Wednesday, September 19, 2007

How to unlock dead capital in Africa

Peruvian economist Hernando De Soto researches third world's lack of legal titles and systematic property law that condemns some 1.3 billion poorest to live on under a dollar a day. In his book, The Mystery of Capital he advocates that capitalism triumphs in the West because of property rights. In theory, there are millions of squatters illegally occupying untitled land, that cannot ever use their houses for collateral. Most of the land in the third world is owned by governments, which in theory are elected by the people; so if we want to help spur home ownership in the third world we need to look to standardize ways to register squatters for property ownership.

It is a fact, property title spurs entrepreneurship, the west grew in the 1800's by industrialization and by property ownership. If we could figure a way to register millions of squatters in Africa and around the world; they could then use their property to obtain business loans to build a sustainable business to feed themselves and their families. Hernando De Soto to his credit has used his Peruvian registry to register over a million buildings and over 300 businesses from 1991 to 1994. Throughout the world other extralegal organizations have mimicked De Soto and formed their own property registries.

Hernando De Soto has done a great service by demonstrating that the poor people do have property and can accumulate capital. But the poor cannot realize their potential because of the conflict between their real but extralegal claims and the unreal but legal property systems.

I suggest reading Hernando De Soto's book, The Mystery of Capital. This book demonstrates that property rights must never be taken for granted.


  1. didn't his Lima experiment fail ?

    Yes, people got propriety titles but soon lost them to repay debt.

    His theory is more complicated than lack of propriety rights. What he claims (and i don't doubt) is that the elite got secure rights while the poor don't.
    However the elite also know how to use those rights while the poor don't and I think that's why the experiment failed.
    As always, impact of education was underestimated.

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