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Hernando de Soto

Forget about a glorious future in which the global economic order is overthrown and the fat cats lie down with the lambs. Peruvian economist Hernando de Soto is more interested in what he can accomplish within the parameters of the … Read More

By / November 28, 2006

Forget about a glorious future in which the global economic order is overthrown and the fat cats lie down with the lambs. Peruvian economist Hernando de Soto is more interested in what he can accomplish within the parameters of the world as it actually exists. For the past quarter-century, De Soto has been fighting global poverty through a simple and pragmatic plan to give poor squatters the deeds to the properties they’re squatting in.

A curious blend of pro-market capitalist and down-and-dirty activist, de Soto has single-handedly improved the lot of Lima’s indigents. In 1979, after returning to Peru from Europe, he began thinking about underground economies. Lima’s black-market workers struck him as incredibly hard-working and entrepreneurial. Why were they so poor?

The main issue, he decided, was that the government didn’t recognize the assets they had in the form of land, shacks on top of that land, and small businesses run out of those shacks. Development experts struggle desperately to make systems of credit available to Third World entrepreneurs. With the rights to their property, Peru’s poor could use their land as collateral for loans. In 1980, de Soto founded the Institute for Liberty and Democracy (ILD) to make this vision a reality.

He quickly ran up against two problems. The Peruvian government scoffed at the notion that the poor owned anything worth recognizing, and the Shining Path, Peru’s brutal Maoist Shining Path insurgency, didn’t want an economist anywhere near their constituency. (Maoists are not huge fans of property rights.) While the government simply ignored de Soto, the Shining Path was a little less diplomatic. First they machine-gunned his car, then they blew up his office, and then they bombed his co-workers. De Soto responded by publishing a manifesto named The Other Path (1986) and, perhaps more important, by absolutely refusing to give in.

By the ’90s, President Alberto Fujimori had successfully implemented many of de Soto’s suggested reforms, and de Soto began to take his vision global. He published a pair of books—The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (2000), and The Other Path: The Economic Answer to Terrorism (2002)—and began consulting on economic development with leaders from Mexico to Egypt. He’s currently in the U.S. lobbying the Bush administration for favorable trade regulations for Peru.

De Soto’s pragmatism has not only helped improve the lives of the world’s poor; it’s also changed the way development workers think about how they do their jobs. By concentrating with dogged focus on the effect he can have within the current economic system, de Soto hasn’t allowed himself to be enervated by defeatist dogma about irreversible ills of capitalism. He’s shown that it’s possible to bring about concrete change.

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