By Tirthankar Mukherjee
Prime Minister S. Batbold has assured people, both in his partyand outside it, that a “strategic plan” titled “Imagination to Develop Mongolia” is not “just a dream”, but incorporates a program that is “ready to be implemented” over the next 20 years. That the program was released just before the election could be deliberate, and could as well be fortuitous.
What concerns me for this column is how development is perceived by the ruling party. I quote just two sentences from what was said at the MPP conference regarding the plan. The first goes, “Without policy based on scientific estimation and research, and without a long-term future plan Mongolia won’t develop enough.” The second is, “The GDP per capita will reach to USD12,491 in 2013, USD 50,000 – 60,000 in 2032 and we will be a developed country.”
Increased mining revenues do not per se indicate development. These go to state coffers and the individual citizen gets what the state will deign to give. A nation’s actual economic strength lies in its people’s competence to participate in economic activities, according to choice based on knowledge and awareness. For both historical and cultural reasons neither is very common in Mongolia, a country that believes it has passed on to a market economy after centuries of nomadism and almost 100 years of controlled planning. Both had their virtues, but preparing the individual for an informed and free economic life was not among them.
Things are not helped by this national obsession with GDP and the complacence with which the mining boom is viewed. Much, much more needs to be done but I, admittedly with the blinkered eyes of a foreigner, do not see much evidence that there is any urgency to do any of it. Attracting foreign investment, stabilising the legal environment, transparency in government, accountability, fiscal discipline, strategic planning, international competitiveness, infrastructure improvement, job growth, diversification (my choice is random) – all these phrases repeatedly bandied around are of little use in a globalised economy unless the general populace ceases to suffer from a deficit of knowledge, which is what lies at the heart of successful capitalism, inclusive, not predatory.
What I perceive as the general Mongolian unwillingness to be forearmed even when forewarned is more baffling as the country’s elite had the fortune to listen to no less a person than Hernando de Soto at the Mongolian Economic Forum in 2010. President Elbegdorj himself facilitated the Peruvian economist’s participation at the forum as a Guest of Honour and I recall hearing that he had taken the initiative to produce a Mongolian translation of de Soto’s book, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (2000).
In keeping with his single-minded focus, De Soto explained the significance of a country’s registration structure, stressing that validation of property rights is the foundation of progress. He had sent a team of his associates beforehand to Mongolia to gather material and they reported that only 20 per cent of property in the country was officially registered. This meant that at 2010 prices USD7.5 billion worth of property was without registration, thus without validation and so beyond the economy. De Soto laid out what he termed the five prime necessities to achieve economic success: rule of law; trust; respect for nature and man and the rule of law; not restricting value to only labour but also to documentation; and political will. The applause was deafening, matched, disappointingly, by lack of determined follow-up action.
Yet, de Soto’s prescription deserved much more. His decades of pioneering work on behalf of property rights for the poor have led to global acclaim and recognition. His unwavering emphasis has been on what he said in Mongolia, that the lack of formal property rights is a major source of poverty in poor countries. In 1999 Time magazine chose de Soto as one of the five leading Latin American innovators of the century. Forbes magazine highlighted him as one of 15 innovators “who will re-invent your future”. The New York Times Magazine wrote, “To the leaders of poor countries, de Soto’s economic gospel is one of the most hopeful things they have heard in years.”The Economist magazine identified his Institute for Liberty and Democracy as one of the top two think tanks in the world. Such a man comes to town, talks a lot of sense, goes away and his audience returns to calculating GDP growth.
Along with many others, De Soto has been working for well over a decade now to solve the riddle of development: Why are some countries rich and others poor? As the country’s bustling informal economy testifies, Mongolians do not lack entrepreneurial energy. Nor do they lack assets, per se. But de facto owners are locked out of the formal, de jure economy—and that is the root of the problem. “They have houses but not titles; crops but not deeds; businesses but not statutes of incorporation, de Soto once wrote.
A rise in GDP is most welcome, but that by itself will not lead to sustainable development. Impoverished Mongolians must be brought out of the shadow economy and encouraged and helped to unlock their potential to build wealth. The poor everywhere, if they lack formal legal title to their property and are thus unable to use their assets as collateral, cannot get bank loans, almost the first step in starting a business. In a startling revelation, De Soto and his colleagues once calculated the amount of “dead capital” in untitled assets held by the world’s poor as “at least $9.3 trillion”—a sum that dwarfs the amount of foreign aid given to the developing world since 1945.
It is naпve to claim that de Soto was the first to offer this insight into the causes of wealth and poverty. Many other scholars have pointed to and explained the importance of property rights in raising living standards, but de Soto was arguably the first to ask what it takes to get the state to recognise the property rights that function within the communities of the poor. Can they transform the mere physical “extra-legal” control of assets into capital, a key to sustained economic development? His principles act as a guide to the “capitalization process” for poor countries, as also for those in the middle income group, like Mongolia now. Instead of harping on the potential of underground resources, the government should take quicker and more effective measures to simplify and streamline the process of granting property titles. There are many bumps along the mostly uncharted road in Mongolia but levelling road blocks first calls for removing mental blocks.
The Mongolian economic process will not take shape if growth is seen and encouraged in a selected and fragmented manner. As de Soto says, “Knowing who owned – and owed – what and where, and fixing that information in public records, made it possible for investors to locate suppliers, infer value, take risks and combine such simple things – to borrow a famous example – as graphite from Sri Lanka and wood from Oregon into pencils.”
I have not read the MPP plan for development, but a good way to start would be to forget GDP and to bring under the rule of law and productive use the myriad ways in which wealth in Mongolia, both actual andpotential is now swirling mindlessly out of control. That task requires major political leadership and strong will.