much of the marginality of the poor in developing and former communist nations comes from their inability to benefit from the positive effects that formal property provides. Without legal titles and the necessary property-related institutions, these poor cannot fully exploit their assets. The challenge these countries face is not whether they should produce or receive more money but whether they can identify which legal institutions are required and summon the political will necessary to build a property system that is easy for the poor to access.
In the interview, de Soto explains,
Almost 5 billion people out of the 6 billion in the world live in either developing or formerly communist countries, where much of the economy is extralegal. Capitalism doesn’t thrive in these countries because of their inability to produce capital. However, capital is the force that raises the productivity of labour and creates the wealth of nations. It seems that poor countries cannot produce capital for themselves no matter how eagerly their people engage in all the activities that characterize a capitalist economy. In fact, the poor inhabitants of less developed countries do have things, but they lack the process to represent their property in such a way that it can create and transfer capital. They have houses but no titles; crops but no deeds; businesses but no statutes of incorporation. In other words: their property is not registered, not formally legalised. This last fact is crucial, for only through property rights is it possible to obtain credit. Property converted into capital provides the potential to create, to produce, and to grow. Landownership can only be exchanged for a loan if it is registered.
The numbers are staggering,
In fact, the total value of the assets held but not legally owned by the poor in the Third World and former communist nations is at least $ 9.300 billion.
Anyone interested in terrorism, social justice, possible solutions to poverty, property rights, or economics must read not only this interview, but also de Soto’s books, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else and The Other Path: The Economic Answer to Terrorism.
Property rights are a cornerstone issue in any society, and a democracy can not exist without solid property rights and a rule of law. This applies not only to developing countries, but also to our country, which is currently debating the issue of eminent domain and the seizure of property by the government. If a solid legal base of individual property rights is eroded, we all stand to lose.