Hernando de Soto Knows How To Make the Third World Richer than the First

The Peruvian economist says blockchain technologies and social media will transform the planet by securing property rights.


In the spring of 1989, Chinese students occupied Tiananmen Square, erected a replica of the Statue of Liberty, and called for democracy and individual rights. By the fall, people living in East Germany took hammers and chisels to the Berlin Wall, unleashing a wave of revolutions that ultimately led to the collapse of the Soviet Union. It was an auspicious year for human freedom.

Nineteen eighty-nine was also the year that Peruvian economist Hernando de Soto published The Other Path: The Invisible Revolution in The Third World, which radically challenged conventional wisdom about the underlying cause of persistent poverty in the post-colonial landscape. Drawing on his extensive field work with the Peruvian-based think tank the Institute for Liberty and Democracy, de Soto argued that people were pushed into the black market and wider informal economy because governments refused to recognize, document, and promote legal ownership of land and other assets.

Without clear title and the right to transfer property, common farmers understandably refused to invest much in the land they tilled, and they couldn't use it as collateral. This created what de Soto later called "citadels of dead capital" with value that could never be fully accessed.

No one, he argued, would plan for the future if everything they accumulated could just be taken away. As much an activist as an intellectual, De Soto has been called "the world's most important living economist" by former President Bill Clinton. He is credited with changing policy in Peru and elsewhere by pushing governments to create property regimes that are public, transferable, and secure. His latest endeavor is a partnership with Overstock.com founder Patrick Byrne and others to use blockchain technology and social media to create totally public and perfectly transparent records of ownership.

Reason's Nick Gillespie caught up with de Soto in Washington, D.C. in June, where he received the Competitive Enterprise Institute's Julian L. Simon Memorial Award, named for the late free-market economist who believed that "mankind is the ultimate resource."

'Subdivision of the Masses' by Philipp Weigl is licensed under CC BY 4.0

'By Grace' by Podington Bear is licensed under CC BY NC 3.0

'Garden of Untamed Roses (Act II)' by Lloyd Rogers is under Public Domain

Interview edited by Ian Keyser. Open edited by Todd Krainin.

Clips from The Power of the Poor with Hernando de Soto courtesy of Free to Choose Media.

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15 responses to “Hernando de Soto Knows How To Make the Third World Richer than the First

  1. De Soto is awesome. His Mystery of Capital opened my eyes to the importance of capital. Good guy.

    1. Property title for indigenous populations may not do them much good in the long run. In Manitoba Canada around the end of the 19th century, the government gave title to the settlers, mostly Mennonite and Indigenous communities like the Metis. Mennonites, being largely of German extraction, understood European notions like property ownership and were able to husband their assets wisely. The Metis sold their land to the first to come along. They are now not only landless, but lead the nation in AIDS, incarceration, alcoholism etc.

  2. It feels like Latin America, instead of listening to de Soto, instead read “Guide to the Perfect Latin American Idiot” as a how-to manual.

    1. In fairness, there are quite a few countries in Latin America that have been improving, but obviously there are some basket cases there (Venezuela, Nicaragua, Cuba, etc.).

      1. True, but even in the ones that get it (Chile, Columbia, a few others Uruguay ?) it seems ever so fragile and prone to reversal. I visited Santiago a few years back for my job, and couldn’t wait to have a dinner convo about the Chicago Boys etc. The Chileans I ate with were, shall we say, not the slightest bit convinced that free markets were a good thing. I concede my sample size may not be representative, but was still shocked. 15 people at dinner…no takers.

  3. The Peruvian economist says blockchain technologies and social media will transform the planet by securing property rights.

    Umm, about that social media.

  4. Is the answer benevolent dictatorship ala British rule of Hong Kong? Because thats the only option I have faith in.

    1. FILTH – Failed in London try Hong Kong.

    2. Ok Mr. Friedman.

  5. Except for the part where the dictators control the food and toilet paper.

    I can’t wipe my ass with a blockchain.

    1. You can , but it hurts.

  6. Doesnt look like this aprticle will get many comments.

    1. It’s the weekend, everyone went home.

  7. I don’t know what the question is but block chain is somehow the answer.

  8. Sometimes we forget that the processes that we take for granted in the US are entirely missing in other parts of the world: land records and deeds, traffic patterns, waiting peacefully in line, digging wells, standardized screw threads.

    Ownership of land is the foundation for capital formation. If you own your land, you can use it as collateral for a loan for a farm, business, or home. If you have to pay cash for a house that you build on land that may or not be yours, you may well lose it all, and that cash is not available for investment in economic assets.

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