Hernando de Soto’s book The mystery of capital has renewed debate about illegality in low–income housing in Latin America, Asia and Africa. De Soto and others argue that property titles provide the poor with collateral for loans to improve their housing or set up a business. Critics argue that incorporation into the formal market will displace the original inhabitants. In this article I analyse these debates about legalization as expressions of the dualisms that have shaped western thought. The relation between legal and illegal can be understood as a variant of the public/private dichotomy. Challenging the opposition of legal to illegal, I argue that the difference between them is not as great as the proponents of legalization assume. This questions the efficacy of legalization as an engine of change. In Mexico, the beneficiaries of legalization have little interest in formal credit, preferring loans from friends or relatives, and legalization does not lead to displacement. The failure of theories about legalization to predict the outcome is a product of their reliance on dualistic thinking and of the exclusion of the private from their accounts of the process.
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