Citadels of Dead Capital

What the Third World must learn from U.S. history

Hernando de Soto from the May 2001 issue

(Page 4 of 4)

The American experience is very much like what is going on today in the Third World and the formerly communist countries: The official law has not been able to keep up with popular initiative, and government has lost control. Third Worlders are organized in modern-day claim clubs, and their governments have begun to give them preemption rights.

They’ve done a lot else as well, not all of it consistent with the rest. In August 1999, Bangladeshi authorities demolished 50,000 shanties in the capital city of Dhaka. Where demolition is impossible, governments have built schools and sidewalks for the squatters. At the same time, they have supported microfinance programs to assist the sweatshops that are transforming residential areas into industrial zones throughout the world. They have improved the stalls of sidewalk vendors, removed hordes of drifters from their city squares and planted flowers instead, and tightened construction codes to prevent buildings from collapsing as they did in Turkey during the 1999 earthquake. They have tried to force the independent jitneys and shabby taxis that glut traffic to meet minimum safety standards; they are cracking down on theft of water and electricity, and are trying to enforce patents and copyrights. They have arrested, jailed, and executed gangsters and drug traffickers. They have tightened security measures to control the influence of extreme political sects among the uprooted multitudes.

What they have not done is craft a formal legal system that recognizes those multitudes’ property rights and lets them create capital. In other words, they have not learned the lessons of U.S. history. Until they do, they’ll remain citadels of dead capital.