It really bugs me that much of the world hasn't yet figured out what gave Americans and other western countries the power to prosper. Foolish ideas about government planning and wealth redistribution hold much of the world back. And of course those bad ideas also still thrive in Congress.
Economic freedom is what allows prosperity. Peruvian economist Hernando de Soto taught me that economic freedom is more than an absence of bad regulation. It includes the power of property rights and I focus this week's syndicated column on his lesson. I first met de Soto at one of those lunches where people sit around wondering how to end poverty, and he starts pulling pictures out showing slum dwellings built on top of each other. He explained:
"These pictures show that roughly 4 billion people in the world actually build their homes and own their businesses outside the legal system. ... Because of the lack of rule of law (and) the definition of who owns what, and because they don't have addresses, they can't get credit (for investment loans)."
They don't have addresses?
"To get an address, somebody's got to recognize that that's where you live. That means ... you've a got mailing address. ... When you make a deal with someone, you can be identified. But until property is defined by law, people can't ... specialize and create wealth. The day they get title (is) the day that the businesses in their homes, the sewing machines, the cotton gins, the car repair shop finally gets recognized. They can start expanding."
That's the road to prosperity. But first they need to be recognized by someone in local authority who says, "This is yours." They need the rule of law. But many places in the developing world barely have law. So enterprising people take a risk. They work a deal with the guy on the first floor, and they build their house on the second floor.
"Probably the guy on the first floor, who had the guts to squat and make a deal with somebody from government who decided to look the other way, has got an invisible property right. It's not very different from when you Americans started going west, (but) Americans at that time were absolutely conscious of what the rule of law was about," de Soto said.
Full column here.