Property Ownership And Poverty

John Stossel at posted an interesting article about the relationship between poverty and private property rights.  In his artice he mentions the work of Hernando de Soto.who has focused on a revolutionary concept that is having repercussions throughout the world’s poor countries: the lack of formal property rights is the source of poverty in poor countries.

Mr. Stossel quotes Mr. de Soto:

“”To get an address, somebody’s got to recognize that that’s where you live. That means … you’ve a got mailing address. … When you make a deal with someone, you can be identified. But until property is defined by law, people can’t … specialize and create wealth. The day they get title (is) the day that the businesses in their homes, the sewing machines, the cotton gins, the car repair shop finally gets recognized. They can start expanding.”

“That’s the road to prosperity. But first they need to be recognized by someone in local authority who says, “This is yours.” They need the rule of law. But many places in the developing world barely have law. So enterprising people take a risk. They work a deal with the guy on the first floor, and they build their house on the second floor.”

We totally take our property rights for granted.  Mr. de Soto further explains:

“It’s not very different from when you Americans started going west, (but) Americans at that time were absolutely conscious of what the rule of law was about,” de Soto said.

“Americans marked off property, courts recognized that property, and the people got deeds that meant everyone knew their property was theirs. They could then buy and sell and borrow against it as they saw fit.

“This idea of a deed protecting property seems simple, but it’s powerful. Commerce between total strangers wouldn’t happen otherwise. It applies to more than just skyscrapers and factories. It applies to stock markets, which only work because of deed-like paperwork that we trust because we have the rule of law.”

The obvious conclusion here is that enforcing property rights and the rule of law breeds prosperity.  Hopefully we can remember those two things in the coming years.