Peruvian Hernando de Soto studied economics because he wanted to figure out why there are still so many desperately poor in an ever richer world. He didn’t agree with the right that it was a matter of backward and unproductive cultures, the poor around him working very hard every day. And he didn’t agree with the left that it was a result of capitalist exploitation – there just weren’t any greedy multinational corporations in the favelas. So what was the problem? And what was the solution?
The answer he came up with is so simple it might disappoint you at first. In two words: property rights. In the West, we take it for granted that the government secures private property and enforces contracts. In the developing world, however, huge parts of the population live and work outside what de Soto calls the property system – and this is why they can’t benefit from it.
If you are looking for ways to help reduce poverty, the first step is to get a better understanding of its root causes. I highly recommend de Soto’s major publication, The Mystery of Capital, it’s an easy and fascinating read. I can only agree with this review on Amazon.com: “Peruvian economist de Soto sets out to do nothing less than explain why capitalism has worked in the West and been more or less a total disaster in the Third World and former Communist states. This has long been a pivotal question for anyone interested in the world beyond their own back yard, and there have been plenty of attempts to explain it before (often in terms of history, geography, culture, race, etc.). However, de Soto’s is the most compelling and logically argued answer I’ve come across.”
Watch de Soto explain his main thesis in easy words and introduce to you the Oliver Twists of his home country Peru:
“Capitalism can be the engine by which the poor, set free in an open marketplace, can raise themselves from poverty. We must give them the tools. We ignore them at our peril.”
Watch him talk about his life and work on Al Jazeera’s One on One.
Watch him talk about his book to Charlie Rose.
Watch him talk about “The Future of Democracy in Latin America” on the CIPE-Forum.