De Soto Got his Wish in Haiti

But it didn't go well

Hernando De Soto’s seminal book The Mystery of Capital put property rights at the center of development discussion. He detaile the painstaking process that many people in the developing world have to undertake to get title to the land that they own. And one of the big examples he uses is Haiti.

Haiti’s burdensome process to formalize land ownership took dozens of costly steps that in total took 12 years. De Soto argued that making it easier to title land could unlock billions of dollars of “dead” capital. And he thought Haiti was exactly where this idea would work.

Here’s an excerpt from a 2001 NYT article on him (emphasis added):

But Haiti? This is poverty on a different scale. While there are few reliable figures on Haiti, it is generally thought that 80 percent of its roughly eight million citizens live on less than a dollar a day and that 85 percent of them are illiterate. Most children suffer from malnutrition, and life expectancy is around 50. In Haiti, naked men urinate in the streets. People get water at a community tap, storing what they can in unsanitized underground tanks and boiling the water before drinking or cooking. Ragtag vendors jam the streets in Port-au-Prince, hawking old tires, clothes, shoes and motor oil. Gas stations and funeral homes are the only decent structures in view. De Soto says that these woes make Haiti the perfect proving ground for his ideas.

De Soto even had a plan for how to implement it. “De Soto…told [Aristide] that the first step was to title poor squatters in places where there could be no conflicting claims: the 40 percent of land owned by the state.”

But what if I told you Haiti had already tried this idea? Multiple times.

This is what I examine with my coauthor Seth Porter in a paper just recently published in Public Choice. In this post, let me summarize some of our findings and spice it up with some speculation beyond what we’re allowed to do in an academic publication.

Haiti’s Homesteading Program

In the 1930s, Haiti was at the tail end of the American occupation. But American officials were still considering how to promote development in Haiti. Their reports sound like excerpts from De Soto’s book. A 1927 report said, “Uncertainty in regard to landed property effectually prevents the development of land by Haitians and causes foreign capital to seek other fields of investment.” Later, in 1932, officials noted the lack of titles caused

instead of coffee trees or cotton plantations there will be the usual illkept plots of corn and vegetables where peasant farmers, without the pride or incentive which comes with private ownership, will continue simply to eke out a bare living from the soil as tenants of the state.

So, in 1934, the Americans helped pass a homesteading law. Under the law, Haitians could privatize state-owned land after renting from the state for two years and improving it. The largest plot you could receive was 5 hectares, so the properties would still be pretty small. But that’s a lot larger than what most Haitians were farming at the time.

Ironically, this was nearly the same proposal that De Soto gave in the 2001 NYT article. Take state-owned land and give it to the people. Was it the massive success he anticipated?

No, it was a pretty big failure.

We collected data on every homestead granted up until 1950. Below is the chart of how many were issued in every year. It’s not surprising that after the law was passed, there was a burst of activity. But by 1942, the program had stopped issuing new titles. In those first years, the government granted fewer than 700 titles.

It can be difficult to say whether 700 titles is a failure. It seems like it when you consider there were about 2 million Haitians at the time. But who knows how many of them wanted titles. A clearer baseline is the number of farmers who were actively renting land from the state and could have privatized it. After all, this is who the American officials had in mind when they created the program. We found that in 1933 there were 28,800 state tenants. The program only managed to get 2% of the population it was targeting. That seems like a failure.

And the Americans at the time considered it a failure too. In a 1939 report they said

This office is of the opinion that it would now be timely to reexamine the provisions of the homestead law passed in 1934, in the light of the experience thus far gained in its administration…. Certainly the results obtained under the present Act are far from those envisaged when the homestead law was proposed.

Property titling is supposed to be the Basilisk tooth that destroys the horcrux of poverty. How did this fail?

The requirements to homestead

It’s really hard to write a paper on why something did not work. There isn’t much data to work with, and we had a lot of hypotheses that didn’t produce much. It’s likely there were a lot of factors at play. But we did come up with one hypothesis that seems to work.

Like with the typical homestead, you gained title to the land by improving it. But the 1934 Homestead Act had a specific requirement: the government could dictate that up to 50% of the land (which, reminder, was at most 5 ha) be cultivated as a cash crop/export commodity. This could have been cotton or cacao, but Haiti’s most prominent export crop was coffee. The title would include a note of which crop was attached to that plot, and if the owner failed to maintain it, he could forfeit the title.

It’s hard to tell how this requirement was implemented, but we do have some evidence that it was enforced. It also seems like there was a Catch 22 aspect to it. The evidence seems to indicate that you had to cultivate the cash crop before you could get the title. But, of course, the reason why people are not already cultivating the cash crop is because they need the title to guarantee they can keep it. Maybe the promise that you'd get a title would be enough to spur you to make the huge investment, but it's a new program, how much can you trust the government? We're not sure how much this Catch 22 played a role, but it's there.

The empirical test is pretty straightforward. We test for whether this restriction was important by using an indicator for how important coffee is to the local economy. We found that areas that produce a lot of coffee had significantly more homesteads than other areas. This could be that these are areas where it was easier to cultivate coffee, easier to get access to local knowledge on growing coffee, or it could be that this is where state land already had coffee trees and someone just privatized them.

We don't have the blood on the skirts of the cloak to prove that this was the single feature to stop the homestead program's success. But it does seem like a good candidate.

So the question then becomes, why did the government impose this requirement?

Rents or Sabotage?

We have two hypotheses on what happened. But it's mostly just speculation, so it's hard to come down strong on either of them in an academic paper. But Substack isn't an academic publication. I can speculate all I want here.

One option is that the cash crop requirement is how the government retained its income from the plots. If someone is renting the plot, you have a nice stream of tax revenue from that land. Privatizing that land without a land tax is like damming the stream. You stop the flow. While Haiti did not have a land tax, it did have tariffs on exports. So if you could get the farmer to cultivate coffee, you might lose the direct rent from the land, but you could potentially make even more money through the tariffs. This requirement might have been protecting the government's pocketbook.

I think this is possible. But I'm not totally convinced. I have a preferred hypothesis, but it's much more speculative. It's borderline conspiracy theory.

My theory starts with something I haven't even mentioned yet. This was not Haiti's first homesteading program. It wasn't even its first homesteading program of the 1930s. In 1932, the government passed a homesteading act, but it immediately failed. Why? Just before it passed, the legislature amended the law with a stipulation that homesteaders would have a title, but they would not be able to lease, sell, or mortgage the property for 20 years. Effectively, the title would just give them the land rent free. A benefit, but not the De Soto effect we're looking for.

No homesteads were granted in the 1932 Homestead Act, and the Americans immediately started pushing for reform. They succeeded in under two years, getting the 1934 Homestead Act I just discussed. The big accomplishment was the removal of the transfer restrictions. But went totally undiscussed in the archives was the addition of the cash crop requirement. Because this requirement was not in the 1932 law. It appeared without fanfare, and no one ever discussed its effect on the program.

But it's interesting that the government was able to cripple the 1932 act by restricting transfers, and when the "improved" 1934 act lost this feature, it gained another one that seems to be what stopped it from succeeding.

What if this was all intentional?

The force for the homesteading program clearly came from the Americans. They were writing about it for years. In fact, the Americans were pushing for changes in land policy since the occupation began in 1915. Since the Haitian constitution had banned foreigners from owning land, American officials needed to change the constitution.

But the Haitians had resisted changes to land policy. So the Americans took the ball and went home--they disbanded the Haitian legislature and amended the constitution without their support.

If resisting foreign control of Haiti's land policy had been a centerpiece of Haitian politics since independence, why would that stop now? Could it be that the Haitian government was intentionally undermining the homesteading program to resist foreign control? Amending the law with a poison pill just before it's passed. When the reform removes the amendment, sneaking in another one.

You can see why I call it a conspiracy theory. But I don't think it's that crazy! The program failed because the government wanted it to fail.

The True Mystery of Capital

There's a joke about apologists of socialism. They see the failed states of the Soviet Union, North Korea, Venezuela, and early Communist China and say, "Well, that wasn't true socialism. True socialism hasn't been tried anywhere."

You could say a similar thing about this homesteading program and the De Soto thesis. "That's not what De Soto actually prescribed. He would never recommend those restrictions. The true mystery of capital hasn't been tried."

I sympathize with that argument. And yet, these programs exist within a political system. You can't follow De Soto's advice and implement a titling program without considering the political environment. Indeed, while writing this paper, we found nearly two dozen titling programs around the world that failed.

Protecting property rights is an important component of any development strategy. But I am less convinced that you can just airdrop titles and expect a significant change without addressing the issues that created the problem in the first place.

The true mystery of capital is how these institutions function at all.

The paper is titled The inefficacy of land titling programs: homesteading in Haiti, 1933–1950. That link will let you read it for free. Share it with a friend!