Why do Landlords in Ghana charge Two-Years’ Rent in Advance? Neoclassical and Institutional Perspectives (Part II)

Introduction

In part one of this article, we explored a neoclassical analysis of the rent in advance phenomenon in Ghana. While that analysis is valid, it assumes perfect information between landlord and tenants. In the real work, there is unequal information between landlords and tenants. This leads to a confounding result, stemming from the difficulty in disentangling the contribution to the problem due to pure market equilibrium effects (from the interaction of demand and supply) on one hand and cultures that have evolve from the need to mitigate income risk and protect the private property (income) of landlords on the other hand. In other countries, where laws work better, tenants do not pay two or more years’ rent in advance despite market demand for housing exceeding supply. Moreover, an implication of the neoclassical view is that rent in advance must vanish from the market anything that market supply of housing exceeds demand. This has not been the case in all instances and indeed in many instances. Rather, rent in advance appears to have evolved into a form of culture that is embedded in landlord-tenant relationships in Ghana. Thus, in spite of its usefulness, a neoclassical explanation is insufficient in explaining the rent in advance phenomenon. Douglass North sums the argument above in the following:

“Why do people obey the rules of society...when an individualistic calculus would suggest cheating, shirking, stealing, assault and murder should be everywhere evident....Indeed, a neoclassical world would be a jungle and no society would be viable” (North 1981: 11).

Section 25(5) of the 1963 Rent Act (Act 220) makes it an offence for:

“[a]ny person who as a condition of a grant, renewal or continuance of a tenancy [to] demand in the case of a monthly or shorter tenancy, the payment in advance of more than a month’s rent or in the case of a tenancy exceeding six months, the payment in advance of a more than six months rent…”.

This provision notwithstanding, the norm in the private rental housing market is that landlord often requires two or more years’ rent in advance from tenants. This is a complete flout of the rent law. In this part, we shall argue that rent in advance phenomenon is a function of the quality of the institutional and regulatory framework of any country. An in the case of Ghana, weaknesses in information referencing and property rights and their enforcement, due to inefficiencies and corruption in the justice delivery system, have contributed in no small way to the emergence of the rent in advance phenomenon. Before we zoom into the analysis, we need to understand what ‘institutions’ are, what they are not and their role in economic exchange.

What are Institutions?

North asked an important question: “why do people obey the rules of society...when an individualistic calculus would suggest cheating, shirking, stealing, assault and murder should be everywhere evident?” (North 1991: 11). In a historical context, reflections on the nature of institutions in development go back to Veblen’s (1919) reference to institutions as “settled habits of thought common to the generality of men”. In the literature motivated by Douglass North, political, legal and cultural institutions shape economic exchange. A widely accepted definition is the one provided by North (1991), who defines institutions as “the rules of the game in a society or, more formally, the humanly devised constraints that shape human interaction [and which] in consequence structure incentives in human exchange, whether political, social, or economic” (North 1990: 3). In North’s submission, institutions include “…any form of constraints that human beings devise to shape human interactions" (North, 1990: 4). Much recently, Kasper and Streit (1998: 30) defined institutions as “rules of human interaction that constrain possibly opportunistic and erratic individual behaviour, thereby making human behaviour more predictable and thus facilitating the division of labour and wealth creation”. Hodgson (2003) also refers to institutions as “..durable systems of established social rules that structure social interactions”. These social rules include formal, codified and enforceable rules as well as the informal norms of behaviour and social conventions.

In the case of the private rented housing market in Ghana, the Rent Act (Act 220) and the Rent Control Law (P.N.D.L[1] 138) are major sources of institutions. In the subsequent sections, we shall argue that the ineffectiveness of these legal institutional frameworks have contributed in no small way to the rent in advance phenomenon in Ghana.

Rent Payment in Arrears and the Housing Market as a Credit Market

Unlike goods and services that require upfront payments, credit markets are based on deferred payments and receipts for credit (a form of finance) supplied today. In the real world with imperfect information, uncertain events between when credit is granted and when repayment is due, introduces two types of risk into the credit arrangement – adverse selection risk and moral hazard risk (collectively called agency risk) as explained in part I of this article. When lenders cannot distinguish among borrowers, they ration credit, often by increasing the interest rate to compensate for the risk posed (Stiglitz and Weiss, 1981). In the process, some potential borrowers would be completely rationed out of the market while others would receive just a portion of the amount requested for as a loan. Rationing is the mechanism to mitigate agency risk[1] such as adverse selection[2] and moral hazards[3] as well as the loss of revenue.

In financial markets like the credit market where payment for goods and services are deferred, institutions complement contracts and laws in allocating value and risks across transacting parties, and thus structuring economic incentives to cooperate as well as to invest (Perotti, 2013). According to North (1991), institutions emerge based on transaction costs and are devised to create order and reduce uncertainty in exchange. The cost of transacting is determined by incomplete information and limited mental capacity by which to process information (North 1995: 18). Thus, when it is costly to transact and opportunism is inevitably or likely, institutions matter.

The private rented housing market under conditions of rent payment in arrears effectively becomes a credit market and thus subject to rationing by landlords when they lack information to screen prospective tenants. Rent payment in arrears means that the tenant makes payment to the landlord for the use of the property at the end of the period. For a monthly tenancy, this will occur at the end of the month. In his work entitled ‘The Problem of Social Cost’, Institutional Economist Ronald Coarse postulated in what is popular known as the Coarse theorem that in a world characterised by perfect information, zero transaction costs, no wealth effects, the definition and allocation of property rights (a form of institution) is irrelevant to resource allocation (Coarse, 1960). However, institutions in the form of private property rights and their efficient enforcement matter in an imperfect world characterised by imperfect information, wealth effects and positive transaction costs. In other words, when landlords cannot effectively distinguish between prospective tenants in terms of their ability and willingness to pay for the use of their accommodation, as a result of not having full information about tenants, they face an adverse selection problem which could result in the selection of the wrong tenants who will eventually default on rent payments and obligations. In such a case, the landlord’s property rights would be comprised if there were no inefficient mechanisms such as efficient law and courts to enable him/her to enforce his rights.

Property rights have been defined by Landes and Posner (1987 p.29) as an exclusive right to use, control and enjoyment of a resource, which does not entail further potential benefits of the transfer of property right to others. Rao (2003, p.115) highlighted the characteristics of property rights to include exclusivity, transferability, divisibility, duration and well-developed boundaries of rights and enforceability. The property right structure adopted by a society determines how much the owner’s decision actually affects the use of something, which eventually determines the strength of the rights (Alchian and Demsetz 1973, p.17; Jaffe and Louziotis Jr 1996, p.141). That is why the quality of the institutional framework of countries has been found to be strongly linked with economic development (Levine, 1995) and financial development (La Porta, Lopez-de-Silanes, Shleifer, and Vishny, 1997; 1998).

Therefore, the quality of information sharing systems in a country influences how strong the legal system that protects property rights should be. In a private rented property market like ours where information about prospective tenants is hard to come by or difficult to verify because of the lack of centralised or national information systems like address systems and credit information systems, landlords are prone to agency risk- adverse selection and moral hazard. Given this risk, an efficient law in terms of both legal rules and their enforcement is required as a substitute to information asymmetry. By efficiency, I mean, it should be easy for landlords to procure binding and enforceable tenancy and lease agreements at lower costs and have access to the law courts with ease to enforce their property rights to rents when tenants default in rent payment. Unfortunately, most landlord and tenant relationships in Ghana are not backed by proper legal contracts that can be enforced in the courts in the first place. In fact, in many case, there are no contracts at all. The cost of legal services is so high that it deters landlords from procuring them. Where there are contracts, the inefficiency and potential corruption of the courts deter landlords from using them to recoup their rents from defaulting tenants. Institutions like the Rent Control Department are quasi-judicial institutions that should provide alternatives to the courts, but I dare say that they are perhaps even more inefficient than the courts. They are perceived as communist departments working in the interest of tenants to the detriment of landlords and investors.

Therefore, considering the high search cost involved in collecting and verifying information about prospective tenants, the high cost of legal services and the inefficiency of the courts and Rent Control Departments, landlords have devised an institution and a culture of taking rents in advance in order to remove any risk of rent loss or risk of incurring search costs as well as legal cost involved in enforcing their property rights in the courts or the Rent Control Departments. When a tenant pays all the rents for a tenancy in advance, the search and legal costs may not arise. The implication is that the weak institutional and governance frameworks are not only a problem at the macro government level but also at the micro household and individual level. It is this weaknesses in the information, institutional and regulatory framework combined with a shortage of affordable housing that have empowered landlords over tenants, who have the preferential and conditional power to set unfavourable rules of tenancy in Ghana.

So, when Barack Obama spoke about weak institutions in Africa being the bane of development, I am sure he was recommending an institutional analysis of the whole fibre of interactions in our society including landlord and tenant relationship. Today, there are three credit-referencing bureaus in Ghana but how easy is it for landlords to access their services? Are landlords even aware of this information services and how useful they can be to them in screening prospective tenants? Until we begin to understand that the rental housing market characterised by rent payment in arrears in Ghana is a form of credit market and thus like other credit markets require information, regulation and an inefficient legal system to function, tenants will forever be the ‘slaves’ of landlords.

Way Forward

Going forward, rental information systems must be established and the Rent Control law and Department strengthened and refocused and strengthened with the needed resources both human and financial to administer its mandate. Among other things, the refocusing of the Rent Control Department requires a change of the name of the institutions so as not be seen as antagonist to landlords and investors. I support Richmond’s call for the employment of the right people to the Rent Control Department; preferably, the Land Economists who have been educated at the Department of Land Economy of the Kwame Nkrumah University of Science and Technology. With the right remuneration and institutional reforms, our rental markets will improve to the benefit of both landlords and tenants.

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[1] Agency risk is the probability of loss (cost) due to an agent's pursuance of his or her own interests instead of those of the principal.

[2] Adverse selection refers to a situation where sellers have information that buyers do not, or vice versa, about some aspect of product quality.

[3] Moral hazard when a person takes more risks because someone else bears the cost of those risks. Both tenants and landlords face adverse selection and moral hazards.

Why do Landlords in Ghana charge Two-Years’ Rent in Advance? Neoclassical and Institutional Perspectives (Part I)

In Ghana, landlords often require two or more years’ rent payment in advance from prospective tenants. In other words, current tenants are likely to have paid a two-years rent in advance to landlords. The difficulty in raising the capital (lump) sum to pay rent in advance and the poor conditions of tenancies subsequently has received much attention in recent times. What is rent advance in the first place? Rent in advance is literally the payment of rent at the beginning of the period. The amount paid is the capital sum of rents for the entire period or a period lesser than the entire tenancy or lease period.

My colleague Richmond Ehwi, a PhD Researcher at the University of Cambridge, UK, has recently waved into the discussion by suggesting key explanations for the current rent advance situation in Ghana and ways to improve the landlord-tenant relationships and conditions in the private rented market. Income risk as he puts it is a key reason for landlords requiring rents payments in advance. He brilliantly points out a reason for this income risk, which he attributes to information asymmetry between landlords and tenants due to the lack of information referencing systems. As he put it, elsewhere in the UK, landlords can easily obtain and verify the information prospective tenants supply them about their ability and willingness to pay their rents.  Ability can be proxied by the employment status and income level of the tenant. The tenant’s willingness to pay or his character as referred to in credit analysis is based on his historical performance with rent payments.  This information collected and stored in an rental information system is used by landlords to screen applications from prospective tenants and thus enable them allocate their accommodation more efficiently – to tenants who are able and willing to pay for it.

This means that a rental information system, which holds information on landlord and tenant characteristics and performance, is fundamental to the efficient operation of the rental property market. In its absence, landlords face agency risks like adverse selection and moral hazard. Agency risk is the probability of loss (cost) due to an agent's pursuance of his or her own interests instead of those of the principal. While adverse selection refers to a situation where sellers have information that buyers do not, or vice versa, about some aspect of product quality, a moral hazard when a person takes more risks because someone else bears the cost of those risks. Both tenants and landlords face adverse selection and moral hazards. A moral hazard for instance may arise when a tenant defaults on rent payment and sometimes abscond. So, Landlords guard against income (rent) losses by requiring the payment of lump sum rent often covering the entire tenancy period in advance. This would save them time and efforts in chasing tenants for rents.

I will like to complement Richmond’s work by extending it with neoclassical and institutional explanations of the current rent in advance situation. The explanations will be separated into two parts. Part one will present a neoclassical view of the phenomenon while part two will deal with the institutional approach.

A Neoclassical View of Conditional Rent Payments

Neoclassical economics is the mainstream framework for analysing economic phenomenon in the field of economics. Developed in the 1900s by William Stanley Jevons, Carl Menger and Leon Walras and becoming a popular economic paradigm in the 20^th century, it relates supply and demand to an individual’s rationality and his ability to maximize utility or profit. This idea works on the principle that competition leads to the efficient allocation of resources. Therefore, per economic analysis, the interaction between demand and supply of a good or service, which in this case is residential accommodation, will determine its price and conditions under which is it supplied or demanded.  When supply exceeds demand, a surplus results, which can only be cleared with a reduction in the price of the good or service. A surplus in accommodation puts tenants in an advantageous position because they have options and can dictate price. In other words, the tenants become price makers and the landlord a price taker in the event of a surplus accommodation. However, when demand exceeds supply, a shortage of the good or service in question results, which may lead black market conditions, preferential and conditional sales. A shortage of accommodation reverses the relationship, making a landlord a price maker and a tenant a price taker accompanied by the conditions of a shortage. Figure 4.9 illustrates the relationship between the price mechanism (interplay of demand and supply) and the shortage or surplus of residential accommodation.

Source: Mankiw (2014). Principles of Macroeconomics

Within this neoclassical framework, landlord’s demand for two-years rent advance is the outcome of a shortage of residential accommodation. A market solution to this problem is to increase the supply of accommodation to provide alternatives to tenants and thus reduce the market power of landlords. A shortage will classically lead to an inefficient allocation of resources where the highest bidders will always win. Rational landlords will always seeks tenants who can pay more and those unemployed would as a result be homeless without help from family, landlords or the government. This is clear market failure situation; condition even neoclassical economists would agree might require some form of government intervention. Thus, an alternative solution is for the government to fix the rent on accommodation through legislation like rent (price) controls.  Although this alternative may be easier, government failure, a situation where government intervention in the economy to correct a market failure creates inefficiency and leads to a misallocation of scarce resources can worsen the situation. In the case of Ghana, both solutions have been tried. Attempts to increase supply of houses by both governments and private investors have been pursued historically. Examples of government supply include Dansoman Estates, Sakumono Estate, Chirapatre Estate among others.

In 1986, the government passed the Rent Control Law (P.N.D.L [1] 138) to control the rent payable on single or two-roomed residential accommodation. This law applied to housing supplied by both the private-rented market and the state housing corporations such as the Tema Development Corporation and State Housing Corporation. In fact, the whole idea of rent regulation goes back to the 1963 Rent Act (Act 220). While these legislative remedies protect tenants from landlord exploitation, they worked to the detriment of landlords and investors. Rent controls sometimes destroy the expected return landlords and investors expect from their investments in housing. Therefore, as a disincentive to investment, many investors switched to the delivery of high-end housing, which was unregulated (Willis and Tipple, 1990; Malpezzi, Tipple and Willis, 1990). Adverse regulation in rent controls can therefore be considered as a form of government failure believed to be exerting a path depending effect on the delivery and financing of low and middle-income housing as has been identified elsewhere by Malpass and Murie (1994) and Mullins and Murrie (2006).

The adverse effects of rent control are often less apparent to the general population because these effects occur over many years. Figure 2 presents a stylised neoclassical economic analysis of the effect of rent control on housing supply and demand in the short and long run. In the short run, landlords have a fixed number of houses or accommodation to rent, and they cannot adjust this number quickly as market conditions change. Moreover, the number of people searching for housing in a city may not be highly responsive to rents in the short run because people take time to adjust their housing arrangements. Therefore, the short-run supply and demand for housing is relatively inelastic (cannot change easily or change is marginal).

                                     Source: Mankiw (2014). Principles of Macroeconomics

Panel (a) of Figure 2 shows the short-run effects of rent control on the housing market. As with any price ceiling, rent control causes a shortage. Yet because supply and demand are inelastic in the short run, the initial shortage caused by rent control is small. The primary effect in the short run is to reduce rents. The long-run story is very different because the buyers and sellers of rental housing respond more to market conditions as time passes. On the supply side, landlords respond to low rents by not building new apartments and by failing to maintain existing ones. On the demand side, low rents encourage people to find their own apartments (rather than living with their parents or sharing apartments with roommates) and induce more people to move into a city. Therefore, both supply and demand are more elastic in the long run.

Panel (b) of Figure 2 illustrates the housing market in the long run. When rent control depresses rents below the equilibrium level, the quantity of apartments supplied falls substantially, and the quantity of apartments demanded rises substantially. The result is a large shortage of housing. In cities with rent control, landlords use various mechanisms to ration housing. Some landlords keep long waiting lists. Others give a preference to tenants without children. Still others discriminate on the basis of race. Sometimes, apartments are allocated to those willing to offer under-the-table payments to building superintendents. In essence, these bribes bring the total price of an apartment (including the bribe) closer to the equilibrium price.

Conclusion

As a result of the inability of successive governments to develop housing policies that stimulate private investment in housing to increase the supply of affordable housing when government provision has failed due to corruption (Arku, 2009), have been inadequate or unaffordable to the low and middle-income households, who are originally targeted by such housing schemes (Sarfoh, 2010), we have recorded huge housing deficits, over two million according to Ministry of Works and Housing. The result is that we have more many chasing few rental accommodation, which gives landlords options among tenants and hence the preferential and rent in advance conditions required. Therefore, a selfless and dispassionate government that is skilful in the use of policies and the market mechanism to deliver adequate and affordable housing is what Ghana lacks.

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[1] Provisional National Defence Council Law

Riposte: “Don't Think Building a House to Live in is an Investment”

Speaking on Joy FM’s Super Morning Show, Thursday, a Financial Advisor cum stockbroker, Abena Amoah is reported on Myjoyonline to have said that only a house that makes its owner money through rentals can be called an investment.  Abena says a house becomes an investment only when it is rented out to tenants for occupation. She noted that since a house cannot generate income until it is rented out, living in it only makes it a utility and not an investment as quoted below:

“It is a utility because you need shelter and it needs maintenance. So having one house is not an investment. If you have one house to live in and you’re able to build five other things that are able to generate rent for you where if you fall on hard times you are able to sell one of them, then that other one is an investment, not the one you live in,” she explained.

I wish to disagree with this view. Before, I begin my argument, I wish to state that I will not be surprised if she has been taken out of context, as is the trade of Joy fm in recent times. The media house’s penchant for sensationalism has become a concern to many people.

Indeed, there is nothing new under the sun. This view that homeownership is not an investment is nothing new. Traditionally, economists have viewed housing as a consumption good and not an investment good. As Arku (2006) opines about 1940 and 1950 economics: "It was seen as an unproductive investment, and its role was downplayed and labelled variously as a ‘‘resource-absorber’’, a ‘‘consumer good’’ and ‘‘social overhead’’. Critics, whom Solow (1955: p. 52) dubbed the ‘‘down-to-earth, hard fact analysts’’, believed housing had an extremely high capital-output ratio, especially when compared with investment in other sectors. These critics pointed out that housing investment contributed to inflation, used valuable foreign exchange resources, exerted pressure on the balance of payments position and tied up resources for a very long period of time (cf. Weissman, 1955; Harris & Gillies, 1963). The general assumption was that resources were limited and that there was a need to develop strategies that would use scarce resources in the most productive and efficient manner, mainly in sectors (e.g. industry) that promised quick returns and that enhanced the productive capacity of an economy. Housing was not seen as an activity that could achieve this goal". In this context, Abena Amoah's view is supported but technically flawed, which I will come to later.

Now, lets diagnose the statement sentence by sentence.  The first sentence, “[i]t is a utility because you need shelter and it needs maintenance” suggests that investments are not utilities and are not associated with maintenance cost.  A utility is basically the satisfaction or benefit or value derived from something. Every investment, be it core investments like stocks and bonds, or alternatives like real estate and infrastructure are all associated with utilities or values – economic, social, or psychic, etc. Therefore, the fact that homeownership produces a certain utility (shelter) does not make it any less of an investment. Besides, being consumption good does not mean that it is not an investment good. The relationship is not mutually exclusive. Moreover, almost every investment, be it stocks or bonds among others is associated with costs. The cost of maintenance associated with homeowners is just nothing new. The second sentence, “[so] having one house is not an investment”, which flows from the first sentence is just incredible. To suggest that a person necessarily needs to own two or more houses to constitute an investment is difficult to fathom. The third sentence is partially true. The idea that homeownership is not an investment because it does not generate a cash flow, which in the case of real estate investment is rent is flawed. 

What is an Investment?

To proceed, let us have a closer look at the definition of an investment:

“the act of putting money, effort, time, etc. into something to make a profit or get an advantage, or the money, effort, time, etc. used to do this” (Cambridge Dictionary).

“the outlay of money usually for income or profit : capital outlay;  also  : the sum invested or the property purchased” (Merriam-Webster Dictionary)

“An investment is an asset or item that is purchased with the hope that it will generate income or will appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth” (Investopaedia).

From these definitions, three views can be deduced. First, the capital outlay in itself is an investment. By implication, the money invested in a house is an investment. Second, making a profit or cash flow or income although expected does not necessarily define an investment. Indeed, an investment can make a loss. In other words, a rented house may generate a loss if the tenant defaults in rent payment. Third, investments do not only provide an income return but also a capital return (gains) when its value increases. Thus, putting money into something that does not yield income returns (rents) but capital returns is an investment contrary to Abena’s view.

Why Homeownership is an Investment

The view that ownership does not produce rent is in the first instance flawed. In a world where housing is either through homeownership or renting, the investment analysis must be done between the two options. Owning a house does not mean that you don't pay rent; in fact, you pay (imputed) rent to yourself. So, on the mere basis that the earning capacity of a house is what makes it an investment, then owning a house is an investment. But there is more to this. The market value of an asset (i.e. a house) is based on the free cashflow or net operating income and not just its earning capacity; that is, its ability to earn rent = "cash flow". For example, if a rented house is generating a rent of GS1,000 per month and the expense on the house is GHS1,000 or more, there is no free cash flow or net operating income to capitalise to determine the market value of the house. The market value of such an investment property is zero or negative from the investment approach to valuation.

To determine whether owning a house is a profitable investment or not, we must compare the imputed rent (Rf) on the owner-occupied house to the rents the same person would have to pay for renting another house (Ra) given his/her needs. If the imputed rent is greater that the rent passing on the rented property (i.e. Rf > Ra), there is a saving (cash flow or income) to the person if he owns the house than renting. That saving or income can then expressed as a percentage of the initial capital outlay to estimate the income return or be capitalised to estimate the capital gains or return if the estimated capital value at any point in time is greater than the initial capital outlay. Abena's point will therefore only hold if Ra > Rf and capital growth is zero (increase in the capital value of the house). 

Moreover, owning a house does not only entitle you to implicit income returns (Rf) (net rent when the imputed rents are greater than the rent on a comparable house; i.e. Rf > Ra), but also capital returns (Rc) when the capital value of the house increases over time. It is the desire for capital return that encourages speculation in land. People buy land and hold to sell on a later date when its value appreciates. Land therefore becomes a store of value and that is what an investment is. It is the same with homeownership. On this basis, investing is housing can be considered as legal speculation for capital gains.

Therefore, even if homeownership does not yield an income return, the value of the house may grow to produce a capital gain, which is the same in concept as capital returns on stocks.  Thus, homeownership has the potential to generate a total return (Rt) on investment, which is the sum of income return and capital return; i.e. Rt = Rf + Rc. Hence, if the imputed rent on homeownership is zero (Rf = 0) but the value of the house increases over time (Rc > 0), then the total return is the capital return (i.e. Rt = Rc). So the mere fact that homeownership may not generate an income (rent), does not mean its capital return or total return are also zero.  

In addition, besides the benefits of the house serving as collateral for credit, growth in the capital value can be accessed as income using a mortgage equity release product. So, these are but a few of the reasons to consider homeownership as an investment.

Conclusion

This riposte has argued the case to consider housing as an investment contrary to Abena Amoah’s reported view. Homeownership must be encouraged as an investment.

About Author: The author, Kenneth Donkor-Hyiaman is a Financial and Real Estate Economist at MeTis Brokers (a private equity real estate investment firm) and a PhD candidate in Real Estate Finance and Economics as well as a Teaching Assistant in Investment Appraisal and Real Estate Finance at the Henley Business School, University of Reading, UK.

Disclaimer: The view expressed in this article is solely the views of the author and not in any way reflect the views of the organisation he may be affiliated to, including MeTis Brokers and the Henley Business School, University of Reading, UK.

Social Deregulation and Crisis: Otiko Djaba and the “Indecent Dressing can cause Rape” Hypothesis

Introduction

Rape is inhumane and a vice in most societies. The problem with rape can be likened to food poisoning. In most cases, the problem is discovered only after the harm has been caused.  Since it is difficult to identify a rapist or someone who is motivated to commit such a crime, pragmatism requires that potential victims be on the look out. Similar logic imposes responsibilities on pedestrians to be careful when crossing the road because, even when you are careful, technological failure and in particular carelessness on the part of a driver could lead to your harm or demise.  But sometimes, being extra careful could save your life.  Thus, reasonable care and minimum effort requirements from both the people whose actions can cause harm and the potential victims are principles in law.  Not to hold brief for anyone, it is reasonable to believe that this logic perhaps influenced the advice given by the Minister to the girls (students) during an event in one of Ghana’s second cycle institutions (Krobo Girls Senior High School), which has received wide spread critique from various corners.

I wish to start a series of articles on the “indecent dressing can cause rape” hypothesis, with the hope of raising a more fundamental issue – populism and societal deregulation - that would make it practically impossible for the Minister for Gender and Social protection – Ms Otiko Djaba - to win on this matter in this dispensation. In this first article, I attribute this line of reasoning to political ideological differences between the Minister and her critics that have deeper roots in economics. I will also explore the assumptions of the arguments of the critics and identify some the flaws in them.

Background

The context of the Ministers advice requires an understanding of her background and expertise. Ms Otiko Djaba is the Minister for Gender and Social protection. Prior to becoming a Minister, she was the National Facilitator for the Campaign for Greater Discipline under Former Vice President Aliu Mahama in 2004. She also has so many years of work experience as a Consultant in Children’s Rights and rural women’s development for Plan Ghana in extremely deprived rural communities in Sissala districts of the Upper West Region. So this is not a person who is completely ignorant of the need for social protection for all. Indeed, if we are sincere, this is a consultant in matters, perhaps, peculiar to her critics.

During her presentation in one of the female senior high schools in Ghana, the Minister in a motivation packed speech also advised the girls to dress decently. Verbatim, she said:

“In conclusion, I will like to say to you that be bold, be confident, be respectful. If you wear a short dress, it is fashionable, but know that it can attract somebody who would like to rape or defile you. You must be responsible for the choices you make because you are the future leaders”.

Public reactions to this part of her speech are mixed. While some people have decently disagreed with her, others have condemned and trolled her in the media, especially on almighty Facebook. I like to share some of the arguments first. Papa Yaw Ashon, a Senior Policy Analyst expresses shock at the narrow view taken by some people of the motivational and beautiful speech delivered by the Minister. Henry Ernest Baidoo-williams pulls out academic studies by Gloria et al. (1997) and others to support his hypothesis that “dress can cause rape”, with an emphasis on gender bias in perceptions about the causes of rape. This study according to him shows that “the most predominant perception for the causes of rape when all respondents, male and female, are given equal weighting, is ”female precipitation” which believes that the woman’s actions or appearance is what causes rape. Immediately following “female precipitation” is the so-called “feminist theory” which believes that rape is caused by imbalance in power between males and females. One would think, only men would find nothing wrong with the Minister’s speech. But, even woman like Jidi Ewurama Ocran share similar views, particularly in the spirit of preventing rape in a world of unequal information among rapists, potential rapists and victims.

However, the critics are perhaps more than the apologists. On his facebook wall, Dr. Kwabena Opoku-Agyemang expresses his disagreement as follows:

“I disagree with this notion that dressing causes rape. Men are able (or should be able) to control themselves in the face of 'provocative' dressing. Rape is not logical in any case; it's an act of violence. This argument is like saying that if a man enters a wrong hotel room and sees a woman in lingerie he is justified in sexually attacking her because her dressing provoked him. Some way kraa”.

In another post, he describes the apologists as:

“Patriarchal princesses and their male counterparts (who have nothing to lose in this debate apart from ego and unnecessary privilege)”.

Another critic, Mss Ess, submits that “…these narratives are arming rapists with a defense thinking they can get away and yes, many are getting away because some judges share the view too”. This narrative she points out is a BIG problem. For this group of critics, the Minister’s advice purports to shift the blame for rape unto the victim and seeks to exonerate the perpetrators. On the Feminist theory, some academics like Dr Kofi Boakye, a Cambridge trained Criminologist contends that narratives like ‘indecent dressing can cause rape’ are myths and goes ahead to support his claim with his own study entitled “Attitudes Toward Rape and Victims of Rape: A Test of the Feminist Theory in Ghana”. But this study did not set out to explicitly test the “indecent dressing can cause rape” hypothesis. It thus cannot be admitted as evidence against the likelihood of indecent dressing causing rape.

The common understanding despite these disagreements is that none of the contenders support gender violence in any form, whether against men or women. The basic line of disagreement can be seen in their attribution of the causes of rape. While the apologists postulate that “indecent dressing can cause rape”, critics beg to differ. Although an apologist of the hypothesis that indecent dressing can cause rape, I wish to focus more broadly on the implications of the views of the critics for social sustainability. I will do this by evaluating the ideological underpinnings of the views of the critics, which are closely linked to neoliberal thinking, which is associated with both good and evil in society. Think of the United States and the junk-bond-induced takeover mania and resulting scandals of the 1980s; the corporate scandals of the 2000s; the egregious increase in the pay gap between chief executives and ordinary employees; and the real estate mortgage bubble and ensuing financial crisis.

Leaving in abstraction: The neoclassicals, faulty assumption and reality

In the 1970s, lovers of market economies as a tool for organizing social life emerged strongly and currently dominate discourses in most fields. They rely on perfect information and market efficient assumptions to disapprove the need for market regulation by the state. Thus, driving home the idea of self-regulation, the epitome of the freedom movement. This ideology fundamentally argues that human beings make rational choices by maximizing utility and minimizing cost. They often support their claim with reference to the words of the father of modern economics, Adam Smith: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest”. Therefore, a cardinal principle of the neoclassical school of thought is that each person is capable of making better choices for him or herself on the assumption that they always have full information. In context, the neoliberal will typically argue that the girls and women in general are always capable of making the best decisions for themselves, and hence require no help in the form of social regulation whether formal or informal, such as the advice provided by the Minister.

Unfortunately, we live in an imperfect world with imperfect information and thus, the assumption of perfect information is flawed. Therefore, decisions that anyone can make are as good as the limited information available to them. So, instead of achieving full rationality, humans can only make do with “bounded rationality” according to Economist Herbert Simon. Bounded rationality is the idea that in decision-making, rationality of individuals is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make a decision. The girls obviously do not have perfect knowledge of the motivations of all men – those who want to rape them, those who could be attracted to rape them and those who by some constraints would not rape them irrespective of their dressing. So, these critics who argue that indecent dressing cannot cause a man to rape a girl are thriving on this faulty assumption of perfect information.  The reality is that similar faulty assumptions in financial markets continue to contribute to financial economic crisis in many countries with debilitating implications for social sustenance. Memorable among them is the recent 2007-2008 financial crisis. This is because, individuals continue to make seemingly rational but more accurately “faulty” bounded rational decisions that continue to hurt them and society at large.

In his book, “What money can’t buy: The moral limits of markets”, Harvard Professor of Philosophy, Michael Sandel acknowledges the important role of market economies as a tool for organizing economic activity. He however, observes the increasing marketization of society based on these flawed neoclassical principles of perfect information and rationality as particularly problematic. This we see in the continuous marketization of dressing as neoliberal thoughts increase. This flawed idea of total freedom and no need for regulation has penetrated the social fibre of society to such an extent that it has entered into the “dress can cause rape discourse”.  The liberals or democrats assert that people should be allowed to wear anything they want, whether decent or indecent, so far as they are fine with it, not society.  I term this posture as SOCIAL DEREGULATION. This posture often thrives on the back of populism. Most people desire to disentangle the webs of social constraints imposed by social institutions like religion and culture more broadly, particularly in this dispensation. Populism and social deregulation like financial and economic deregulation is the order of the day. Some have pointed to Brexit and the election of Donald Trump as evidence of this global wave of ideology. Those who claim that indecent dressing can cause rape are also faced with the challenge of defining indecent dressing, which could vary greatly even among them.

Statisticians are dumb, not the critics

To the liberals, the hypothesis that “indecent dressing can cause rape” is flawed. They argue that even well dressed women and babies are raped. Unfortunately, this view is also flawed at many different levels. First, it is flawed in that the hypothesis that indecent dressing can cause rape does not imply that decent dressing cannot attract rape. On this basis, it is important to note that the Minister never said that well dressed women cannot be raped or cannot be victims of rape. In statistics, this requires a one-way (tail) hypothesis test, in which the critical area of a distribution is one-sided so that it is either greater than or less than a certain value, but not both. If the sample that is being tested falls into the one-sided critical area, the alternative hypothesis will be accepted instead of the null hypothesis. An example of when one would want to use a one-tailed test is in the error rate of a factory. Let's say a label manufacturer wants to make sure that errors on labels are below 1%. It would be too costly to have someone check every label, so the factory selects random samples of the labels and test whether errors exceed 1% with whatever level of significance they choose. Acceptable values are those below or equal to 1%.

Disapproving the Ministers advice on the basis that well-dressed women are also raped is a common flaw in most arguments for many reasons. First, it involves the substitution of the original hypothesis or question for another. For instance, such acts of substitution is synonymous to the popular “what is a bird?” analogy.  For example, if a person is asked, what is a tree? Those who do not know the answer but are well vexed in birds could start by saying that birds perch on trees, and so, what is a bird? They then go ahead to answer that question instead of the original question: what is a tree?

Second, it is important to note that this hypothesis “indecent dressing can cause rape” is different from saying that “indecent dressing causes rape”. The latter hypothesis can easily be falsified just by one past or present evidence of rape caused by indecent dressing. But, the former is practically untestable because it does not only require past and present data but also perfect knowledge of all future events and their probabilities, which lies in the remit of only God. This is another evidence of the ‘what is a bird” analogy. The critics appear to have created their own hypothesis and answered it.  Besides, the Minister’s suggestion only raises a question of POSSIBILITY and does not provide a PERFECT DEFINITION of a necessary causal link, which her critics assume. To support this, I liken the "indecent dressing can cause rape" hypothesis to a pedestrian crossing the road and ask myself why we look left and right before we cross roads, and not assume that drivers are at all times responsible for us? Is there not a possibility that with a little carelessness, a similarly careless driver could easily knock us down?

In this brief note, I have laid the foundation for a more critical analysis of the debate on the “indecent dressing can cause rape” hypothesis. In the next part of this series, I will address a more theoretical issue with social deregulation (which forms the foundations of views of the critics) and the future of our society.