3 questions for a regulatory reform minister

 

So let's say you're a minister in a reforming government, a rare enough beast. And that you're someone who has both the job and the intention of reforming regulations. (An even rarer animal in any political environment!)

Economist Jon Murphy offers 3 simple questions to guide your work. And they start with Ronald Coase ...

As many economists have been pointing out since at least Ronald Coase’s famous 1960 paper 'The Problem of Social Costs,' we exist in a complex world of pre-existing social, economic, legal, and legislative arrangements. These arrangements influence our actions. Like Chesterton’s Fence, we cannot pretend they do not exist, nor discard them because we do not understand their purpose.
    And yet, many interventionists do ignore current arrangements.

Many interventionists simply load new intervention upon old intervention, assuming either the new intervention will fix the unintended consequences of the old intervention — or, worse, ignoring altogether that the old interventions exist!

But let's assume our political reformer is honest as well (an even rarer beast in politics!) Then your first question would be:

Question 1: What is the current state of affairs?

... Of course, it is impossible to articulate every single aspect of the current state of affairs. Rather, one should focus on the most salient (eg, direct laws, institutions, etc). ... There are all sorts of preexisting arrangements that influence [affairs]. These preexisting arrangements, as Coase pointed out, are crucial. If they are misunderstood, then interventions can make the situation worse.
    Answering this question also helps understand why existing patterns are what they are.

As Hernando de Soto liked to point out, if you see people doing insane things, then that's your clue there are some bad laws against which people are trying to just do their best. Talking about the developing world's shanty towns, for example, he pointed out it's no surprise that folk there tend to build their furniture before their roof: the reason being that the laws give them no chance to get secure land title, so their lounge suite will always be more secure than their shelter. People respond to incentives, even if bad law only encourages shitty ones.

Which leads us to the next question.

Question 2: Why have pre-existing arrangements failed?

If the answer to Question 1 leads one to conclude that there is indeed a failure, now we need to understand why that failure has occurred. Is there something about the current state of affairs that triggers that failure? What are the actual causes of the failure? What are the incentives people face?

Understanding those shitty incentives is the key here. And Do Soto's example is still on point: we should assume that people making apparently bad decisions are acting rationally. It's not they are irrational; it's the incentives they face that are irrational. So, in our example, our reforming political animal should examine  how poor property rights protection encourages these poor property decisions.

Here at home, he could do worse than start with the bad outcomes of the RMA and the Building Act.

And then consider ...

Question 3: Is your proposed solution the best method achievable?

Hopefully, by this point, [our enlightened political beast] has a pretty good understanding of the current state of affairs. Now is the time to start considering proper interventions. Note that this question actually has two elements to meet: 

1. the intervention is the best method to achieve the goal, and
2. the intervention is achievable.

... What is "best" may not be a positive intervention (meaning that one takes a new action) at all. Indeed, while investigating Questions 1 and 2, one may discover that the best thing to do is remove an existing intervention! 

Given the encrustation of existing legislation and regulation, that would be an enlightened first option.  

The second element relates back to our first question. Whether or not some intervention is achievable will depend on the current institutions. ...

And more crucially, will depend on the principles and political agility of the reformer, and the support they can garner for their goals.

My own suggestion would be to always head in the direction of more freedom, however small the increment, just as long as there is no new impediment to freedom imposed. That would be a principled, practical approach to reform. More white with no new black.

Or set off one or two small steps that would self-initiate many more, such that the liberating process might be unstoppable. (This was Hernando De Soto's approach with title registration in South America.)

We've seen more than one pinstriped "reformer" end up preening their ego rather than doing the work. But if the reformer's motivation were to remain sound, great things could be achieved even in small steps.

"...the lifeblood of the capitalist system, the foundation of progress, and the one thing that the poor countries of the world cannot seem to produce for themselves ..."

"The cities of the Third World and the former communist countries are teeming with entrepreneurs. You cannot walk through a Middle Eastern market, hike up to a Latin American village, or climb into a taxicab in Moscow without someone trying to make a deal with you. The inhabitants of these countries possess talent, enthusiasm, and an astonishing ability to wring a profit out of practically nothing. They can grasp and use modern technology.... Markets are an ancient and universal tradition: Christ drove the merchants out of the temple two thousand years ago, and Mexicans were taking their products to market long before Columbus reached America....
    "[W]hat is it that prevents capitalism from delivering to them the same wealth it has delivered to the West? Why does capitalism thrive only in the West, as if enclosed in a bell jar?

    "[T]he major stumbling block that keeps the rest of the world from benefiting from capitalism is its inability to produce capital. Capital is the force that raises the productivity of labour and creates the wealth of nations. It is the lifeblood of the capitalist system, the foundation of progress, and the one thing that the poor countries of the world cannot seem to produce for themselves ...
    "[Yet] most of the poor already possess the assets they need to make a success of capitalism. Even in the poorest countries, the poor save. The value of savings among the poor is, in fact, immense—forty times all the foreign aid received throughout the world since 1945... But they hold these resources in defective forms: houses built on land whose ownership rights are not adequately recorded, unincorporated businesses with undefined liability, industries located where financiers and investors cannot see them. Because the rights to these possessions are not adequately documented, these assets cannot readily be turned into capital, cannot be traded outside of narrow local circles where people know and trust each other, cannot be used as collateral for a loan, and cannot be used as a share against an investment.
    "In the West, by contrast, every parcel of land, every building, every piece of equipment, or store of inventories is represented in a property document that is the visible sign of a vast hidden process that connects all these assets to the rest of the economy. Thanks to this representational process, assets can lead an invisible, parallel life alongside their material existence. They can be used as collateral for credit....
    "Third World and [many] former communist nations [and tribal societies] do not have this representational process. As a result, most of them are undercapitalised, in the same way that a firm is undercapitalised when it issues fewer securities than its income and assets would justify. The enterprises of the poor are very much like corporations that cannot issue shares or bonds to obtain new investment and finance. Without representations, their assets are dead capital.
    "The poor inhabitants of these nations—five-sixths of humanity—do have things, but they lack the process to represent their property and create capital. They have houses but not titles; crops but not deeds; businesses but not statutes of incorporation. It is the unavailability of these essential representations that explains why people who have adapted every other Western invention, from the paper clip to the nuclear reactor, have not been able to produce sufficient capital to make their domestic capitalism work.
    "This is the mystery of capital...."

~ Hernando de Soto from his 2000 book The Mystery of Capital (first chapter online here)

SUZUKI RECOMMENDS, #1: The Mystery of Capital

Our regular Asian/Australian correspondent Suzuki Samurai wanted to tell you about three brilliant books about progress and economic development. So, naturally, I said yes. Here’s the first.

The Mystery of Capital – Why Capitalism Triumphs in the West and Fails Everywhere Else
by Hernando De Soto
Review by Suzuki Samurai

Unlike fiction, when reading a non-fiction book I have to create the voice of the narrator myself. I mean really, how many of you had a clear voice in mind when reading Adam Smiths' An Inquiry into the Nature and Causes of the Wealth of Nations? Was its voice that of a Scots Laurence Olivier? Sean Connery perhaps? - “Wherever there is great property, there is great inequality Miss Moneypenny”

It would have much more fun had you read it in the voice of Billy Connolly don't you think? - “Science is the great antidote to the poison of enthusiasm and superstition yee dopey fuckers.”

Did you have Stephen Hawking's Metal Mickey voice in mind when you read A Brief History of Time? I did, and it was awful.

So I recommend you go and have a listen to Hernando on 'youtube' before you start to read this book, as his South American Spanish accent really gave this book lyrical colour.

Okay, everyone back with us?

Now, the book’s title suggests a dry look at capital theory - lots of graphs and droning prose. One of those books that would ordinarily just go on the pile of “have to read someday, maybe never.”  But if you’ve watched the video, you know already not to expect that.

And the subtitle is the kind where I can't help but say, “I think I know, but what does this guy reckon?” Well he reckons a lot. He tears open questions I'd never thought to have asked. It turns out what I thought I knew about the importance of property rights and legal institutions was just scraping the surface.

In a tight and sequential manner, Hernando De Soto sets out what is holding back the natural enterprise of millions, billions even, of people around the world. With painstaking research, he and his researchers have spent their lives traipsing about places like Haiti, Peru, Egypt, and the Philippines negotiating their way through, over and around the truly astounding legal hurdles the 'unconnected' have to go through to simply get the required paper work to open a business and/or get a formal title on land, thus enabling these mostly very poor folk to borrow money & release the capital in their property. And how much capital can be possibly be realised from a tin-shed sat on titled land on the outskirts of say, Port au Prince?

Well consider this revelation from Hernando:

In Haiti, untitled rural and urban real estate holdings are together worth some 5.2 billion. To put that sum in context, it is four times the total of all the assets of all the legally operating companies in Haiti, nine times the value of all assets owned by the government, and 158 times the value of all foreign direct investment in Haiti's recorded history to 1995.

Who needs aid with assets like these?

Added to this pearl of insight, and there are many, is a brief but detailed history of pioneering Americans and how they made up their own 'extra' legal arrangements before law courts were a viable option in remote regions – and, how the state & federal governments used a number of these arrangements as models & precedent-setting examples for formal law thereafter.

Oh, and before I forget, Hernando also takes us to Indonesia and talks about how domesticated dogs used to define property boundaries...who knew?

So, if you really want to know why capitalism triumphs in the west and fails everywhere else; and how your pooch can demarcate your section, buy this book.

Note: if you want to be able to actually read the graphs and see the photos, then buy the hardback.

SUMMER SNIPPETS: ‘The Mystery of Capital’

More snippets from some of my summer reading, this time from Peruvian economist Hernando de Soto’s 2003 classic The Mystery of Capital, the work that brought home to all those who read it that what the have-nots have not is at root property rights, without which they will forever remain without.

“The major stumbling block that keeps the rest of the world from benefiting from capitalism is its inability to produce capital. Capital is the force that raises the productivity of labour and creates the wealth of nations. It is the lifeblood of the capitalist system, the foundation of progress, and the one thing that the poor countries of the world cannot seem to produce for themselves, no matter how eagerly their peoples engage in all the other activities that characterize a capitalist economy.”

“Even in the poorest countries the poor save. The value of savings among the poor is, in fact, immense: forty times all the foreign aid received throughout the world since 1945. In Egypt, for instance, the wealth that the poor have accumulated is worth fifty-five times as much as the sum of all direct foreign investment ever recorded there, including the Suez Canal and the Aswan Dam.
    “In Haiti, the poorest nation in Latin America, the total assets of the poor are more than 150 times greater than all the foreign investment received since the country’s independence from France in 1804. If the United States were to hike its foreign-aid budget to the level recommended by the United Nations – 0.7 per cent of national income – it would take the richest country on earth more than 150 years to transfer to the world’s poor resources equal to those that they already possess.
    “But they hold these resources in defective forms: houses built on land whose ownership rights are not adequately recorded, unincorporated businesses with undefined liability, industries located where financiers and investors cannot see them. Because the rights to these possessions are not adequately documented, these assets cannot readily be turned into capital, cannot be traded outside of narrow local circles where people know and trust each other, cannot be used as collateral for a loan and cannot be used as a share against an investment. In the West, by contrast, every parcel of land, every building, every piece of equipment or store of inventories is represented in a property document that is the visible sign of a vast hidden process that connects all these assets to the rest of the economy.”

“One of the greatest challenges to the human mind is to comprehend and gain access to those things we know exist but cannot see. Not everything that is real and useful is tangible and visible. Time, for example, is real, but it can only be efficiently managed when it is represented by a clock or a calendar. Throughout history, human beings have invented representational systems – writing, musical notation, double-entry bookkeeping – to grasp with the mind what human hands could never touch. In the same way the great practitioners of capitalism, from the creators of integrated title systems and corporate stock to Michael Milken, were able to reveal and extract capital where others saw just junk by devising new ways to represent the invisible potential that is locked into the assets we accumulate.”

“The proof that property is pure concept comes when a house changes hands; nothing physically changes. Looking at a house will not tell you who owns it. A house that is yours today looks exactly as it did yesterday when it was mine. It looks the same whether I own it, rent it or sell it to you. Property is not the house itself but an economic concept about the house, embodied in a legal representation. This means that a formal property representation is something separate from the asset itself.”

“For [Adam] Smith, economic specialization – the division of labour and the subsequent exchange of products in the market – was the source of increasing productivity and therefore ‘the wealth of nations’. What made this specialization and exchange possible was capital, which Smith defined as the stock of assets accumulated for productive purposes. Entrepreneurs could use their accumulated resources to support specialized enterprises until they could exchange their products for the other things they needed. The more capital was accumulated, the more specialization became possible, and the higher society’s productivity would be. Marx agreed; for him, the wealth capitalism produces presents itself as an immense pile of commodities…
     “It is, as it were, a certain quantity of labour stocked and stored up to be employed, if necessary, upon some other occasion.’
    … “What I take from [Smith] is that capital is not the accumulated stock of assets but the potential it holds to deploy new production. This potential is, of course, abstract. It must be processed and fixed into a tangible form before we can release it – just like the potential nuclear energy in Einstein’s brick. Without a conversion process – one that draws out and fixes the potential energy contained in the brick – there is no explosion; a brick is just a brick. Creating capital also requires a conversion process.
    “This notion – that capital is first an abstract concept and must be given a fixed, tangible form to be useful – was familiar to other classical economists. Simonde de Sismondi, the nineteenth-century Swiss economist, wrote that capital was ‘a permanent value, that multiplies and does not perish . . . Now this value detaches itself from the product that creates it, it becomes a metaphysical and insubstantial quantity always in the possession of whoever produced it, for whom this value could [be fixed in] different forms.’ The great French economist Jean Baptiste Say believed that ‘capital is always immaterial by nature since it is not matter which makes capital but the value of that matter, value has nothing corporeal about it’.
    “This essential meaning of capital has been lost to history. Capital is now confused with money, which is only one of the many forms in which it travels…”

“As Aristotle discovered 2,300 years ago, what you can do with things increases infinitely when you focus your thinking on their potential. By learning to fix the economic potential of their assets through property records, Westerners created a fast track to explore the most productive aspects of their possessions. Formal property became the staircase to the conceptual realm where the economic meaning of things can be discovered and where capital is born.”

“The genius of the West was to have created a system that allowed people to grasp with the mind values that human eyes could never see and to manipulate things that hands could never touch.”

“Formal property is more than a system for titling, recording and mapping assets – it is an instrument of thought, representing assets in such a way that people’s minds can work on them to generate surplus value. That is why formal property must be universally accessible: to bring everyone into one social contract where they can cooperate to raise society’s productivity.”

“A good legal property system is a medium that allows us to understand each other, make connections and synthesize knowledge about our assets to enhance our productivity. It is a way to represent reality that lets us transcend the limitations of our senses. Well-crafted property representations enable us to pinpoint the economic potential of resources so as to enhance what we can do with them. They are not ‘mere paper’: they are mediating devices that give us useful knowledge about things that are not manifestly present.”

“The capacity of property to reveal the capital that is latent in the assets we accumulate is borne out of the best intellectual tradition of controlling our environment in order to prosper.”

“The philosopher John Searle has noted that by human agreement we can assign ‘a new status to some phenomenon, where that status has an accompanying function that cannot be performed solely in virtue of the intrinsic physical features of the phenomenon in question’. This seems to me very close to what legal property does: it assigns to assets, by social contract, in a conceptual universe, a status that allows them to perform functions that generate capital.”

“Throughout history people have confused the efficiency of the representational tools they have inherited to create surplus value with the inherent values of their culture. They forget that often what gives an edge to a particular group of people is the innovative use they make of a representational system developed by another culture. For example, Northerners had to copy the legal institutions of ancient Rome to organize themselves, and learn the Greek alphabet and Arabic number symbols and systems to convey information and calculate. And so, today, few are aware of the tremendous edge that formal property systems have given Western societies. As a result, many Westerners have been led to believe that what underpins their successful capitalism is the work ethic they have inherited, or the existential anguish created by their religions – in spite of the fact that people all over the world all work hard when they can, and that existential angst or overbearing mothers are not Calvinist or Jewish monopolies… Therefore, a great part of the research agenda needed to explain why capitalism fails outside the West remains mired in a mass of unexamined and largely untestable assumptions labelled ‘culture’, whose main effect is to allow too many of those who live in the privileged enclaves of this world to enjoy feeling superior… 
    “This is not to say that culture does not count. All people in the world have specific preferences, skills and patterns of behaviour that can be regarded as cultural. The challenge is fathoming which of these traits are really the ingrained, unchangeable identity of a people and which are determined by economic and legal constraints. Is illegal squatting on real estate in Egypt and Peru the result of ancient, ineradicable nomadic traditions among the Arabs and the Quechuas’ back-and-forth custom of cultivating crops at different vertical levels of the Andes? Or does it happen because in both Egypt and Peru it takes more than fifteen years to obtain legal property rights to desert land? In my experience squatting is mainly due to the latter. When people have access to an orderly mechanism to settle land that reflects the social contract, they will take the legal route and only a minority, like anywhere else, will insist on extra-legal appropriation. Much behaviour that is today attributed to cultural heritage is not the inevitable result of people’s ethnic or idiosyncratic traits but of their rational evaluation of the relative costs and benefits of entering the legal property system.
    “Legal property empowers individuals in any culture, and I doubt that property per se directly contradicts any major culture. Vietnamese, Cuban and Indian migrants have clearly had few problems adapting to US property law. If correctly conceived, property law can reach beyond cultures to increase trust between them and, at the same time, reduce the costs of bringing things and thoughts together. Legal property sets the exchange rates between different cultures and thus gives them a bedrock of economic commonalities from which to do business with each other.”

“And so formal property is this extraordinary thing, much bigger than simple ownership. Unlike tigers and wolves, who bare their teeth to protect their territory, man, physically a much weaker animal, has used his mind to create a legal environment – property – to protect his territory. Without anyone fully realizing it, the representational systems the West created to settle territorial claims took on lives of their own, providing the knowledge base and rules necessary to fix and realize capital.”

SUMMER REPRISE: Fiji: Just scratching a living in paradise

I wrote this post back in 2008, with some hope for Fiji’s future—hope not (so far) borne out by developments, as even this morning’s news demonstrates.
One wonders how it might have been otherwise  if New Zealand and Australian politicians had helped instead of hindered Fiji’s necessary constitutional reform over the last half-dozen years since Bainimarama’s coup—or even if they understood the purpose of a constitution at all.

It was the hand plough that got to me most.  There on the main road between two of Fiji's main cities, just minutes from a major town in an area locals proudly call 'Fiji's Salad Bowl,' a man was scratching a living -- or trying to -- on a small handkerchief of land, putting his body through exertions for which it was never intended simply to keep himself and his family somewhat fed, partially clothed and trying to pay the rent on this field and the tiny shack that occupied one corner.

It was like something out of the Middle Ages, which is a pretty fair description of the near-feudal system of land tenure that governs nearly ninety percent of Fiji's land, and which keeps most of the population in poverty -- from the 'squatters' themselves who struggle to survive, to the indigineous squattocracy who can take only pennies from their tenants, to the ten-percent of the population who've been driven from their short-term leases (the only form of ownership allowed to Indo-Fijians) and who now live in shameful conditions in Fiji's cities, excluded as they are from the "mainstream" of Fijian economic life by racist laws, and a racist constitution.

Ironically, the "system" so described was put in place by the paternalistic first colonial governor, Arthur Gordon, who wished to ensure that Fiji didn't turn into New Zealand.  Contrast that man with his hand plough barely deeding his own family with our own machanised agriculture feeding the world, and you can see  just how well he succeeded.

What Gordon wanted was to protect native Fijians from the winds of the modern world. What he did however was to remove any possibility of Fiji itself  ever growing up and being part of that world.  What he introduced was a racially-based constitution dominated by an hereditary based Great Council of Chiefs, and a system of land tenure for most of the country that ensures no one has any genuine rights, and no possibility of economic improvement.  In 1913, US Justice Joseph McKenna declared,

The conception of property is exclusive possession, enjoyment and disposition [by which is meant to include the right to sell].  Take away these rights and you take all that there is of property.  Take away any of them and you take property to that extent. 

Three decades earlier, Gordon set in place a system of property in Fiji that ensured real property was taken away from everyone. One lot was given just the shadow of ownership, and the other was given just the shadow of possession and occupation.  Of real property rights, no-one got either.  If public ownership leads to no public accountability, then how about no real ownership at all.

Imagine if secure title to land existed only in 8.2% of this country, New Zealand.  Imagine if most of the balance was Maori land, with the same system of collective 'ownership' that Maori landholdings have; with all the restrictions on individual ownership that make it impossible to sell, borrow against or develop the land-- with all the false pride that the ruling chiefs like to demand for themselves -- and with the added hindrance that all this land is 'administered' by bureaucrats from a Native Trust Lands Board, who lease small plots out short-term to smallholders like my friend above who make barely enough to keep their own bellies fed, let alone having enough left over to sustain a landlord, and who distribute these meagre 'earnings' to tribal chiefs to distribute it as alms.

It makes the sort of impoverished shanties you see on Northland Maori land look positively luxurious -- and if the same mad land law had been effected over nearly ninety percent of the country here, as it was in Fiji, then those same shanties would be here too over most of the land, and the Maori Browntable here would be as violently opposed to reform of the system as are Fiji’s tribal chiefs.

But then add something else as well to the Fijian picture: these small short-lease-holders are primarily the descendants of "girmit" indentured workers brought over from India at the behest of colonial governors from Gordon on, with few rights either electorally or in property, and the holders of their leases are primarily natives, resentful of the low rents the Native Trust Lands Board distributes, and of the immigrant population who occupies 'their' land with so little to show for it.

One side is barred from decent access to their own land, while the other is refused secure rights and barred from any means of securing the capital or landholdings that might allow properly industrialised agriculture to develop. (You can read here something of the history and details of Fiji's feudal land tenure system, if system it can be called.)

No wonder everyone is resentful.  No wonder there's a 'coup culture.'  No wonder there's so little prosperity, and we witness -- if our eyes are open to it -- the tragic existence of Fiji's squatters, mostly dispossessed Indo-Fijians who racist law has barred from owning land, and who previous governments have left at the mercy of shifting racial, economic and political tides, and of the indigenous Fijians who aren't politically connected, for whom a lifetime of poverty is the only expectation.

No wonder one of the main Fijian exports is people -- whether sportsmen or soldiers or as emigrants just getting  the hell out -- and one of the main imports is tourists -- who avert their eyes from the poverty on the way to resorts on (mostly) freehold land all along the beautiful coastline, gifted to regime donors and well away from the poverty elsewhere.

Despite the condemnations of Pacific leaders like Helen Clark, who has her own racist laws and shifting racial, economic and political tides to navigate, all the evidence I've seen suggests Fiji's interim Prime Minister Frank Bainimarama might be on the right track, and much of the country seems to understand that.  Writing last year in January's Time magazine, Elizabeth Keenan argued::

   When military commander Frank Bainimarama seized power in Suva on Dec. 5, he was instantly denounced by Australia, New Zealand, the U.S., the E.U., the U.N. and the Commonwealth. Exiled Prime Minister Laisenia Qarase continues to vent outrage by phone from his island village, but his countrymen don't seem to be rallying. Soldiers at checkpoints receive abuse, but also smiles, handshakes, food and flowers. Some staunch democrats who condemned George Speight's botched coup in 2000 find themselves endorsing the aims of this takeover, if not the assault rifles that made it possible. The Methodist Church and the Great Council of Chiefs, bastions of indigenous society, have urged Fijians—including Qarase—to support the multiracial interim government "for the betterment of the nation." Writing in the Fiji Times, Catholic Archbishop Peter Mataca called Australia and New Zealand's shunning of the Bainimarama administration "regrettable and shallow." Some Fijians, he wrote, believe democracy and the rule of law "were abused and circumvented long before the military ousted the Qarase government."
In Fiji, it seems, not all coups are equally offensive...
    Qarase's elected government was seen as caring most about the happiness of indigenous Fijians. Bainimarama's force-backed government aims to make Fijians of all races happy. If—and it's a huge if—he can implement his idealistic program, he might just have pulled off the coup to end all Fiji coups.

From what I've seen, that's his explicit intention.  Sure, progress hasn't been as fast as anyone would have hoped -- allowing Clark and Australia's Kevin Rudd to posture as 'democrats' by berating Bainimarama for not yet holding free elections -- but progress has been made, even as measured by 'Fiji Time,' and a 'Draft People's Charter' that's not all bad news is now touring the country gathering support.

The Charter is backed by some hard-headed analysis, underpinned by recognition, for example, that "The economic growth rate in Fiji has been in long term decline since Independence – and the rate of decline is getting faster."

    There are [many] factors that weakened the pace of economic growth... The key among these other factors include a major property rights problem relating to the availability of leasehold land, the lack of investment in infrastructure, incompatible and inconsistent policies in some areas, and a weak legal environment for business.
    Many of these latter issues raise questions about the role of the Government in the economy. In the view of many people, the Government is over-dominant in the economy; i.e. it should reconsider its role if it wishes to achieve stronger growth, greater equity, and sustainability.

I am one of those people.  Government administers most of the land, most of the business and gets to allow or disallow most of the enterprise.  No wonder there isn't much.  Bureaucratic management works as badly in Fiji as everywhere else, and enterprise is further stifled by the lack of secure property rights removing one of the primary means by which feudalism is transformed into capitalism.

Property rights are more important than democracy.  No question.  What's crucial in Fiji is not democracy per se, but real secure property rights that will allow real capital to transform the lives of both squatters and squattocracy. Fijian-Indian activist Thakur Ranjit Singh argues that "democracies that are devoid of or lacking in granting freedom, rights and equality to all its citizens and those without social justice are not worth defending. Qarase's regime that Bainimarama removed was an epitome of such a democracy..."  Singh argues that military commander Commodore Voreqe Bainimarama had saved Fiji from becoming "another Zimbabwe" with serious abuses of human rights and social justice.  Yes, there's been beatings and violations of free speech, which we must all deplore, but it's worth making the point that if he's to be believed (and the more I've seen of him the more I do believe him) then Bainimarama is genuinely if bumblingly trying to right a real wrong: the wrong of corruption in Government, and of a racist Fijian Government system that has in the past favoured indigenous, well-connected Fijians over other citizens -- and it's worth noting that at least some of the resistance to him is along racist lines. This post and comment by a native Fijian writing at The Rotten State of Fiji blog gives some idea:

    Frank has gone completely mad! ...
    A lot of stupid Indians here continue to support Frank and his cronies. This isn't helped by the vengeful mob of Indians settled overseas in Australia and NZ. In the media, they continue to support Frank. In fact, I reckon, Australia and NZ should send those lot back to Fiji and ban them from returning. (Comment: I am with you...this coup was pro Indians and these stupid lot should be sent back to their motherland ... just like Butadroka said, quote Indians will always be Indians...unquote.)

Tim Wikiriwhi argued in The Free Radical last year that Bainimarama's coup wasn't just another power grab, that it had a point in principle:

    Bainimarama’s coup is the complete opposite of the previous three coups, each of which attempted to establish absolutely the UN’s apartheid agenda for "indigenous rights." Whereas Rabuka and Speight were acting to cement the racist laws that raised indigenous Fijians over other Fijians, Bainimarama is a defender of the principle of equality.
Bainimarama said he was compelled to act against the government because corruption had flourished under Qarase, whom he himself appointed after the 2000 coup, and because of proposed laws that would grant pardons to plotters in a 2000 coup and hand lucrative land rights to indigenous Fijians at the expense of the large ethnic Indian minority

Wikiriwhi points to words such as these from the Commodore: “We want to rid the constitution of provisions that facilitate and exacerbate the politics of race,” arguing that

    In seeking to put a permanent end to the racist Fijian electoral system and to permanently abolish laws that grant favouritism to indigenous racists, he is in my estimation worthy of praise and support...

In seeking to permanently abolish laws that grant favouritism to indigenous racists, you're unlikely however to attract the support of the racists themselves.

And what point is democracy anyway without individual rights?  As author Tom Bethell points out, property rights and the rule of law must come first.  What you need first is the rule of law as it was developed in England -- and then denied to England's new subjects in places like Fiji by governors like Gordon.

    If you can get that without democracy, as the Hong Kong Chinese did, maybe you are in business. Democracy, especially at the early stages of development, will only mess things up.  You don't need full liberty of speech either--they certainly didn't have it in Adam Smith's England ...
    To get the political architecture right, you must do things in the right order. It is not hard to understand that to build a house, you have to bring in and assemble the parts in the right sequence. Something like that applies politically as well. I once heard Peruvian economist Hernando de Soto point out that when the correct laws are not in place (as is true all over the Third World), and the people cannot get clear title to land, the construction of informal housing will take place in reverse order. Squatters bring furniture with them; then they put up a makeshift roof, then walls, finally if they're lucky they may get a utility hookup. Foundations are probably never built. In the same way, instant democracy disorders the political economy. Democracy is something that should come later rather than earlier.
    What is needed first is a system of law that treats everyone equally, penalizes wrongdoers, and gives security to property and its exchange by contract. This will foster a sense of justice and encourage people to be productive.

While imperfect, it looks to me like Fiji's 'Draft People's Charter' is a step down that necessary track.  Sure, prosperity has its own problems, but as we flew back to New Zealand on Tuesday and looked down on the prosperous New Zealand landscape, it should have been clear even to the most jaundiced green eye that a land with industrialised agriculture and houses derided as "McMansions" offers a lot more comfortable existence than one -- no matter how good the coast looks in the travel brochures -- whose interior is filled with shanties and squats, and is scratched over by people with hand ploughs.

“The poor are not helpless victims” – Hernando de Soto

In yesterday’s interview about his new book, former NZ PM Mike Moore mentioned he was a chum of Hernando de Soto, and that de Soto in fact wrote his (Moore’s) introduction.

So who’s Hernando de Soto then? He’s a hero. A man who maintains “the poor are not helpless victims in need of rescue, but entrepreneurial people capable of pulling themselves out of poverty when left free to do so.” Here’s an introduction, a documentary from Free to Choose Media featuring Hernando de Soto which began airing in the US on October 8 [hat tip Free Agents Network]:

“Filmed on location from Latin America to Africa, The Power of the Poor demonstrates how free markets, individual freedom and especially the right to property can transform the poor into the most powerful resource in the world. At its heart is the potential triumph of capitalism as a system.”