The Importance Of Property Rights And The Rule Of Law

I ran across this article by John Stossel that discusses the rule of law and the importance of property rights in the development of wealth.

Excerpt from John Stossel's: Why Do The Poor Stay Poor?: Of the 6 billion people on Earth, 2 billion try to survive on a few dollars a day. They don't build businesses, or if they do, they don't expand them. Unlike people in the United States, Europe and Asian countries like Japan, South Korea, Hong Kong, etc., they don't lift themselves out of poverty. Why not? What's the difference between them and us? Hernando de Soto taught me that the biggest difference may be property rights.

I first met de Soto maybe 15 years ago. It was at one of those lunches where people sit around wondering how to end poverty. I go to these things because it bugs me that much of the world hasn't yet figured out what gave us Americans the power to prosper.

I go, but I'm skeptical. There sits de Soto, president of the Institute for Liberty and Democracy in Peru, and he starts pulling pictures out showing slum dwellings built on top of each other. I wondered what they meant.

As de Soto 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 got a 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.

De Soto says we've forgotten what made us prosperous. "But (leaders in the developing world) see that they're pot-poor relative to your wealth." They are beginning to grasp the importance of private property.

Let's hope we haven't forgotten what they are beginning to learn.

Read Stossel's full article here.

The CATO Institute's version of Hernando de Soto's Biography ends with this statement:

Delivering formal property rights to the poor can bring them out of the sway of demagogues and into the extended order of the modern global economy. "Are we going to make [capitalism] inclusive and start breaking the monopoly of the left on the poor and showing that the system can be geared to them as well?" That's de Soto's challenge and his life's work.

Liberalism has been eroding our rights for decades, but the Tea Party revolution has given new life to our founding fathers belief in individual freedom and property rights. Perhaps it is not too late too re-invigorate our economy and the American dream for all.