Hernando de Soto
December 17, 2002 11:28 AM   Subscribe

Hernando de Soto is the founder of the Institute y Libertad Democracia, one of the world's premier think-tanks on economic development, based in Peru. His argument is that development in the third-world has failed because of institutional barriers which prevent ordinary citizens from legally registering their own property. His viewpoint is not unchallenged though, as Robert J. Samuelson challenges that he overlooks significant cultural differences between the West and "the Rest". These differences reward different values than the West's capitalism, and cause development to take a very different course than Western economists predict it should.
posted by Pseudoephedrine (11 comments total)
Shoot - I wish you would have posted this as a comment in the FPP on Amartya Sen. Two good, substantive FPP's on global development in one day - go figure. Unfortunately there doesn't seem to be an appetite to really sustain a discussion in even the first one.
posted by MidasMulligan at 11:55 AM on December 17, 2002

personally, i'd put money on the culture argument. i'm amazed at the lack of work ethic here in chile. the hours are horrendous (second only to taiwan), but people do nothing. all day. my impression is that it's cool to make money in some lucky way - you're stupid not to exploit someone else's mistake, for example, and everyone wants to be rich - but to actually take pride in your work, to do something right for no particular (short-term) reason, is almost unkown.

on the other hand, maybe i'm just venting my frustration - it's not easy changing cultures. maybe i simply had it good in the uk; perhaps most people do nothing there too. or i'm just unlucky here. ho hum.
posted by andrew cooke at 12:28 PM on December 17, 2002

I like de Soto's general sweep, but I was glad to read Samuelson's critique, because it points to the cultural factors that underpin the economic development that takes place where few people expect it to do so. What de Soto is proposing isn't so much the recognition of property but almost what you might call the creation of 'virtual property' or 'meta-property': in other words, equity. And that's a liberating thing, but unless it's introduced sensitively (i.e. not like in Zimbabwe) it's also a great way to create a new hierarchy of concentrated property ownership through appropriation and repossession: something that can also happen in the developed world during periods of recession.

If you look at the expansion, say, of the shanties of Rio, you see a fairly primitive model of exchange - labour for labour - that works well, if precariously, to raise the collective standard of living. It also imbues a sense of collective responsibility, meaning that while the city's police usually don't bother patrolling, there are enough impromptu law enforcers to ensure that theft isn't tolerated.

Of course, the big problem in Latin America in the past decade is that economic policy has been top-down dictated by a bunch of neo-liberals. Spot the irony there.

(And we're going to have to send out tapes of 'The Office' to andrew cooke, I think, to show that sitting around doing nothing isn't just a Chilean thing.)
posted by riviera at 12:49 PM on December 17, 2002

If I had a dollar for every thesis explaining why third world countries are stuck in the slow lane on the prosperity highway I'd be richer than a robber baron running a maquiladora in Chihuahua.

I think everyone would agree that the rule of law, including enforceable contracts and a fair judicial system, is necessary prerequisite to growth. It's seems pretty clear too that different cultures have different value systems and so have different reactions to the Washington Consensus. Nothing shocking here.
posted by euphorb at 12:51 PM on December 17, 2002

actually, i'd like to see that film (but hey - two mefi-swap cds just arrived, so i'm busy now!). apologies to offended s americans - it really is very difficult to separate frustration from fact.
posted by andrew cooke at 1:08 PM on December 17, 2002

I read De Soto's book just over a year ago, and I really liked his main thesis. It may not be the ultimate solution to poverty, but I think that following his advice would definitely be a step in the right direction.

You only have to travel to South-America for one day to see that the poor people can be real entrepreneurs, and many of them work hard all day. They try to make a living by selling their crafts on the street or just gum or ice cream. However, since they cannot afford a licence to operate (or because it is too complicated), they are forced to work illegally and are always being chased by the police.

When I lived in Venezuela I often witnessed the police harassing those illegal vendors. It would have made so much more sense for the government to hand out vending permits to these people, so they could pay their sales taxes and not have to be afraid of the police. They are honest people, who are just trying to earn money for their family. Therefore, they should not be treated like criminals
posted by einarorn at 1:18 PM on December 17, 2002

"The revolution of economic development occurs when people go on working, competing, investing, and innovating when they no longer need to be rich" - an Argentine economist in the Samuelson article.

This is perhaps as interesting a thesis as De Soto. *Someone* in a society, whether a king or an entrepreneur, needs to keep working hard even when they can account for their needs in order to develop capital that can be circulated into the local economy (multipliers and all that). While my travel is admittedly limited to Latin America, this might explain part of the slow economic growth in poor regions.

Witness China: Government expenditures led to decent growth - the encouragement of wealth and spending and all the things that Veblen doesn't really like led to 9% growth over the last few years.

The best recipe (there are many) for making nations prosperous are:
- Stable Government (so that companies can get loans from international sources at a decent rate and have less risk involved)
- Strong Legal Systems (to catch the cheaters, who are everywhere)
- Limited Bureaucracy in Establishing Trade/Corps (e.g. De Soto)
- Culture that Encourages Wealth
- Culture that Values Hard Work / Pride in Work

Work isn't everything, but if a whole nation takes no pride in their work, it's going to be tough to grow.
posted by Kevs at 1:45 PM on December 17, 2002

My first thought was "Didn't we do de Soto already?" and the answer turned out to be yes... but it was almost two years ago and there were only two comments, one by the poster, so I'm not going to worry about it. I think de Soto has good ideas but (like so many people with good ideas) weakens his own case by presenting them as Explaining Everything. Amartya Sen does a better job of retaining perspective. (Like Midas, I wish the Sen thread were attracting more comments.)
posted by languagehat at 1:47 PM on December 17, 2002

If I recall correctly, we studied deSoto in an International Development course I took on a lark last year. He came up in a study of formal vs. informal (ie, registered and licencesed vs unlicensed) economies in Peru. I believe he did a proof of concept where he tried to get a license for something as simple as a retail business, and it took 4 lawyers a year to do it....

Ah, the mystery of development.
posted by namespan at 1:55 PM on December 17, 2002

Here's an excellent interview with de Soto from the PBS series Commanding Heights.

As far as culture's impact on development vs. the impact of the legal/economic system (or, as the closet Marxist in me wants to say, the economic substructure) ... compare development in West Germany from 1945 to 1990 with development over the same time period in:

1) East Germany
2) Hong Kong
posted by lbergstr at 2:38 PM on December 17, 2002

Witness China: Government expenditures led to decent growth - the encouragement of wealth and spending and all the things that Veblen doesn't really like led to 9% growth over the last few years.

Actually, according to this article, that may not be true. It claims that China's economic boom is an illusion, largely because they are lacking the strong legal systems to prevent cheating that you mentioned.
posted by homunculus at 4:40 PM on December 17, 2002

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