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| International |
| Economist: World’s poor denied the tools of capitalism |
| 2003-11-18 |
| To some of us, this article will seem terribly obvious, but it bears out whats worth repeating: Socialism Kills. By Hernando de Soto Imagine a country where the law that governs property rights is so deficient that nobody can easily identify who owns what, addresses cannot be systematically verified, and people cannot be made to pay their debts. Consider not being able to use your own house or business to guarantee credit. Imagine a property system in which you can’t divide your ownership in a business into shares that investors can buy, or where descriptions of assets are not standardized. Welcome to life in the developing world, home of five-sixths of the global population. These people’s plight underlines a paradoxical reality: Capitalism was supposed to be the answer to global underdevelopment, but here it never had a chance. It hasn’t even been tried. In a capitalist economy, all business deals are based on the rules of property and its transactions. Third World property systems, however, exclude the assets and transactions of 80 percent of the population, cutting off the poor from the economy as markedly as apartheid once separated black and white South Africans. Why is this important? Conventional macroeconomic reform programs have ignored the poor, assuming they have no wealth to build on. Big mistake. My research team and I have recently completed several studies of the underground economy in the Third World, and they prove that the poor are, in fact, not so poor. In Peru, the poor’s assets are worth an estimated $90 billion — 11 times the value of equities on the Lima stock exchange and 40 times the sum of all foreign assistance to the country since World War II. In Mexico the estimate is $315 billion — seven times the worth of Pemex, the national oil company. The problem is that the poor and lower-middle class are not allowed to use their assets in the same way that wealthier citizens do. And one of the biggest political challenges is to bring those assets from the "extralegal" sector into a more inclusive legal property system in which they can become more productive and generate capital for their owners. Third World governments have already proved they can reform bad property arrangements, at least for the rich. In 1990, for example, the Compañia Peruana de Teléfonos was valued on the Lima stock exchange at $53 million. The government, however, could not sell CPT to foreign investors because of problems with the company’s title to many of its assets. The Peruvians put together a hotshot legal team to create a legal title that would meet the standardized property norms required by the global economy. Documents were rewritten to secure the interests of third parties and create confidence that would allow for credit and investment. The legal team also created enforceable rules for settling property disputes that bypassed the dilatory and corruption-prone Peruvian courts. Three years later, CPT entered the world of liquid capital and was sold for $2 billion — 37 times its previous market valuation. That’s what a good property system can do. But how to determine what the poor really own so that their assets can be legally titled and the potential capital trapped inside can be released? Nine years ago, I was invited by the Indonesian Cabinet to offer advice on identifying the assets of the 90 percent of Indonesians living in the extralegal sector. I was no expert on Indonesia, but as I strolled through the rice fields of Bali, a different dog would bark as I entered a different property. The dogs did not have to graduate from law school to know which assets their masters controlled. To determine who owned what, I advised the Cabinet to begin by "listening to the barking dogs." One of the ministers responded, "Ah, jukum adat — the people’s law." The history of capitalism in the West is a story of how governments adapted the "people’s law" into uniform rules and codes. Ownership represented by dogs, fences and armed guards is now represented by records, titles and shares. The moment Westerners were able to focus on the title of a house and not just the house itself, they achieved a huge advantage over the rest of humanity. With titles, shares and property laws, people could suddenly go beyond looking at their assets as they are (houses used for shelter) to thinking about what they could be (security for credit to start a business). Through widespread, integrated property systems, Western nations inadvertently created a staircase that allowed their citizens to climb out of the grubby basement of the material world into the realm where capital is created. The poor are not the problem we think they are, but the solution to their own plight. The time is ripe to take the definition of property away from conservative legal establishments in developing countries and put it in the hands of politicians committed to this view. Hernando de Soto is the president and founder of the Institute for Liberty and Democracy (ILD), a private, nonprofit organization headquartered in Lima, Peru. He was in Seattle last week to speak to the Seattle Initiative for Global Development. Hernando de Soto wrote a great book,called "The Mystery of Capital" on this subject. |
| Posted by:Anonymous |
| #7 One of the best and most surprising articles I've ever read. What made America rich is little noted- our Founding Fathers also invented the patent system. Intellectual property, just as my faith and speech are MY property. Now if only the drug warriors felt that way about my bladder- if it's not private, nothing is. Note the trends concerning children, homes, cars, bank accounts, internet usage, gun registration, -etc. |
| Posted by: Anonymous 2003-11-18 11:50:19 PM |
| #6 SH, granting of railroad concessions were critical to our development. Yeah, agreed with the caviat that most of the grantors and grantees should have been hung. I expect that this is one of the few times I'd agree with NMM. |
| Posted by: Shipman 2003-11-18 7:37:49 PM |
| #5 Naw.. it was Juan Ponce what ran into Florida. |
| Posted by: Shipman 2003-11-18 7:35:04 PM |
| #4 Hernando de Soto I have a picture of DeSoto overlookng the Mississippi. It was my Dad's '57 near Natchez. |
| Posted by: Shipman 2003-11-18 7:33:23 PM |
| #3 Didn't Hernando De Soto discover Florida? Or at least invent the sedan? |
| Posted by: Tibor 2003-11-18 7:32:52 PM |
| #2 For the purposes of economic prosperity only - property rights are more important than democracy. The Homestead Act and the granting of railroad concessions were critical to our development. The class dispute jargon is a little on the heavy side. |
| Posted by: Super Hose 2003-11-18 7:25:46 PM |
| #1 "Thank you, O lefty moonbats, for saving us from the evils of globalization!" |
| Posted by: BH 2003-11-18 7:18:19 PM |