De Soto’s idea a lifeline for Third World countries

Freedom Newspapers

Congratulations to Hernando de Soto for winning this year’s Friedman Prize for Liberty, which the Cato Institute gives for outstanding achievement advancing freedom throughout the world. The prize is named after Nobel economics prize laureate Milton Friedman and was given at a May 6 ceremony in San Francisco.
A Peru native, de Soto was dismayed that his country was so poor while other countries were wealthy. He brushed aside the trendy Marxist analyses of colonialism and capitalist oppression and noticed some important differences between rich and poor lands: In Peru, property was not secure and just starting a business meant wading through oceans of red tape. By contrast, in prosperous countries — such as Hong Kong, Chile after Gen. Pinochet’s economic reforms and the United States — property was secure and starting and running a business was relatively hassle-free.
De Soto’s observations went into his 1986 book, “The Other Path.” The title was a play on the name of Peru’s Marxist/Maoist Shining Path guerrillas.
De Soto found that the only way for Third World countries to get out of poverty was by embracing free markets and property rights that help the poor and the middle class. His insight was that high taxes and bureaucratic red tape supposedly intended to “protect” the masses from the wealthy actually do the opposite.
The wealthy can invest their money abroad if the political system is unstable, but the small-business owner or property holder must stay at home and work with the system. If average people’s property is secure and they can keep a great share of the proceeds of their labor, then capital will accumulate in the community (instead of being sent to foreign banks), businesses will prosper and everybody will be better off.
His advice is being accepted more and more in developing countries around the world, and he has consulted with many leaders, including Philippine presidents Joseph Estrada and Gloria Arroyo and Mexican President Vicente Fox. (Alas, Fox has been pushing tax increases instead of tax cuts and Mexico still maintains a high capital-gains tax on most small businesses.)
Cato Institute President Ed Crane said of de Soto, “In his books he has made new and important contributions to our understanding of liberty. And he has worked with dedication and effectiveness to bring liberty about, on the ground, in places where it is most needed. Everyone talks about helping the world’s poor. This is a man who figured out how to do it. His work exemplifies the spirit and practice of liberty.”
We’ve admired de Soto for years and hope his ideas continue to spread and replace the anti-market ideas of Marx and Keynes. The next prize for de Soto should be the Nobel.