Hernando de Soto: Poor People Need Formal Property Rights to Get Richer

Saw Hernando de Soto speak at the Kennedy School on Thursday. De Soto is a world renowned development economist. His take-home message is that the poor in developing countries need strong, formal rights to their property in order to get richer. According to de Soto, most people in developing countries do not have formal rights to their land or house. This prevents them from borrowing money against their assets to start a business or pay for anything else.

De Soto runs the Institute for Liberty and Democracy in Peru and recently wrote The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else He worked with Peru's ex-president Fujimori (before Fujimoi ran off to Japan in fear of going to jail for corruption and human rights violations) as a special assistant and now advices prime ministers and presidents of many developing countries. De Soto is a rare bird in that he's praised equally by the left and right - getting accolades from Bill Clinton, Ronald Regan, and Kofi Annan is no small feat.

ILD analysis has shown that 90% of people in Egypt (ILD is currently advising the Egyptian president on development) don't have titles to their land. They estimate that this arrangement keeps US $4.2 billion locked away, that could be used for development. They claim this is a pervasive pattern throughout the developing world.

Part of the reason I like this guy is that he's gotten down and dirty in his research. I've read of how he's gone out in the Peruvian slums and interviewed small entrepreneurs in the "grey economy". He found that in many poor countries it takes a long time, a lot of money, and even more red tape to get the multitude of permits required to operate. Never mind the bribes you need to pay.

Adam Smith

Comments

[danny]

Thanks for the posting! His recent book (Mystery of Capital) was truly exceptional.

A unique paradox from the book is that countries like the Philippines are struggling because they have adopted a property system very close to what the United States has in modern times.

At this point, many of the countries common citizens find it much simpler to remain extra-legal, than to register goods and properties that they may indeed hold rightful claim over.

ds

[Tom]

A video of the event is available through the IOP archives website.

The entire lecture is worthwhile (de Soto is an excellent presenter) but I found the descriptions of property rights he offers at the beginning of the lecture to be particularly enlightening.