No, not the conquistador Hernando de Soto! This Hernando de Soto is a Peruvian economist who has put forward his ideas about ending poverty in third world and undeveloped countries and encouraging development in those countries. .
In The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, De Soto tackles one of the oldest mysteries: how can societies unlock their human potential? The answer, as he argues, lies in individual rights and a predictable, open legal system. Which the third world poor lack.
But how do you establish such a thing? De Soto’s central idea is that the poor need titles for their often informally owned land and property. If you have legal title, you can get loans, and grow economically with that capital. But obtaining titles to some of these holdings would be fraught with controversy and entanglement….
This book is more of a thought piece and critics have noted De Soto’s lack of empirical data in his work. But it’s an interesting idea and ideas have to start somewhere.
The social and economic environment of many 3rd world nations resembles feudalism, with entrenched economic privileges and near-overt ethnic discrimination. The privileges of the elite are protected by law, which creates economic stagnation for the poor – if they follow the law, which, out of the need for survival, they don’t!
So, an informal economy springs up, with noisy microbuses and illegal markets. For the majority of the people, this is where market clearing prices exist. People live as squatters, oftentimes in rather nice houses.
Trouble is, you are outside the law and you do not have formal title to property or legal protection.
De Soto argues that the fait accompli of these markets and businesses should be recognized formally and given protection of the law. This action unlocks capital (via loans), reduces crime, and brings people psychologically into the community.
At the time, Peru was fighting a Maoist insurgency in The Shining Path (hence the title of this book).