Economy

Unlocking Trillions in ‘Dead Capital’: Economist Advocates for Property Rights for the World’s Poor

By Chris Arsenault

RIO DE JANEIRO – Renowned Peruvian economist Hernando de Soto emphasizes a crucial factor in combating poverty: the presence or absence of defined property rights. He categorizes the world into two distinct groups: those who possess clear property rights and those who do not.

According to de Soto, director of the Institute for Liberty and Democracy in Lima, approximately two billion people enjoy full rights to the properties they inhabit and the lands they cultivate. In contrast, the remaining 5.3 billion individuals lack such rights, leading to severe consequences. Without the ability to leverage their assets, these individuals find their resources trapped as "dead capital," which fails to generate income or foster economic growth.

This absence of clearly defined property rights results in a situation where the impoverished are ensnared in the "tragedy of the commons." Their unregistered assets are vulnerable to appropriation by more powerful entities, which ultimately hinders both personal advancement and overall economic progress, according to de Soto.

He argues that legally protected property rights are the foundation of prosperity in developed nations, and their absence is a primary reason many countries remain entrenched in poverty. By granting titles for land, homes, and unregistered businesses to those in poverty, an estimated $9.3 trillion in assets could be unlocked, creating unprecedented opportunities for poverty alleviation.

Property titles would empower the poor to utilize their homes or lands as collateral to secure loans and establish businesses, thereby tapping into the entrepreneurial spirit of billions. "Investment is impossible without property rights that can be traded and transferred," de Soto remarked during a recent interview.

As political leaders prepare to discuss a new 20-year urban development plan in an upcoming U.N. conference, they are confronted with the challenge of property rights inequality amidst growing demands for improved living conditions from the expanding global urban populace.

In the U.S., the largest economy in the world, mortgages on homes serve as a primary funding source for new ventures, as noted by de Soto in his book "The Mystery of Capital." Conversely, in Haiti, the poorest nation in the Americas, small business owners often lack the secure property rights necessary to leverage their homes or land for business creation.

While the 75-year-old economist has advised over 30 world leaders from various regions, he acknowledges uncertainty regarding global trends in property rights. Nevertheless, he points to a correlation between the lack of property rights and various international issues, from the rise of religious extremism in the Middle East to conflicts over land and resources in Africa.

For instance, the initial unrest of the "Arab Spring" was sparked by the confiscation of an unregistered fruit cart from a Tunisian vendor, underscoring widespread property rights deficiencies in the region. De Soto notes that the Middle East has particularly low rates of property empowerment, which fuels social despair.

In Asia, specifically in China, an estimated 150,000 rural protests annually revolve around property rights violations, primarily driven by industrial or wealthy interests seizing land from impoverished communities.

Critics of de Soto maintain that his theories do not pose a threat to the elite, who continue to consolidate wealth. Some argue that while property rights are significant, they may not be the foremost priority for improving conditions for the impoverished. Raquel Rolnik, a former U.N. Special Rapporteur on the Right to Housing, supports providing titles but points to mixed outcomes in Peru regarding de Soto’s policies. She observes that slum residents who received formal titles did not immediately flock to banks to secure loans for business endeavors.

"A successful housing policy is multifaceted and should incorporate various tenure arrangements, not solely private property," Rolnik stated.

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