Tag Archives: Hernando de Soto

De Soto on how and why institution building works

Photograph of Hernando de Soto, which he had t...

Hernando de Soto

Hernando de Soto is a very intelligent economist from Peru who has had a great positive impact on development in Peru, and around the world. Building from his cornerstone book The Other Path (to contrast with The Shining Path), he advised the government of Peru on over 178 institutional reforms related property rights, democracy, and constitutional reforms for freedom.

In this nicely produced video interview with de Soto, he eloquently describes his major ideas about how to best support the healthy growth of a developing country.

Early in the interview de Soto shares an interesting “metric” of how he knew he was having an impact on Peru, saying “If we hadn’t been shot at, it would have been an indication that we weren’t having an impact. We had an impact.” Talk about standing by your ideas.

Was it worth it? Consider that Peru’s GNI per capita PPP grew 37% between 2005 and 2009, compared to 6% growth for the United States. I bet institutions played a key role in Peru’s rapid growth. Watch the interview to learn more about de Soto’s ideas—definitely food for thought.

Egypt: Democracy is interesting, but ownership is critical

Egypt: Register your land in just 14 years and 77 easy steps!

Don’t get me wrong—I’m excited and optimistic about the historic events of the past several weeks in Egypt, and the potential for the country to get onto a real path of renewal. And furthermore, I think that democracy can be an important force for bringing about citizen engagement, transparency, and hope to the people.

However as many people have pointed out, history tells us that Egypt’s success is far from certain. The book At War’s End by Roland Paris makes a strong argument for first investing in strong state institutions, before rushing to hold elections. He makes the point that democracy and freedom of speech are often held out as a panacea for transforming a society, although too often historically such an approach hasn’t worked.

And so it was with great interest that as I watched online as the government of Egypt fell, I happened to be reading Hernando de Soto’s classic book The Mystery of Capital. Much of De Soto’s work revolves around the power of capital, and shows how in many developing countries people are hamstrung by how difficult it is to officially register their land. As a result of this lack of official ownership, they are not able to use their land as leverage for investing in business or education. His work has led to reforms—and progress—in Peru, among other places.

In Egypt, however his team found that it takes anywhere from 6 to 14 years to officially register a piece of land for building purposes, navigating 31 agencies and 77 procedures. Wow.  Furthermore an Egyptian who goes ahead and builds a house, and then tries to register it after the fact, faces large fines and even demolition of the house. Not surprisingly, a lot of Egyptians live on “illegal” land, and are left with property that they can’t leverage. De Soto calls such land “dead capital.”

Consider that in many countries, home ownership is a common path to not just building wealth, but also to “dealing people in” to society. In fact in Lee Kuan Yew’s book From Third World to First he talks about how in the 1960’s Singapore decided that it was critical to bring home ownership to as many people as possible, as he put it “to give every citizen a stake in the country and its future.”

Incidentally, Singapore’s per capita income as a percentage of the USA’s per capita income has gone from 18% in 1965 to 82% in 2010. Apparently they are doing something right.

And thus it’s fascinating to note that the protesters in Egypt have taken pains to clean Tahrir Square, saying things like “For the first time, we feel now that this homeland is ours.” There is clearly something powerful about ownership.

Democracy is interesting, but feeling like a true stakeholder of your country? Now that’s powerful. And remaking Egypt’s institutions, such as land registry, is a critical step towards progress.