Digging up paperwork on global poverty

Social justice news
August 2001

Church responds to stem cell research developments
Digging up the paperwork on ending poverty
President Bush gets some Catholic schooling on stem cells and globalization
Research group helps cut the trial and error of social change

Digging up the paperwork on ending poverty
It's not every day an economic theorist carries a gun and rides in a bulletproof car, but that's precisely what Hernando de Soto found himself doing after his Peru-based Institute for Liberty and Democracy was bombed and his car strafed by Maoist guerrillas.

Then again, not too many economists have their books read by policymakers and national presidents like Haiti's Jean-Bertrand Aristide, the Philippines' Gloria Arroyo, Egypt's Hosni Mubarak, and Mexico's Vicente Fox.

The books, The Other Path—the title of which played off the name "Shining Path," Peru's guerrilla resistance and putative de Soto assassins—and, most recently, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, shifts the blame for non-Western poverty from culture or exploitation to a more structural issue: It's not that non-Western poor people have failed at capitalism but that capitalism has failed to reach them.

The basic problem, de Soto argues, is not lack of assets among the poor but lack of documentation of assets—the "paper" tools of capitalism like mortgages, property titles, credit cards, and bonds—documentation people accumulates that allows them to participate in the capitalist system by, for example, using a home as business collateral. "People own houses but not titles; crops but not deeds; businesses but not statutes of incorporation," de Soto says.

While these assets may be "dead," they are also huge. In the non-Western world—the former communist countries and the developing countries where 5 of the 6 billion of the world's population lives—the total value of real estate held but not legally owned by the poor is at least $9.3 trillion. That's double the amount circulating in the U.S. money supply. De Soto can marshal other similar comparisons showing how undocumented assets overwhelm the legal capital of the developed world.

But the problem goes beyond the lack of paper to the lack of legal infrastructure—laws, regulations, policing—to support property rights. Inapplicable and unaffordable laws, legal recourse available to only a few, byzantine licensing and regulatory procedures, all make it difficult if not impossible for the small holder of an asset like a vehicle, a house, a small factory, or an animal to legalize and trade that asset, parleying their property from "death" to the "parallel life" of capital.

De Soto's response to global poverty calls for governments and poor property-holders themselves to recognize the assets they have, document the rights to that property, and make those rights enforceable through good laws and regulations so that the paper can be traded around.

The plan, however, goes beyond theory to action. De Soto has sent his team of analysts into several countries where they spend a year creating a topology of the country and a valuation of its informal landholdings. In addition, they utilize local leaders to help catalog the bureaucratic rules that make it hard for the poor to legally conduct business.

So far, de Soto's program has been tried only once, in Peru, where former President Alberto Fujimori made de Soto a senior adviser. Under de Soto, 1.6 million of the nation's 2.3 million extralegal businesses and 280,000 illegal small businesses, were titled and legalized. But the next step, using the new paper as collateral for banks to extend cheap, easy, and collectable credit, was not taken before Fujimori lost interest in the initiative. Fujimori has since resigned from office and is living in exile in Japan as an ongoing political corruption scandal clouds his legacy.

De Soto believes his vision will eventually succeed in at least one country, maybe a whole continent. What does he see as the alternative? A conflagration against globalization that would make the occasional bomb attack and machine gunning of a research office seem relatively minor.—Joel Schorn

For more information
"The Rules of the Capitalist Game," (Books & Culture, January/February 2001)

"Peru Economy," (National Public Radio Weekend Edition, January 06, 2001)
"The Mystery of Capital," (National Public Radio Morning Edition)
The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else
The Other Path: The Invisible Revolution in the Third World

Non-Internet resources:
"The Poor Man's Capitalist: Hernando de Soto," (New York Times, July 1, 2001)
"Why poor nations can't capitalize on capitalism," (Our Sunday Visitor, May 13, 2001)

Back to page top