Law is…not simply a set of spoken, written or formalized rules that people blindly follow. Rather, law represents the formalization of behavioral rules, about which a high percentage of people agree, that reflect behavioral propensities and that offer potential benefits to those who follow them. (When people do not recognize or believe in these potential benefits, laws are often disregarded or disobeyed.)11
Another legal scholar has noted that the West’s “modern reliance on government to make law and establish order is not the historical norm.”12 Diverse laws within one nation are nothing new. Legal pluralism ruled continental Europe until Roman law was rediscovered in the thirteenth and fourteenth centuries and all currents of law were gradually brought into one coordinated system.
We should not be surprised, then, to find that extralegal activity in developing and former communist countries is rarely haphazard. In the course of issuing formal title to hundreds of thousands of home and business owners in Peru, my organization never found an extralegal group that did not comply with well-defined consensual rules. Whenever we visited an undercapitalized area, whether in Asia, America, or the Middle East, we never stepped into a wilderness. By observing carefully, we were always able to distinguish patterns of rules. In the worst cases, we found a neglected garden—never a jungle.
Like their Western predecessors, the undercapitalized sectors in the Third World and former communist countries have spontaneously generated their own varieties of property rules. To defend their incipient property rights from others, they have been forced to work out among themselves their own extralegal institutions. Remember, it is not your own mind that gives you certain exclusive rights over a specific asset, but other minds thinking about your rights in the same way you do. These minds vitally need each other to protect and control their assets. Moreover, people need to make their social contracts even stronger than formal law to fend off intruders, especially the government. Anyone doubting the strength of social contracts has only to challenge some of these extralegal rights. The resistance will be most impressive.
Extralegal arrangements have become astonishingly widespread over the past forty years. Reports about “the mushrooming extralegal sector” seem as common as football scores in the newspapers of practically every Third World city. The reason is that formal law has not been able to accommodate rapidly evolving extralegal agreements. In real estate, for example, extralegal social contracts originate not only from outright squatting by migrants but also from deficient housing and urban or agrarian reform programs, the gradual deterioration of rent control programs, and the illegal purchase or lease of land for dwelling and industrial purposes. Most social contracts are facilitated by active agents: commercially, politically, or religiously motivated “real estate brokers” who have either something to gain from these transactions or a constituency to protect. The common denominator among their clients is that they cannot pay the costs of legally obtaining property. In some countries I have visited, branches of the armed forces appoint military officers to obtain real estate extralegally as living quarters for noncommissioned officers. More surprising still, I have seen municipal authorities in charge of real estate titling and registry operations organize informal squatting in order to provide their union members with decent land for their homes. One large squatter settlement I visited recently was initiated by the city council itself to provide homes for some 7,000 families of government employees. In another country, a local newspaper, intrigued by our evidence of extensive extralegal real estate holdings, checked to see if the head of state’s official residence had a recorded title. It did not. The newspaper joked that the nation’s laws were being enacted from an extralegal location.
Once rights to land have been created extralegally, those involved create institutions to administer the social contract they have built: Informal business and residential organizations meet regularly, make decisions, obtain and supervise infrastructure investment, follow administrative procedure, and issue credentials. They typically have a headquarters where maps and manual ledgers with ownership records can be found. The most striking feature of these institutions, throughout the world, is their desire to be integrated into the formal sector. In urban areas, extralegal buildings and businesses evolve over time until they are barely distinguishable from property that is perfectly legal. In all the developing and former communist nations I have visited, a long frontier separates the legal from the extralegal. All along it, there are checkpoints where extralegal organizations connect with government officials, where the former struggle to gain official acceptance and the latter try to achieve a semblance of order.13 Usually, extralegal organizations will have worked out a way to coexist with some stratum of the government, probably at the municipal or local level. Most groups are trying to negotiate a legal niche to protect their rights, whereas others have already reached some sort of agreement that stabilizes their situation outside mainstream law. There is one other clue pointing to the fact that the extralegals want to come in from the cold: The engaging and diplomatic leaders they select to negotiate on their behalf hardly fit the stereotype of the street boss.
Listening to the Barking Dogs
Most governments of developing and former communist nations are probably ready to recognize that the reason why their extralegal sectors are growing exponentially is not because people have suddenly abandoned their respect for the law but because they have no alternative for protecting their property and earning a living. Once governments come to terms with this fact of modern life, they will have to strike a deal. Although the extralegals are already primed to cross the bridge into legal recognition, they will do so only if their governments make the trip easy, safe, and cheap. Asset owners in the extralegal sector are already relatively well organized; they are also “law-abiding,” although the laws they abide by are not the government’s. It is up to the government to find out what these extralegal arrangements are and then to find ways to integrate them into the formal property system. But they will not be able to do that by hiring lawyers in high-rise offices in Delhi, Jakarta, or Moscow to draft new laws. They will have to go out into the streets and roads and listen to the barking dogs.
The law that prevails today in the West did not come from dusty tomes or official government statute books. It is a living entity, born in the real world and bred by ordinary people long before it got into the hands of professional lawyers. The law had to be discovered before it could be systematized. As the legal scholar Bruno Leoni reminds us:
The Romans and the English shared the idea that the law is something to be discovered more than to be enacted and that nobody is so powerful in his society as to be in a position to identify his own will with the law of the land. The task of “discovering” the law was entrusted in their two countries to the jurist consult and to the judges, respectively—two categories of people who are comparable, at least to a certain extent, to the scientific experts of today.14
“Discovering the law” is precisely what my colleagues and I have been doing in various countries for the past fifteen years as a first step toward helping governments in developing countries build formal property systems that embrace all their people. When you push aside the Hollywood stereotypes of Third Worlders and ex-communists as a motley assortment of street vendors, mustachioed guerrillas, and Slavic gangsters, you will find few differences between the cultures of the West and elsewhere when it comes to protecting assets and doing business. After years of study in many countries, I have become convinced that most extralegal social contracts about property are basically similar to national social contracts in Western nations. Both tend to contain some explicit or tacit rules about who has rights over what and the limits to those rights and to transactions; they also include provisions to record ownership of assets, procedures to enforce property rights and claims, symbols to determine where the boundaries are, norms to govern transactions, criteria for deciding what requires authorized action and what can be carried out without autho
rization, guidelines to determine which representations are valid, devices to encourage people to honor contracts and respect the law, and criteria to determine the degree of anonymity authorized for each transaction.
It is fair to assume, therefore, that people are prepared to think about property rights in very similar ways. This should not come as a big surprise; folk conventions have always spread by analogy from one place to another spontaneously. Moreover, the massive migrations of the past forty years, not to mention the worldwide revolution in communications, mean that we are sharing more and more values and ambitions. (Third Worlders watch TV, too; they also go to the movies, use telephones, and want their children to get good educations and become computer literate.) It is inevitable that individual extralegal social contracts in the same country will be more alike than different.15
The problem with extralegal social contracts is that their property representations are not sufficiently codified and fungible to have a broad range of application outside their own geographical parameters. Extralegal property systems are stable and meaningful for those who are part of the group, but they do operate at lower systemic levels and do not have representations that allow them to interact easily among each other. Again, this is similar to the past of the West when official titles did not exist. Before the fifteenth century in Europe, for example, even though some isolated registries did exist in some parts of what is today Germany, most official rules on how property transactions ought to work were unwritten and known only through oral traditions.
Many view those rituals and symbols as the representational predecessors of official titles, shares, and records today. According to the eighteenth-century British philosopher and historian David Hume, in certain parts of Europe during his day, landowners passed stones and earth between each other to commemorate the exchange of land; farmers symbolized the selling of wheat by handing over the key to the barn where it had been stored. Written parchments testifying to property transactions on land were ritually pressed to the soil to represent the agreement. Similarly, centuries before in imperial Rome, Roman law provided that grass and branches were to be passed from hand to hand to represent the legal transfer of property rights. The Japanese, too, had their own ritual confirmations of transactions; for example, in the region of Gumma Kodzuke, during the Tokugawa period from the seventeenth to the nineteenth century when the sale of agricultural land was forbidden by law, landholders transferred their assets anyway, confirming these extralegal deals in written documents sealed by the seller’s relatives and the village leader.
Gradually, the written documents were collected in local registries. It took time before these representations were put in book form. But it was only during the nineteenth century that these different property registries and the social contracts governing them were standardized and brought together to create the integrated formal property systems that the West has today.
The former communist nations and the Third World are exactly where Europe, Japan, and the United States were a couple of hundred years ago. Like the West, they must identify and gather up the existing property representations scattered throughout their nations and bring them into one integrated system to give the assets of all their citizens the fungibility, bureaucratic machinery, and network required to produce capital.
Decoding Extralegal Law
When my colleagues and I first faced the task of integrating precapitalist property arrangements into a capitalist formal property system, the West was our inspiration. But when we started searching for the information on how the advanced nations integrated their extralegal arrangements into law, there were no blueprints for us to draw upon. How Western nations identified which categories of extralegal proofs of property would be the common denominators of a standardized formal property system is unfortunately poorly documented. John Payne explains the situation in England:
Formal proof of title as a part of commercial land transactions is apparently a late development in English law but present information is so scant as to make such a hypothesis merely tentative. It is a source of exasperation to the historian that, while great events are chronicled in detail, people seldom feel it necessary to set down an account of the homely, everyday activities in which they engage. To do so would appear superfluous and banal, for no one wants to be reminded of the obvious. Consequently what everyone takes for granted in one era is unknown in the next, and the reconstruction of ordinary procedures requires painstaking piecing together of sources left for an altogether different purpose. This is certainly true of the practices of conveyancers, for, until the [nineteenth] century we have only limited knowledge of how they actually carried on their work.16
Guided by the few historical records we could find and filling the gaps with our own empirical research, we brailled our way through extralegal worlds and eventually learned how to get in touch with the social contracts that underlay property rights there. Discovering these arrangements is nothing like searching for proofs of ownership in a formal legal system, where you can rely on a record-keeping system that has over the years created a paper trail, a “chain of title,” that allows you to search for its origin. In the undercapitalized sector, the chain of title is blurry, at best, to the outsider. The undercapitalized sector does not have, among other things, the centralized recording and tracking bureaucracy that is at the center of formal society. What people in the undercapitalized sector do have are strong, clear, and detailed understandings among themselves of who owns what today.
Consequently, the only way to find the extralegal social contract on property in a particular area is by contacting those who live and work by it. If property is like a tree, the formal property system is diachronic, in the sense that it allows you to trace the origins of each leaf back in time from twig and branch to the trunk and finally to the roots. The approach to extralegal property has to be synchronic: The only way an outsider can determine which rights belong to whom is by slicing the tree at right angles to the trunk so as to define the status of each branch and leaf in relation to its neighbors.
Obtaining synchronic information takes fieldwork: going directly to those areas where property is not officially recorded (or poorly recorded) and getting in touch with local legal and extralegal authorities to find out what the property arrangements are. This is not as hard as it sounds. Although oral traditions may predominate in the rural backwoods of some countries, most people in the undercapitalized urban sector have found ways to represent their property in written form according to rules that they respect and that government, at some level, is forced to accept.
In Haiti, for instance, no one believed we would find documents fixing representations of property rights. Haiti is one of the world’s poorest countries; 55 percent of the population is illiterate. Nevertheless, after an intensive survey of Haiti’s urban areas, we did not find a single extralegal plot of land, shack, or building whose owner did not have at least one document to defend his right—even his “squatting rights.” (see Figure 6.2 for a selection of Haitian informal titles). Everywhere we have been in the world, most informals have some physical artifact to represent and substantiate their claim to property. And it is on the basis of these extralegal representations, as well as records and interviews, that we are everywhere able to extract the social contracts undergirding property.
Although extralegal sources of information to identify property conventions are important, there are also official and legal sources. Politicians at the top are rarely conscious of the extent to which people at lower administrative levels of government are constantly in touch with the extralegal sector. Municipal authorities, urban planners, sanitation officers, police, and many others have to produce official assessments of the extent of illegality of the informal settlements or groups of new businesses that are sprouting constantly throughout their districts. We have learned how to read official documentation to spot areas where extralegal social contracts prevail.
Once governments know where to look for
extralegal representations and get their hands on them, they have found the Ariadne’s thread leading to the social contract. Representations are the result of a specific group of people having reached a respected consensus as to who owns what property and what each owner may do with it. Reading representations themselves and extracting meaning from them does not require a degree in archaeology. They contain no mysterious codes to be deciphered. People with very straightforward, business-like intentions have written these documents to make absolutely clear to all concerned what rights they claim to have over the specific assets they control. They want to communicate the legitimacy of their rights and are prepared to provide as much supporting evidence as possible. Their representations have nothing to hide; they have been designed to be recognizable for what they are. This is not always so obvious because, regrettably, when dealing with the poor we tend to confuse the lack of a centralized record-keeping facility with ignorance. As John P. Powelson correctly concludes in The Story of Land, even in primitive rural areas of developing nations, the people themselves have been their own most effective advocates and have always had the capacity to represent themselves intelligently.17
When governments obtain documentary evidence of representations, they can then “deconstruct” them to identify the principles and rules that constitute the social contract that sustains them. Once reformers have done that, they will have all the major relevant pieces of extralegal law. The next task is to codify them—organize them in temporary formal statutes so that they can be examined and compared with existing formal law. Encoding loose systems is also not a problem. In fact, it is not much different from government procedures to make legal texts uniform within countries (such as the U.S. Unified Commercial Code) or between countries at an international level (such as the many integrated mandatory codes produced by the European Union or the World Trade Organization). By comparing the extralegal to the legal codes, government leaders can see how both have to be adjusted to fit each other and then build a regulatory framework for property—a common bedrock of law for all citizens—that is genuinely legitimate and self-enforceable because it reflects both legal and extralegal reality. That is the way for developing and former communist nations to meet the legal challenge, and that was basically how Western law was built: by gradually discarding what was not useful and enforceable and absorbing what worked.
The Mystery of Capital Page 17