Skip to comments.Why Do the Poor Stay Poor?
Posted on 12/08/2010 4:19:34 AM PST by Kaslin
Of the 6 billion people on Earth, 2 billion try to survive on a few dollars a day. They don't build businesses, or if they do, they don't expand them. Unlike people in the United States, Europe and Asian countries like Japan, South Korea, Hong Kong, etc., they don't lift themselves out of poverty. Why not? What's the difference between them and us? Hernando de Soto taught me that the biggest difference may be property rights.
I first met de Soto maybe 15 years ago. It was at one of those lunches where people sit around wondering how to end poverty. I go to these things because it bugs me that much of the world hasn't yet figured out what gave us Americans the power to prosper.
I go, but I'm skeptical. There sits de Soto, president of the Institute for Liberty and Democracy in Peru, and he starts pulling pictures out showing slum dwellings built on top of each other. I wondered what they meant.
As de Soto explained: "These pictures show that roughly 4 billion people in the world actually build their homes and own their businesses outside the legal system. ... Because of the lack of rule of law (and) the definition of who owns what, and because they don't have addresses, they can't get credit (for investment loans)."
They don't have addresses?
"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.
"Probably the guy on the first floor, who had the guts to squat and make a deal with somebody from government who decided to look the other way, has got an invisible property right. 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.
Is de Soto saying that if the developing world had the rule of law they could become as rich as we are?
"Oh, yes. Of course. But let me tell you, bringing in the rule of law is no easy thing."
De Soto started his work in Peru, as an economic adviser to the president, trying to establish property rights there. He was successful enough that leaders of 23 countries, including Russia, Libya, Egypt, Honduras and the Philippines, now pay him to teach them about property rights. Those leaders at least get that they're doing something wrong.
"They get it easier than a North American," he said, "because the people who brought the rule of law and property rights to the United States (lived) in the 18th and 19th centuries. They were your great-great-great-great-granddaddies."
De Soto says we've forgotten what made us prosperous. "But (leaders in the developing world) see that they're pot-poor relative to your wealth." They are beginning to grasp the importance of private property.
Let's hope we haven't forgotten what they are beginning to learn.
An old man once told me, "You can't take people out of poverty until you take poverty out of the people."
Sorta like, The fruit of my labor belongs to me. The fruit of my creations belong to me. What a novel idea. I like it.
Thanks for posting this. So simple, but so easily taken for granted - the importance of property rights. We do, indeed, need to be reminded of what our “grandpappy” knew.
Because we pay them for that!!!
First post I’ve read this morning and it has the potential to be the best of the day.
John 12:8 “The poor you will have with you always...”
In the USA poor means you can't afford both Direct TV AND Highspeed internet for the 3 TVs in you 2500 square ft. plus McMansion you are buying and late on the payments because you have two late model SUVs you are also trying to make payments on while paying for your unlimited texting plan on all the famiiy member's cell phones...
However the answer to your question is easy and my Grandpappy answered it many years ago when I asked him the same question:
"Poor people have poor ways..." ---Paul Henry Gettles
If Uncle Sticky Fingers can take all he wants, how can we have property rights?
I’ve said it before on this forum, and I’ll say it again now. In America, you stay poor by being lazy and by doing the same stupid things over and over again. Show up for work drunk and punch my boss? No problem.
De Soto’s is a simple premise. When living in a “culture of corruption” folks don’t see the point in expending effort towards obtaining resources that will simply be taken away from them.
His book should be on the must read shelf of every American. "The Mystery of Capital" is one of the economics books I read faithfully, once a year.
This guy doesn’t seen to understand something about history.
Yes, back when our country was founded and settled people actually owned their private property.
Today, no individual in the United States owns their own property.
Don’t think so? Just fail to pay your property taxes and you will find out who REALLY owns your property!
In this age we simply lease our property from the local government, the state and the federal government depending upon the local tax structure.
Many people forget that if you have “owned” your house for more than 30 years, the monthly bill for property taxes today far exceed the monthly payments you made for those 30 years. So......for 30 years you paid both the bank and state and now that it’s paid off to the bank, you will NEVER finish paying the state.
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.
What came to mind was when Obama took over GM and left the share holders high and dry, and handed the company to the union. He seized property and destroyed the rule of law in one fell swoop.
Good, thought-inspiring article. The very first duty of government is to recognize and protect every individual’s rights.
Tell that to the GM investors...
I wonder if you even read the article. John Stossel is talking mainly about the poor in third world countries not about the poor here, who are not really poor
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