As discussed in Part 1 of this series, Hernando De Soto of Peru believes a lack of property rights is holding back the development of the world. The second part of this two-part series examines De Soto the economist. Now comes De Soto. De Soto says this about poor people in the developing world: They do have assets, as a matter of fact, trillions of dollars, but theyre not paper rights in a property rights system, so their value cannot travel and actually insert itself into a diversified market. In the United States, a familys home is the main source of small business capital. De Soto says the main problem is law and that you cannot easily import law to a given place. The reason for that is the traditional informal property rights already have their own set of rules justified by local conditions. To solve this problem of local property rights, laws have to be drafted recognizing traditional property codes. When that happens, transition to a formal property system is relatively painless. When that does not happen, you get revolt. In Vietnam, neither the government of the South nor the American government recognized the traditional property rights system. The North Vietnamese promised to respect those rights and got the support of the peasants in the countryside. In part, we lost the war because we failed in what should have been our strong suitrespect for private property. Of course, there was more to it than thatwe did respect the property of the formal land holders but not the property of the squatters actually working the land. De Soto says: The law is something that you discover and then you systematize to make it standard so that everybody can participate in a larger market. And a division of labor, which is what creates prosperity, is then possible. He goes on to say that this process of legalization of property is going on all over the world, but it is going on very slowly. His effort is to identify the essential wealth generation processes and implement them as quickly as possible. I think the implications for Iraq are obvious. We must find out the property system in effect in various sections of the country, codify them, and try to harmonize them. The rights of squatters who have made improvements on the land must be respected while the rights of the legal land owners must be given some consideration. Which brings me to development. The creative power of individuals is never unleashed from top-down investment. What you get from that is theft and corruption. It is released by bottom-up economic development, which is why Grameen Banks (bottom-up) do more for developing countries than the World Bank (top-down). If we can get property working, toothere is more money untapped in traditional property rights than has ever been invested in the Third World for the last 100 yearswe can get not only small investments working but middle-size investments as well, including faster growth and fewer poor people from property. Some interviews with De Soto and reviews of his books can be found here: http://reason.com/DeSoto.shtml. Several De Soto quotes above were from here: http://www.pbs.org/newshour/conversation/july-dec00/soto_10-17.html; http://minneapolisfed.org/pubs/region/01-06/desoto.cfm; http://www.financialsense.com/Experts/2001/DeSoto.htm; http://www.oia.org/lf-bookrev-aug.htm. M. Simon is an industrial controls engineer for Space-Time Productions and a Free Market Green(c) M. Simon – All rights reserved. Permission granted for one-time use in a single periodical. Concurrent publication on the periodicals Web site is also granted.