correlation between issuance of contracts and certificates and farmers' mid and long-term investment in land.

The report also contains an analysis of a Property Law aimed at creating greater land-tenure rights, passed in March of 2007.