Hernando De Soto Interview

(Page 2 of 3)

De Soto: Yes. If we were talking about 5 percent, 10 percent, then you and I might leisurely converse about carrying out pequena reforma [a little agrarian reform], about giving to the informals land parcels in the jungle, or in the desert, etc. But when we're talking about 90 percent of the Peruvian land that produces agricultural goods which the population buys, it s too late. You can compare this situation with the Gold Rush in California, or with the "pre-emption laws," which were the "squatter laws" in the United States in the 19th century. The country has already been "taken."

In our case, the informals who occupy the lands have reached working agreements amongst themselves. If you go and try to expropriate one of these people and send in troops to do so, your soldiers will come back in boxes. There is no way to touch these entrepreneurs. They get together and defend their private property with guns. All this indicates that there already is among them a de-facto norm of private property.

Reason: I have read that they have also killed Shining Path guerrillas. Does holding private property, even on an informal level, motivate the owners to oppose the anti-private-property ideology of groups like Shining Path or the Cuban-inspired and backed Tupac Amaru?

De Soto: Of course. But there is a reason that makes their political allegiance less easily predictable. The reason is that some communists, at least on this subject, have thought the matter through very well. Shining Path, in some cases, though not too efficiently, has begun to do what Ho Chi Minh did in Vietnam, namely to provide a "service" to the informal owners by giving them title to their property.

Reason: That is what your institute wants to do.

De Soto: Yes. Mao learned better than Chiang Kaishek the lessons of the "home study," and Ho was a follower of Mao. The Americans also learned: When they occupied Japan, Taiwan, and South Korea they titled and registered the poor landowners. The American military government even created organizations like the Joint Commission on Rural Reconstruction in Taiwan. The Americans contacted the informal sector directly. They didn't ask the official registrar services who owned what but instead asked the "land councils," which were the informal entrepreneurial associations. The Americans were right in supporting the informal property owners. Private property constitutes a formidable bastion against socialism.

Unfortunately, the Americans forgot all about that in Vietnam. Instead, they proceeded to implement "agrarian reform." They granted authority to the South Vietnamese government to parcel out the land according to a system of central planning and clarification of property ownership. Ho Chi Minh did rather what we are trying to do: to title the existing system.

If a government does not give to everyone the impression that it is really trying to improve things, it opens the possibility for the left to protest in the name of all the discontented people. One main reason why the informal sector has not become formal is that from Indonesia to Brazil, 90 percent of the informal lands are not titled and registered. This is a generalized phenomenon in the so-called Third World. And it has many consequences.

One is that the price of land drops because it is not legally registered as private property. In Peru, when we title these lands, the market value doubles the same day. After 10 years, it goes up nine times. The principal reason is that it is easier to trade the land once the property rights are clear and established.

Another consequence is credit worthiness. Everyone talks about creating credit systems for the less privileged. In the United States, up to 70 percent of starting businesses need credit, and they get it on the basis of some kind of real-property collateral. If you have a situation in which 90 percent of Peruvians in a particular sector of the economy do not have title to their property, they cannot get credit. Without clearly defined property rights, you can't even use the police to correct a problem such as coca production because you do not know who owns the land where the coca grows. Not having property rights means not having access to the property in all sorts of ways.

The question is: How is it that so many governments, from Suharto's in Indonesia to Fujimori's in Peru, have wanted to title these people and have not been able to do so effectively? One reason is that none of the state systems in Asia or Latin America can gather proof of informal titles. In Peru, the informals have means of proving property ownership to each other which are not the same means developed by the Spanish legal system. The informals have their own papers, their own forms of agreements, and their own systems of registration, all of which are very clearly stated in the maps which they use for their own informal business transactions.

If you take a walk through the countryside, from Indonesia to Peru, and you walk by field after field--in each field a different dog is going to bark at you. Even dogs know what private property is all about. The only one who does not know it is the government. The issue is that there exists a "common law" and an "informal law" which the Latin American formal legal system does not know how to recognize.

We have been working for eight years and have created a system that recognizes it. And we have been making it work in Peru. And we are about to finish titling 120,000 informal properties in Peru. We are now working on a report of our efforts: "Transforming Poor People's Land into Wealth," or "The Only System for the Titling and Registration of Informal Property." We are already moving from the theory of private ownership to how to create It.

Reason: Some intellectual circles in the United States believe that Shining Path has much popular support in spite of its thousands of murders and sabotages of the Peruvian economy.

De Soto: Undoubtedly some Peruvians, many of them university students and faculty, sympathize with Shining Path. But it is evident from the way Peruvians vote in elections in which Shining Path has issued precise in- structions not to vote, that the vast majority of Peruvians do not. Some people give tangential support to Shining Path, not with the objective of having Shining Path eventually govern, but of putting pressure on the government to change its attitude toward them. No one estimates that Shining Path has troops in excess of 5,000 in a country of 23 million. There are far stronger guerrilla movements in other parts of the world. When ex-professor Abimail Guzman [captured leader of Shining Path] spoke on television from his jail (he was allowed to speak for 15 to 20 minutes, uninterrupted, to both the Peruvian and the world population), his convoluted speech might have been understood by a few specialists on China politics, but aside from them, this man had nothing to communicate.

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