Developed countries grew by creating ‘public memory institutions’ according to Hernando De Soto, president of Peru’s Institute for Liberty and Democracy. In his opinion ‘knowing who owned and owed what and where and under which circumstances made it possible for buyers and investors to infer value and take a risk’. The same applies to measurement without which it is impossible to manage anything. There is a wealth of untapped knowledge and ‘memory’ in South Africa to enable occupational levels and income differentials to be fixed that are not ‘disproportionate’. This will ensure both internal equity and external parity.
His article Ask not only why property is good, but also how to make it good was first published in Business Day today and is essential reading for everyone concerned about the future of this country, particularly with regard to wages and land registration.
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Key principles of income determination
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Minimum wages are not meant to be living wages
Factors determining business sustainability are not the same when determining the living requirements of employees. It is wrong to confuse the sustainability of jobs and businesses with maintaining or improving the living standards of employees.
Proportional and fair wage structures
It is a myth to refer to a ‘Paterson Plan’ or ‘Paterson System’. Dr TT Paterson was a scientist who became interested in organisational management and the structure of organisations. He wrote a number of books and consulted widely, even in South Africa in the early 70s. His last book was published in 1981 – “Pay: For Making Decisions”. To the best of my knowledge he never advocated any specific plan or system as such. This has not stopped adherents of his approach and methods from using his name to propagate their own ‘systems’ or ‘plans’ based on the thinking of Dr Paterson.
Extracts from the De Soto article
PROPERLY titled and recorded assets in huge “public memory institutions” gave today’s developed countries much of their growth. I don’t believe an economy can grow if it doesn’t record and classify — in rule-bound and publicly accessible registries, titles, balance sheets and statements of account — all the knowledge available relevant to the economic situation of people and the assets they control, whether they are intangible (stocks, commercial paper, deeds, ledgers, contracts, patents, companies or promissory notes), or tangible (land, buildings, boats, machines, animals and books). Knowing who owned and owed what and where and under which circumstances made it possible for buyers and investors to infer value and take a risk.
But what does “public memory” have to do with knowledge? Plenty. Knowledge is essentially a memory-based process, which involves selecting, categorising and storing the knowledge we need. Knowledge increases incrementally, forcing us to understand and validate each additional input obtained so as to decide which one is important to our welfare and worth remembering, how it should be written up and packaged, in what context it should be described and how it should be stored so as to be easily retrieved. What we know about the economy and the importance of its components is what we can remember about it, by looking at the records and seeing how various parts relate to one another.
Look around you in South Africa and elsewhere and you will see that everything of economic value that honest wealthy people and businesses own is documented and recorded in a public memory system. They are able to hold, transfer, assess and certify the value of their assets only through documents that have been recorded and legally authenticated by a public system of rules, procedures and standards. Ensuring that the relationship between those documents and the assets and situations they describe is never debased is what produces the trust that allows credit and capital to flow and markets to work.
But most memory recording systems, especially those pertaining to giving land to poor blacks, have been failures. The reason has to do with property experts having forgotten the old art of selecting knowledge and converting it into economic facts. This through six different processes:
• Assembling. Extracting raw knowledge from people and assembling it into congruent statements.
• Contextualising. When an asset is recorded, all the dispersed data that depicts its situation has to be picked and organised so that the asset can be seen in the context of the relationships that determine its economic value and identify the interests that control it.
• Networking. All the dispersed islands of knowledge that refer to the asset have to be pulled together.
Externalising. As the complexity of the market increases, the facts produced by memory systems laws must provide knowledge and the means to protect not only the rights of the owners or parties to a transaction involving the assets but also to third parties — erga omnes, as the law says, “towards everyone”— who might suffer any side effects that the contract might cause.
• Standardising and verifying. Every fact is established in a written statement and in accordance with standard rules so that it can be compared, measured and tested for truth.
• Implementing. The knowledge contained in the statement must be capable of being acted upon immediately without need for much additional research.
A paper that says you own something doesn’t give you growth: a whole bunch of bankers in Western Europe, from Greece to Spain, own lots of paper that is worthless because it wasn’t well issued. You see, property isn’t as much about tagging assets as it is about relating people to each other so they can combine talents, things, and ideas together. Maybe the next time someone invites me to South Africa, my hosts shouldn’t just ask why property is good, but how to make it good.