Hernando de Soto, adviser to former Peruvian President Alberto Fujimori, spoke at a Yale Law School lecture Wednesday afternoon, calling on developing nations to start a property system similar to the one he helped institute in Peru.
In his lecture, “Incorporating the Excluded: A Solution to International Poverty and Terrorism,” de Soto told the audience of about 150 that property ownership is key for nations looking to overcome poverty and suppress terrorism. He said with property ownership comes trust, which is essential to creating a successful democracy.
“The base of all of this is trust and if you don’t have trust, the market economy won’t work,” said de Soto, the president of the Institute for Liberty and Democracy, an international development think tank.
De Soto used a personal example to convey his message. He said when he travels to the United States, people view him suspiciously until he shows his passport. The simple act of displaying his passport, which is merely a piece of paper such as a property deed, allows people to “trust” him, he said.
Under de Soto’s leadership, the ILD designed and ran Peru’s property system in the early 1990s. The system gave property titles to over 1.5 million families and streamlined government procedures to open it up to greater participation by the majority.
“We did everything we had to do,” de Soto said. “We basically find out where the boundaries are — who owns what.”
After initiating the stabilization of Peru’s economy, de Soto is working to design and implement capital generation programs to “empower the poor” in Asia, Latin America and the Middle East. He said property law can lead to a safe democracy.
“Property law actually takes you beyond ownership and puts you in the network of representation,” de Soto said. “I think democracy is a very important part of the whole thing. You can’t get a good system of property rights unless you have participation.”
He said property is “the hidden value that is always in things” and said without property clarification, few things run smoothly in a society. He said property means nothing without a “property right,” which is legally established. He said an absence of property documents will lead to a deficiency of capital, which in turn, equates to no free market.
“Nothing works without property — not even the police,” he said. “If you don’t have property, you can’t have a capitalist system and the question is how many developing countries have property.”
De Soto, who previously served as governor of Peru’s Central Reserve Bank, added that capital is not created by issuing money, but by property.
“The source of money isn’t money, it’s property,” he said.
De Soto ended his lecture with a plea for developing countries to legally include poor citizens in property evaluations.
“The rule of law will not come in until you put the poor in the system,” he said. “The system never recognizes the rights of poor people.”