This Land Is Your Land: A Conversation with Hernando de Soto

In 2000, the Peruvian economist Hernando de Soto published The Mystery of Capital, his landmark study of the relationship between property rights and poverty. De Soto claimed that some $9 trillion of "dead capital" was locked up in land, homes, and businesses belonging to poor people who did not technically "own" them. Without deeds or titles, he argued, poor people all over the world are not able to leverage their property for profit. Solving this problem became de Soto's mission.

Though his ideas are controversial, they have been immensely influential. (In 2004, Bill Clinton described him as "probably the world's most important living economist.") During the past decade, he has attempted to put his theories to the test, advising governments and heads of state around the world. As a first step, de Soto and his colleagues at the Lima-based Institute for Liberty and Democracy designed an administrative reform of Peru's property system—some 400 initiatives, laws and regulations that have allowed more than 1.2 million Peruvian families to claim title to the lands they farm, and helped some 380,000 firms which previously operated in the black market to enter the open economy. But Peru was only the beginning. From his base in Lima, de Soto spoke with World Policy Journal editor David A. Andelman and managing editor Justin Vogt.

World Policy Journal:

Let's begin by looking at property, which is your particular interest and focus. You seem to suggest that the poor, especially in the most deprived portions of the world, are poor only on paper. In fact, they are wealthy, in terms of the land they can control to grow their food and live with their families. Explain to us why that form of ownership isn't sufficient to prevent these people from being poor. Why is legal documentation so important?

Hernando de Soto:

Let me try an example, because we just started working now in the Peruvian Amazon where, together with the Brazilian Amazon, we're discovering a lot of the potential wealth of the world. It is a huge source of petroleum, a huge source of gas, a huge source of hydroelectric power, and minerals and metals. The same thing is happening in India and in tropical Nigeria. But let's concentrate on Peru. In this case, you've got native lands where we found that only 5 percent of indigenous people have titles to the land that—by description in the constitution—is theirs.

On the other hand, you've got solid property rights that are given to any company, foreign or Peruvian, that wishes to extract oil or any other mineral. So here comes an American company, for example. They get a property right from the Peruvian government and that property right is in the form of a concession. It establishes that it's theirs, provided you renew agreements and commitments over so many years, but it's a property right. And they're going to have it for 60 years, 120 years, or it's unlimited. This property right then becomes even more "perfected"—that's the word we use in Spanish—and thus it becomes even more detailed as to how far these rights go. Then that property right—which has been protected by the bilateral international treaty that has been signed between Peru and the United States—gets inscribed and blessed by the United States Overseas Private Investment Corporation (OPIC), which issues guarantees that makes it interesting for everybody to look at that property, because it's got the backing of OPIC. Then that property right goes to the Multilateral Investment Guarantee program of the World Bank, where again it is ratified by its 187 member countries, who of course view this as a way of guaranteeing investment in developing nations. Then the owner of that title goes to Toronto, Wall Street, or London and says, "I have got a property right that even the Peruvian congress can't take away." On that basis, the investor gets $3 billion and brings...