Hernando de Soto – Peru

Linked with The Institute for Liberty and Democracy ILD, with Peru police evict market traders, and with Hernando de Soto’s texts and videos.

Mr. de Soto is currently President of the ILD —headquartered in Lima, Peru— considered by The Economist as one of the two most important think tanks in the world. Time magazine chose him as one of the five leading Latin American innovators of the century in its special May 1999 issue “Leaders for the New Millennium”, and included him among the 100 most influential people in the world in 2004. (full text).

His main thesis: Need for private ownership (for everyone) ! The main tenet of de Soto’s books is that people in developing countries lack such an integrated formal property system, leading to only informal ownership of land and goods. He argues that the fruition of economic success of American and Japanese capitalism relied on a clear system of property rights which was created during the times of the ‘frontier’ in America and in Pre-WWI Feudal Japan. The lack of such an integrated system of property rights in today’s developing nations makes it impossible for the poor to leverage their now informal ownerships into capital (as collateral for credit), which de Soto claims would form the basis for entrepreneurship. Hence farmers in much of the developing world remain trapped in subsistence agriculture. As such, he argues that this informal ownership should be made formal, for example by giving squatters in shanty towns land titles to the land they now live on. (full text).

Hernando de Soto - Peru.jpg

Hernando de Soto – Peru

Peru’s most distinguished economist, Hernando De Soto, was among the key speakers at an event held by the Foundation for International Community Assistance (FINCA International) in New York City. (full text, May 16, 2007).

He says: “What my definition of capital is, for the purposes of this book, are all those values that are hidden in assets and that come forth when property is well defined. It’s much more interesting to talk to dead Americans than to live Americans, because dead Americans two centuries ago were facing the same problems we are now”. (full text).

He says also: ” … the problem is that if what you own as an informal entrepreneur is only a couple of hectares, you can’t start growing, say, commercial cocoa, because the Hershey company is not going to bother buying the amount of cocoa that you can produce there. The end result of all this is that the informals have all sorts of negative externalities because they do not have the legal infrastructure of a market economy that would allow them to solve the difficulties associated with production. From the moment you give these people property rights which are well-protected and transferable, you not only give them incentives to increase production, you also make them accountable and responsible for what they do produce. Look, you turn on your TV and see a program like Miami Vice, where these two good-looking gentlemen go in their beautiful cars after drug dealers. They search for the “Colombians” at 353 Sewer Street, but find that the drug dealers are gone, and now have moved to 301 Huntington Drive, and so the heroes go again after them – all you hear are addresses. But when you see the police in the Alto Ballague in Peru, you see them in a helicopter, floating above the tree tops. There are no addresses. It has been said that there is no workable police force without addresses. Well, there is no workable market economy without addresses, either. And for that you need property rights … ” (full text).

De Soto first came to attention in his native country. In 1979, after a successful career in business in Europe, a 38-year-old Hernando de Soto returned to a Peru plagued by poverty and years of military rule. Having made enough money to retire, he decided to devote his life full-time to solving the riddle of development: Why are some countries rich and others poor? De Soto knew that Peruvians did not lack entrepreneurial energy. The bustling informal economy of Lima was testament to that. Nor did they lack assets, per se. From countryside to urban shantytown, ownership was governed by a system of informally evolved and acknowledged property rights. (full text).

And he says: “When The Other Path was published, it became clear that, in Peru, there were two economies, one formal and one informal. The informal sector constituted between 50 and 60 percent of the total. We examined the situation in the various government ministries and discovered a pattern of ‘invasion’ of lands in Peru [owned by absentee landlords or by the government]. Who were these invaders? We found that they were farmers – informal agricultural entrepreneurs. From among the leaders of the invaders we selected 80. They were the most prosperous and therefore those with the most authority among these informals. Talking to these informal leaders, we asked them the question:

  • ‘Do you consider yourself a member of the private sector’?
  • ‘No,’ most of them answered.
  • ‘Do you then consider yourself a member of the public sector’? we asked.
  • ‘No’, they said, ‘the public sector is the government, the state’.
  • Then we asked, ‘Who do you think belongs to the private sector?’
  • ‘Los de arriba, those above’, they said. The contradictions were remarkable. For example, a prosperous informal businessman, president of the Peruvian Drivers’ Federation, representing 300,000 drivers, was also member of the Central de Tra- bajadores del Peru (Central Union of Peruvian Workers), which is controlled by leftwingers. One day I asked him:
  • ‘Look, you own a bus, but you talk as if you were a proletarian. You know that a union supposedly defends the salary of the proletarian against an owner, and tries to reduce the so-called surplus value, but you live off your own business. I’m sorry, but you are a capitalist’!
  • He answered: ‘No, I’m not. Haven’t you heard of autoempresa (self- entrepreneurship) I am a worker in autoempresa’.
  • ‘Yes’, I said, ‘I know about the autoempresa. In fact, I have a friend who has an autopizzeria (self-owned pizza shop), another who has an autotienda (self-owned store), and so on. I’m sorry, but there’s no difference between you and them, except for the fact that you are marginalized by regulations, whereas they are afficially licensed by the government’.

This perception originates in the fact that in Peru there indeed exists a private sector, but it exists largely on the basis of competing for government favors, contracts, and privileges, and its economic approach is to try to exclude or marginalize competitors – not by outproducing them in quantity, quality, or prices, but through political means, from legislation to outright use of the many resources of legal coercion at the disposal of a modern state”. (full text).

Peruvian economist Hernando de Soto receives 2006 Bradley award.

Well, Hernando De Soto has spent the last probably 20 years running around the world saying that one of the key factors standing in the way of people advancing themselves is the lack of officially recognized property rights. As he said in his first book, “The Other Path,” which was written as a counter to Peru’s Shining Path (communist guerrilla movement), in Peru you have in effect crony capitalism, mercantilism, where most of the people of Peru are just pushed away. They are kept out of the economy. The way they are kept out is that they have no official standing in the society; they have no property rights acknowledged by the government. (full text).

De Soto has published books about economic and political development, like:

  • The Other Path: The economic answer to terrorism, and at the end of 2000;
  • The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else.

Both books have been international bestsellers, translated into some 30 languages. The original Spanish-language title of The Other Path is El Otro Sendero, an allusion to countering Peru’s “Shining Path” (”Sendero Luminoso”) guerrillas. The Senderistas had in the past attempted to assassinate him. (full text).

Thomas Sowell writes about his book ‘The Mystery of Capital’: SOME BOOKS are good, some are bad, but very few are real gems. One of these few gems is the recently published book “The Mystery of Capital” by Hernando de Soto. The subtitle tells what it is really about: “Why Capitalism Triumphs in the West and Fails Everywhere Else.” It is not really capitalism but poverty that de Soto is most concerned about. He finds most Third World poverty to be both unnecessary and grossly misunderstood. The most amazing part of this remarkable book are the examples it gives of tremendous wealth generated by poor people in Third World countries. In many Third World countries, the underground economy is larger than the legal economy, and the total wealth of all the poor “dramatically outweighs the total wealth of the rich.” (full text).

His books on amazon.

links:

Let’s Bail On Financial Bailouts;

Paupers to Millionaires;

Dream big for a new city by 2009, May 5, 2007;

Bureaucracy-Busting in Belgium;

The Financial Services Roundtable Lawyers Council 2007 Spring Meeting

A Video by Rob Neuwirth: The 21st-century Medieval City – Seminars About Long Term Thinking, 1.20′05 hour, by ‘The Long Now-Foundation‘, hold on February 13, 2006 … and he says: about 200′000 peoples around the world leave the rural aerea per day for the cities – and ending in shantytowns … they find a job, but no housing, so they construct themselves, with what they can … my comment: countries, having monney for military toys and not for houses for their people … are more than a shame: They have to be changed out.

Comments are closed.