(2004-06-18) Desoto Advancing Liberty

Hernando De Soto speech on "Advancing Liberty". There are 4 billion people who are poor, who are Entrepreneur-s, and who are completely excluded from the global economy and even the national economy. Why? Because of lack of law.

• And countries that were in their majority rural when we were talking with former Secretary of State George Shultz (sitting in the audience), today are urban. And these people have moved to become businessmen through the Division Of Labor that cities offer. (Urbanization)

• In other words, what occurred in the West in the 19th century is now occurring in developing countries. "Oliver Twist" has come to town. But Oliver Twist and his friends haven't yet been recognized by international financial institutions or by most bilateral programs from developed countries. And even worse than that, he hasn't really been recognized by most of the people in developing countries who think that Street Vendor-s are a problem, that illegal manufacturing creates faulty products. But the truth is, the Industrial Revolution has come in.

• After the Second World War (World War II), a plan was implemented that was begun in Honolulu in 1942, under Douglas Mac Arthur's supervision. His team, also under Wolf Ladejinsky, planned the postwar regime. Like Mao Zedong in China, they basically destroyed the Feudalism system, which they thought was at the heart of all the evil and the problems of Japanese expansionism within Asia. But unlike postwar China, they created the basis of a widespread Private Property system... I got a grant and managed to bring together in Japan the seven surviving octogenarians who had designed the Japanese reform through the instigation of the United States. These men told us how they had created the property system and so built a modern nation.

• In other words most Americans talk to Westernized Third World-ers like myself. But most of us have Vested Interest-s. We're not really Capitalist-s open to competition, we are Mercantilist-s looking for privileges. Still, we have graduated from your schools and we talk your language. But the really interesting guys are the real Entrepreneur-s. However, they are poor and small and you haven't made contact with them. And this is a dangerous vacuum, because vacuums are always filled by somebody. Yet, you do have an enormous number of people who believe in the Mark Et system and you can see this by their actions. They have to be reached if you are to help them build a modern nation. And if you don't reach them, somebody else will get there (Dealing With Terrorism).

• We have found out that roughly 80 percent of the Mexican population - is in the Extra-Legal economy...They have read our stuff and said, we don't want Sovereignty anymore; we want Property Rights. Sovereignty is something all people violate, from the white man to the black man. Property rights are much more solid, because they're based on a Social Contract rooted in the reciprocity of one person's interests to another's, not one nation to another.

• And when President Mkapa invited us to Tanzania, where we're also beginning work, we interviewed his tribes and found that among the Masai there were 800,000 enterprises. So if anybody comes along and tells you, it's either the tribe (Tribalism) or it's the enterprise, they are wrong. The real split is the choice between the tribes or government. The enterprise is already born, it's already in place.

• So what we are trying to do is demonstrate that you can break the Iron Triangle by showing political leaders that they have an enormous Constituency For Change to a market economy. But that a Market Economy is essentially a legal construction and not all those physical things - roads, bridges, airports and ports - that the West seems to want to give them (International Development). And this legal construct begins through Property Rights.

• If you look at the laws of a nation, they all look equal; family law, international public law, international private law, criminal law, and then there is Property Law. But if you're poor all you've got basically is a piece of land and a place where you work, whether you're street vending or milking a cow. There is nothing more precious for you than your property. But to preserve it without the law you've got to satisfy tribal chiefs, crooked cops, corrupt politicians, bad judges, your difficult neighbors and even the terrorists. But if the law comes in and says those rights are now recognized, not only by your neighbors but by the police and the whole nation, now you can trade them nationally and even internationally and the law will protect you. Then that poor person becomes interested in the Rule Of Law. Then it means something. Then he begins to understand it. For instance, what happens if they have a dispute and go to court? Well, then they want a good judiciary system (Judicial Branch). And eventually they will realize that the laws can be changed so they'll say, hey, who makes the laws? And they will care about the PoliticalProcess (Legislative Branch).

• Anybody who is a manager knows that how you combine resources and whom you employ to work is important. But over 4 billion people don't have Property Rights over their assets so they cannot get credit and use collateral and they also cannot create a firm (Theory Of The Firm) with which they can divide labor. This means they can't efficiently organize inputs or manage the creation of the outputs. They can't separate the assets of shareholders from the assets of creditors and from the assets of the workers. Therefore, of course, with only a few poorly organized people per enterprise, no matter how much Micro Credit (MicroLending) you throw to them, they will never become efficient and so never be able to compete in the global marketplace. They're only going to become prosperous when the law comes into place.