In the last section, we have seen cadastre as one main method of Land Information Systems. We discussed about the nature of cadastre, cadastral agencies and its essential contribution to the economy. In the present section, we shall discuss about land registration, a very related matter to cadastre and another important means of maintaining Land Information Systems. Specifically, we shall see its meaning, importance, and procedures. Further, we will see the agencies involved in land register.
Having read this section, one can:
Define land register.
Distinguish between cadastre and land register.
Explain the importance of land register.
Compare and contrast rural and urban land register systems in Ethiopia, and
Identify the institutions of land register.
Meaning and Importance of Land Register
In an attempt to understand land registration and especially its relationship with cadastre, a hair-splitting mode of identifying terminologies is indispensable. It seems that it is possible to use the term cadastre in a broad and narrow sense. Broadly, it can be understood to include land registration. In a narrower sense, it does not include land registration as it is understood to mean simply a systematic description of the land units within a given area. Now we should be interested to identify land registration from this narrow meaning of cadastre.
Some writers refer cadastre as ‘land register’ but this is clearly confusing as the term ‘land register’ is used to denote the register of title, i.e., land registration. Hence, if at all distinct terminology is apt to be used, we should never use land register or land registration to refer to cadastre. It has been suggested by some that land registration be called ‘legal cadastre’. This term seems to be interesting as it shows the traditional focus of land registration, as will be explained below. Gerhard Larsson prefers to use the term ‘(legal) land register’. But here we prefer to use the term ‘land register’ or land registration at least for precision. But what is land register all about and how does it differ from cadastre?
We have mentioned before that land can be used in three respects- land as a physical object, land as a fiscal object, and land as legal object. Land as a legal object refers to the public provision of security of property rights to land such as ownership, mortgage, easements and leases. This is what we call here land register or land registration. This is a legal land record which does not serve the purposes of valuation for taxation or the description of land units, but is intended to include the description and the determination of rights to the land and encumbrances thereto. Land register is normally an up-to-date and ownership-based record unlike cadastre which is normally an up-to-date and parcel-based information system.
In light of this, Professor Jo Henssen provides:
Land registration is a process of official recording of rights in land through deeds or as title on properties. It means that there is an official record (land register) of rights on land or of deeds concerning changes in the legal situation of defined units of land. It gives an answer to the questions who and how.(emphasis added.)
Land registration answers the question who because it is ownership or owner-based; and the question how because it answers the manner by which the ownership title is transferred from the previous owner to the new one, such as sale transaction. As we mentioned before, cadastre answers the question where and how much. The ‘where’ refers to the location of the land parcel and its boundaries; and the how much refers to the size of the land parcel.
We can summarise the basic differences between cadastre and land registration in the following table.
2. Information about the parcel
3. Answer where? And how much?
1. Ownership/owner based
2. Information about the interests/rights and restrictions
3. Answers who? And how?
Table1.Summary of the traditional distincticon between cadastre and land register.
It is advisable to note that this is more of a conceptual differene and that it is not practically useful. In the practical aspect of land management, the difference becomes much gray than black and white. Thus when we talk of cadastral information system, we inevitably deal with the owners or possessors; similarly, when we talk of land registration, we inevitably deal with cadastral mapping referring to the land parcel (especially in the title registration) and the location and size issues, and so on. Gerhard Larsson has observed:
Even though there is a conceptual difference between the cadastre and the (legal) land register, it must be admitted that in practice a clear distinction is not always evident. There is, however, still a distinctive difference in essence, purpose, and focus between the two types of registers.
Having observed the small distinction between the two registers, a question will crop up in our minds: why is there traditionally such a widely-told distinction (theoretical) between cadastre and land register? It seems that this has to do with institutional and profession-related matters. It was initially believed that land registers, taking in mind that they are legal aspects, are better handled by legal institutions and professionals who better understand the legal (both substantive or validity and procedural) requirements. These could be Ministries of Justices, Courts and Lawyers. On the other hand, cadastres being technical matters were believed to be well managed by different institutions and professionals such as Cadastral Authorities, Surveyors or Engineers. We can easily observe this in the institutional set up of many countries in world relating to real estate registration.
Regarding the importance or purpose of land register, please go back and recall the importance of cadastre as they are very similar in this regard. For your better understanding, please read the following interesting excerpt from Hernando De Soto.
Hernando De Soto, The Mystery of Capital: WHY CAPITALISM TRIUMPHS IN THE WEST AND FAILS EVERYWHERE ELSE, (Great Britain, Black Swan edition, 2001)
…Walk down most roads in the Middle East, the former Soviet Union or Latin America, and you will see several things: houses used for shelter, parcels of land being tilled, sowed and harvested, merchandise being bought and sold. Assets in developing and former communist countries primarily serve these immediate physical purposes. In the West, however, the same assets also lead a parallel life as capital outside the physical world. They can be used to put in motion more production by securing the interests of other parties as 'collateral' for a mortgage, for example, or by assuring the supply of other forms of credit and public utilities.
Why can't buildings and land elsewhere in the world also lead this parallel life? Why can't the enormous resources we discussed in Chapter 2 - $9.3 trillion of dead capital - produce value beyond their 'natural' state? My reply is: Dead capital exists because we have forgotten (or perhaps never realized) that converting a physical asset to generate capita by using your house to borrow money to finance an enterprise, for example - requires a very complex process. It is similar to the process that Einstein taught us whereby a single brick can be made to release a huge amount of energy in the form of an atomic explosion. By analogy, capital is the result of discovering and unleashing potential energy from the trillions of bricks that the poor have accumulated in their buildings.
There is, however, one crucial difference between unleashing energy from a brick and unleashing capital from brick buildings: while humanity (or at least a large group of scientists) has mastered the process of obtaining energy from matter, we seem to have forgotten the process that allows us to obtain capital from assets. The result is that 80 per cent of the world is undercapitalized; people cannot draw economic life from their buildings (or any other asset) to generate capital. Worse, the advanced nations seem unable to teach them. Why assets can be made to produce abundant capital in the West but very little in the rest of the world is a mystery.
Clues from the past (from Smith to Marx)
To unravel the mystery of capital, we have to go back to the seminal meaning of the word. In Medieval Latin 'capital' appears to have denoted head of cattle or other livestock, which have always been important sources of wealth beyond the basic meat they provide. Livestock are low-maintenance possessions; they are mobile and can be moved away from danger; they are also easy to count and measure. But most important, from livestock you can obtain additional wealth, or surplus value, by setting in motion other industries, including milk, hides, wool, meat and fuel. Livestock also have the useful attribute of being able to reproduce themselves. Thus the term 'capital' begins to do two jobs simultaneously, capturing the physical dimension of assets (livestock) as well as their potential to generate surplus value. From the barnyard, it was only a short step to the desks of the inventors of economics, who generally defined 'capital' as that part of a country's assets that initiates surplus production and increases productivity.
Great classical economists such as Adam Smith and Karl Marx believed that capital was the engine that powered the market economy. Capital was considered to be the principal part of the economic whole - the pre-eminent factor as in such phrases as capital issues, capital punishment, the capital city of a country. They wanted to understand what capital is and how it is produced and accumulated. Whether you agree with the classical economists or not, or perhaps view them as irrelevant (maybe Smith never understood that the Industrial Revolution was under way, maybe Marx's labour theory of value has no practical application), there is no doubt that these thinkers built the towering edifices of thought on which we can now stand and try to find out what capital is, what produces it and why non-Western nations generate so little of it.
For 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.
Smith believed that the phenomenon of capital was a consequence of man's natural progression from a hunting, rural and agricultural society to a commercial one where, through interdependence, specialization and trade, he could increase his productive powers immensely. Capital was to be the magic that would enhance productivity and create surplus value. 'The quantity of industry', wrote Smith, 'not only increases in every country with the increase of the stock [capital] which employs it, but, in consequence of that increase, the same quantity of industry produces a much greater quantity of work.
Smith emphasized one point that is at the very heart of the mystery we are trying to solve: for accumulated assets to become active capital and put additional production in motion, they must be fixed and realized in some particular subject 'which lasts for some time at least after that labour is past. It is, as it were, a certain quantity of labour stocked and stored up to be employed, if necessary, upon some other occasion.'2 Smith warned that labour invested in the production of assets would not leave any trace or value if not properly fixed.
What Smith really meant may be the subject of legitimate debate. What I take from him, however, 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. Simon de 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.'3 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'4. Marx agreed; for him, a table could be made of something material, like wood, 'but so soon as it steps forth as a commodity, it is changed into something transcendent. It not only stands with its feet on the ground, but, in relation to all other commodities, it stands on its head, and evolves out of its wooden brain grotesque ideas, far more wonderful than table-turning ever was.
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. It is always easier to remember a difficult concept in one of its tangible manifestations than in its essence. The mind wraps itself .around 'money' more easily than 'capital'. But it is a mistake to assume that money is what finally fixes capital. As Adam Smith pointed out, money is the 'great wheel of circulation', but it is not capital because value 'cannot consist in those metal pieces'.6 In other words, money facilitates transactions, allowing us to buy and sell things, but it is not itself the progenitor of additional production. As Smith insisted, 'the gold and silver money, which circulates in any country, may very properly be compared to a highway, which, while it circulates and carries to market all the grass and corn of the country, produces itself not a single pile of either'.
Much of the mystery of capital dissipates as soon as you stop thinking of 'capital' as a synonym for 'money saved and invested'. The misapprehension that it is money that fixes capital comes about, I suspect, because modern business expresses the value of capital in terms of money. It is hard to estimate the total value of a collection of assets of very different types, such as machinery, buildings and land, without resorting to money. After all, that is why money was invented; it provides a standard index to measure the value of things so that we may exchange dissimilar assets. But as useful as it is, money cannot fix in any way the abstract potential of a particular asset in order to convert it into capital. Third World and former communist nations are infamous for inflating their economies with money while not being able to generate much capital.
The Potential Energy in Assets
What is it that fixes the potential of an asset so that it can put additional production into motion? What detaches value from a simple house and fixes it in a way that allows us to realize it as capital?
We can begin to find an answer by using our energy analogy. Consider a mountain lake. We can think about this lake in its immediate physical context and see some primary uses for it, such as canoeing and fishing. But when we think about this same lake as an engineer would by focusing on its capacity to generate energy as an additional value beyond the lake's natural state as a body of water, we suddenly see the potential created by the lake's elevated position. The challenge for the engineer is finding out how he can create a process that allows him to convert and fix this potential into a form that can be used to do additional work. In the case of the elevated lake that process is contained in a hydroelectric plant that allows the lake water to move rapidly downward with the force of gravity, thereby transforming the placid lake's energy potential into the kinetic energy of tumbling water. This new kinetic energy may then rotate turbines, creating mechanical energy that may be used to turn electromagnets that further convert it into electrical energy. As electricity, the potential energy of the placid lake is now fixed in the form necessary to produce controllable current that may be further transmitted through wire conductors to faraway places to deploy new production.
Thus an apparently placid lake may be used to illuminate your room and power the machinery in a factory. What was required was an external man-made process, which allowed us, first, to identify the potential of the weight of the water to do additional work; and, second, to convert this potential energy into electricity that may be used to create surplus value. The additional value we obtain from the lake is not a value of the lake itself (like a precious ore intrinsic to the earth), but rather a value of the man-made process extrinsic to the lake. It is this process that allows us to transform the lake from a fishing and canoeing kind of place into an energy-producing kind of place.
Capital, like energy, is also a dormant value. Bringing it to life requires us to go beyond looking at our assets as they are to thinking actively about them as they could be. It requires a process for fixing an asset's economic potential into a form that may be used to initiate additional production.
Yet, while the process that converts the potential energy in the water into electricity is well known, the one that gives assets the form required to put in motion more production is not known. In other words, while we know that it is the penstock, turbines, generators, transformers and wires of the hydroelectric energy system that convert the potential energy of the lake until it is fixed in an accessible form, we do not know where to find the key process that converts the economic potential of a house into capital.
This is because that key process was not deliberately set up to create capital, but for the more mundane purpose of protecting property ownership. As the property systems of Western nations grew, they developed, imperceptibly, a variety of mechanisms that gradually combined into a process that churned out capital as never before. Although we use these mechanisms all the time, we do not realize that they have capital-generating functions because they do not wear that label. We view them as parts of the system that protects property, not as interlocking mechanisms for fixing the economic potential of an asset in such a way that it can be converted into capital. What creates capital in the West, in other words, is an implicit process buried in the intricacies of its formal property systems.
The Hidden Conversion Process of the West
This may sound too simple or too complex. But consider whether it is possible for assets to be used productively if they do not belong to something or someone. Where do we confirm the existence of these assets and the transactions that transform them and raise their productivity if not in the context of a formal property system? Where do we record the relevant economic features of assets if not in the records and titles that formal property systems provide? Where are the codes of conduct that govern the use and transfer of assets if not in the framework of formal property systems? It is formal property that provides the process, the forms and the rules that fix assets in a condition that allows us to realize them as active capital.
In the West this formal property system begins to process assets into capital by describing and organizing the most economically and socially useful aspects about assets, preserving this information in a recording system - as insertions in a written ledger or a blip on a computer disk and then embodying them in a title. A set of detailed and precise legal rules governs this entire process. Formal property records and titles thus represent our shared concept of what is economically meaningful about any asset. They capture and organize all the relevant information required to conceptualize the potential value of an asset and so allow us to control it. Property is the realm where we identify and explore assets, combine them and link them to other assets. The formal property system is capital's hydroelectric plant. This is the place where capital is born.
Any asset whose economic and social aspects are not fixed in a formal property system is extremely hard to move in the market. How can the huge amounts of assets changing hands in a modern market economy be controlled if not through a formal property process? Without such a system, any trade of an asset, say a piece of real estate, requires an enormous effort just to determine the basics of the transaction: does the seller own the real estate and have the right to transfer it? Can he pledge it? Will the new owner be accepted as such by those who enforce property rights? What are the effective means to exclude other claimants? In developing and former communist nations such questions are difficult to answer. For most goods, there is no place where the answers are reliably fixed. That is why the sale or lease of a house may involve lengthy and cumbersome procedures of approval involving all the neighbours. This is often the only way to verify that the owner truly owns the house and there are no other claims on it. It is also why the exchange of most assets outside the West is restricted to local circles of trading partners.
As we saw in the previous chapter, these countries' principal problem is not the lack of entrepreneurship: the poor have accumulated trillions of dollars of real estate during the last forty years. What the poor lack is easy access to the property mechanisms that could legally fix the economic potential of their assets so that they could be used to produce, secure or guarantee greater value in the expanded market. In the West every asset - every piece of land, every house, every chattel - is formally fixed in updated records governed by rules contained in the property system. Every increment in production, every new building, product or commercially valuable thing is someone's formal property. Even if assets belong to a corporation, real people still own them indirectly, through titles certifying that they own the corporation as ‘shareholders’.
Like electric power, capital will not be generated if the single key facility that produces and fixes it is not in place. Just as a lake needs a hydroelectric plant to produce usable energy, assets need a formal property system to produce significant surplus value. Without formal property to extract their economic potential and convert it into a form that can be easily transported and controlled, the assets of developing and former communist countries are like water in a lake high in the Andes - an untapped stock of potential energy. Why has the genesis of capital become such a mystery?
Why have the rich nations of the world, so quick with their economic advice, not explained how indispensable formal property is to capital formation? The answer is that the process within the formal property system that breaks down assets into capital is extremely difficult to visualize. It is hidden in thousands of pieces of legislation, statutes, regulations and institutions that govern the system. Anyone trapped in such a legal morass would be hard pressed to figure out how the process works. The only way to see it is from outside the system - from the extralegal sector - which is where my colleagues and I do most of our work.
For some time now I have been looking at the law from an extralegal point of view, to understand better how it functions and what effects it produces. This is not as crazy as it seems. As the French philosopher Michel Foucault has argued, it may be easier to discover what something means by looking at it from the opposite side of the bridge. 'To find out what our society means by sanity', Foucault has written, 'perhaps we should investigate what is happening in the field of insanity. And what we mean by legality in the field of illegality.'8 Moreover, property, like energy, is a concept; it cannot be experienced directly. Pure energy has never been seen or touched. And no one can see property. One can only experience energy and property by their effects.
Throughout the world, there are two basic types of land registration component of the cadastre. They are the deeds system and the title system. The differences between the two concepts relate two the degree of state involvement and judicial setting of the country. In the deed system only the deed or document or transaction is registered. “A deed is a record of a particular transaction and serves as evidence of this specific agreement, but it is not itself a proof of the legal right of the transacting parties to enter into and consummate the agreement.” Deeds systems provide a register of owners focusing on “who owns what”. They are rooted in the Roman culture (France, Spain, Italy, Benelux, in South America, and parts of Asia and Africa which are influenced by this culture) and in most of the United States.
On the other hand, in the title system, the title/ownership itself is registered and is itself a proof of ownership and its correctness is secured or guaranteed by the state. While deed registration focuses on the owner, the title system focuses on the land parcel and registers properties by presenting “what is owned by whom”. The title system is rooted in the German and is found in central European countries –Germany, Austria, and Switzerland. Different versions of this system are also found in Eastern European and Nordic countries, UK, and Australia (Torrens system).
Object legal transaction subject
Subject legal transaction object
Fig.2 Difference of focus between deed system and title system.
Although deed registration can generally be implemented more quickly cheaply than the other alternative and the laws and procedures of title registration systems (including examination of documents and cadastral plans) may be more complex, the latter systems are considered more useful. The FIG statement on the cadastre has this to say:
….in principle, title registration systems have benefits in terms of greater security of tenure and more reliable information. Furthermore, users do not have to search through old documents to find information on ownership; they can rely on the information on the title register. This usually results in lower transaction costs.
Due to these and other reasons such as the progress of IT, the title system is being accepted as a better solution. As a result, the difference between the two concepts has become grey.
Unifying Land Register and Cadastre: Trends to a Multipurpose Cadastre
In the last sections, we have dealt with the important methods of land management-cadastre and land register. In this section, we shall briefly look at the growing trends towards treatment of the two methods in a unified fashion. Traditionally, the two systems were conceived as being distinct subjects because of the difference in historical emergence.
For long, land register and cadastre have been handled by separate registry and institutions. However, they are increasingly coming together to form a unified or integrated registry. Some countries such as Austria, Hungary, and Sweden (the Land Data Bank System) have this harmonised or unified land registry system called multipurpose cadastre. Also most experts assume that the functions do not require two separate registries. As we have seen before, Cadastre 2014 replaces the traditionally separate institutions of cadastre and land register and represents a comprehensive land recording system.
There are many reasons for the highly growing need for multipurpose cadastre. Firstly, we have globalisation and technology development which support and facilitate the establishment of multifunctional information systems with regard to land rights and land use regulations. The other global driver is sustainable development which demands for comprehensive information on real estate and on environmental conditions. Stig Enemark once said, “The concept of sustainability also includes the demand for establishing comprehensive land policies, including institutional issues such as good governance and equitable access to land and property.”
Mario BLAZEVIC enumerates the following direct benefits of harmonisation of land registry:
Create an efficient land administration system and real property market,
Harmonise data between the two systems,
Improve customer relations and service provision; organize awareness campaigns among stakeholders, aimed at supporting professionals, financial institutions and real property holders.
It is highly advisable to note that the two words are highly interrelated both in meaning and importance. Though there is as we mentioned some conceptual difference between them, we should remember that usually one leads to the other and vice versa.