One man s magnificent mission to free millions from poverty

Core values by John Blundell in The Business

WHO is the person doing most to help fellow human beings in the world today? Most of us would probably plump for Microsoft founder Bill Gates. His philanthropic efforts – now reinforced by Warren Buffett’s tens of billions – are not to be diminished. I salute their efforts, but my hero is Hernando De Soto. He is nominally a Peruvian economist, but he is far more than that.

De Soto offers fresh insights into why so much of humanity is locked into a permanent cycle of poverty and deprivation. His answers are both subtle and elusive yet crashingly obvious. The poor do not have property rights. I do not just mean real estate – fields or homes – though they matter.

I had the good fortune to dine with de Soto, celebrating our 20-year friendship, as he flitted through London recently. We chuckled mightily recalling his last talk at the Institute of Economic Affairs. The first question from the floor went as follows: “If you had 15 minutes with President Putin what would you say?” His booming reply delivered deadpan was: “When I had three hours with President Putin last week I said . . . ”

It is rare to encounter a man so totally dedicated to lifting the penniless of the favelas and shanty towns of Latin America, Africa and Asia with the insight that without property rights people cannot rise.

We in the West take them for granted. I do not mean a three or four-bedroomed home. I mean that tissue of contractible and tradeable relationships we all enjoy. To hold assets in a pension fund is a property right. To own equities in companies is another. At times we all borrow money to differing degrees. To buy a home we need a mortgage. To starting a business we need a source of credit. All this is obvious and unexceptional to us. Yet, here is de Soto’s crucial realisation – in the Third World the masses have little or no property rights. They are excluded. They cannot participate. They are credit-starved.

At first this seems to be a diagnosis for despair. It is further bleak, as de Soto argues, that most overseas aid goes to nourish the governments of flawed or corrupt regimes that are the very agencies suppressing their peoples. Aid seems to have only the most marginal effects in lifting people from poverty.

De Soto’s quip about meeting President Putin is no vanity. It is the way he operates. Rather than drift in endless consultative committees and middle ranking bureaucracies that only defer decisions, de Soto only meets heads of state and he has some 30 who consult him.

He says they have the levers of power if they want to act. They often lack the mental equipment or the right ideas as too many, educated at Ivy League Schools in the US or my own London School of Economics, were inculcated with the ideas of Socialism – that prosperity is created by a bloated State.

However, De Soto detects a sea change. He reports that many national leaders have wearied of the remorseless poverty and corruption sponsored by past aid programmes. They see high hopes in the de Soto formula.

He shared with me the report he had written for Tanzania. The country has been deeply impoverished since independence as its leadership applied socialist ideas to the ruination of its people. The de Soto team is just short of a thousand people in the country. They watch to see how people get around the bungling bureaucracy of mighty departments of state down to petty officials with bribery demands.

What I found encouraging is de Soto’s team of analysts found no shortage of informal degrees of collaboration and exchange. If they have a dispute with a neighbour or over some trade – over a bullock or a cart – nobody goes to an official court. They know they are far too slow and expensive and not immune from bribery. They go to a wise man or a tribal elder, or a preacher or to a person pre-agreed as an arbiter. Every cattle market has its own unofficial judge in situ. It seems to me the Tanzanian civil dispute procedures are infinitely more accomplished than Her Majesty’s bewigged system here.

Also Tanzanians are busy and bustling with their wares. What they lack are the tools we use and rarely give a second thought to – phones and faxes and e-mails. Tanzania has these modern facilities but only the wealthy and well connected. But to my amazement – and joy – the arrival of the mobile phone, initially only an executive toy for the affluent few, has become an agent of liberation for the poorest – and the most geographically remote.

Mobiles are linking people who previously could not communicate. A chat reveals the current price of coffee or beef in Dar Es Salaam. State procurement agencies – a monstrous post colonial idea – can be avoided. Markets can work again. And there is more. The credits bought for these mobiles serve as a sort of money system. In a society where no bank would look twice at Masai herdsmen, they can trade phone cards.

De Soto’s inventory of the ingenuity of the Tanzanians reveals, happily, they are not really as poor as Western officials and their local informants proclaim them to be. Look beneath the surface and there is a rich texture of exchange and creativity.

The de Soto view does not shrug off the war-torn peoples or the places where drought has wiped out all food sources. He is talking about the everyday tools of civil society that we use but from which most in the Third World are barred.

We in the West evolved more by accident than design the instruments that lifted our societies. If capitalism is too blunt a word let us define it as the rule of law, honest money and freedom to exchange. They are there in the Third World – but beneath the surface. De Soto argues that General MacArthur, conqueror of Japan, liberated its people after WWII by ruling all property was not the asset of the Emperor but the property of millions of tiny peasant farmers. He created freeholds. He famously barked at his junior officers that “tenant farmer is a phrase I never want to hear again in this office”. Japan accelerated into its decades of sparkling economic success because property had been both assured – and dispersed. This was liberating. This is what de Soto is now trying to do around the world.

It is de Soto’s magnificent mission to free millions of people by cajoling governments to loosen their overtight regulations and restrictive rules. The townships of humble houses put together from corrugated iron, cardboard and other modern items of debris may look very modest to us. Yet they represent a morsel of property to their occupants and property represents dignity, safety and endless minor improvements.

De Soto’s evangelism makes him the single individual who, in my view, is doing most good in the world today.

John Blundell is director general of the Institute of Economic Affairs. He recommends Hernando de Soto’s The Mystery of Capital.

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