Economist advocates property rights as solution to global poverty

Capitalism will thrive, and overcome even widespread poverty, but only if legal systems change to give the poor access to property rights, Peruvian economist Hernando de Soto told a UConn audience Monday.

“When you create ownership as a concept and put it into law books, you have also created the rest of the market economy capitalist system,” de Soto told a standing-room-only crowd in Konover Auditorium.

“I believe that capital is the source of, or explains to a great degree, the wealth of the developed world,” he said. “In the Third World, where I’m from, the poor have worked a lot. But what’s missing is a legal system and an institutional framework that allows us to leverage wealth.”

Widely regarded as a dazzling thinker who has redefined the global debate on development theory, de Soto was invited to UConn as a speaker in the RBS Greenwich Capital Economic Seminar Series to discuss his internationally acclaimed policies advocating property rights for the poor as a solution to global poverty.

A finalist for the Nobel Prize in Economics in 2002, de Soto is the president and founder of the Institute for Liberty and Democracy based in Lima. The Economist magazine called the institute one of the two most important think tanks in the world.

Through the institute, de Soto has worked with world leaders in Asia, Latin America, the Middle East and Africa, revolutionizing the way they address enduring poverty.

The world’s poor own $9.3 trillion in property, a sum, he said, that dwarfs the total amount of foreign aid given by developed nations to poorer ones in the past three decades. But the poor cannot unlock the potential of this “dead wealth” without the formal titles and property law systems that provide income-generating potential.

“If you integrate the poor into the game, they can create wealth,” de Soto said. “It’s like tennis. If you know the rules, you play ball.”

Property is the basis of the market economy, de Soto said. And strong private property rights allow people to borrow against their assets to set up businesses, and provides them with the incentive to be productive, because the system guarantees they can keep their profits.

“How can anybody join a free-market economy without property?” he asked, adding that property ownership is the basis of credit, and credit is the route to development in any economy.

“When people have credit, it means they have something to lose,” de Soto said.

“By transforming people with real property interests into accountable individuals, you need a legal system that identifies them. Credit or capital is also unexplainable without property.”