Why do the poor stay poor?

Condescending do-gooders in the industrialized world think that giving handouts to the world's poor can alleviate any grinding poverty. This could hardly be further from the truth.

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 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.
Americans marked off property, courts recognized that property, and the people got deeds that meant everyone knew their property was theirs. They could then buy and sell and borrow against it as they saw fit.
This idea of a deed protecting property seems simple, but it's powerful. Commerce between total strangers wouldn't happen otherwise. It applies to more than just skyscrapers and factories. It applies to stock markets, which only work because of deed-like paperwork that we trust because we have the rule of law.
Is de Soto saying that if the developing world had the rule of law they could become as rich as we are?
"Oh, yes. Of course. But let me tell you, bringing in the rule of law is no easy thing."
De Soto started his work in Peru, as an economic adviser to the president, trying to establish property rights there. He was successful enough that leaders of 23 countries, including Russia, Libya, Egypt, Honduras and the Philippines, now pay him to teach them about property rights. Those leaders at least get that they're doing something wrong.
"They get it easier than a North American," he said, "because the people who brought the rule of law and property rights to the United States (lived) in the 18th and 19th centuries. They were your great-great-great-great-granddaddies."
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.

John Stossel is host of "Stossel" on the Fox Business Network. He's the author of "Give Me a Break" and of "Myth, Lies, and Downright Stupidity." To find out more about John Stossel, visit his site at johnstossel.com

4 comments from readers  

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Jeff O
0 points
I am giving you a 5 for this because you are asking the right question. I have studied this carefully. Property rights are not just a political curiosity. I'm sure you are familiar with Aristotle's three axioms. With that triangle at the center of everything, Property rights is the very next step. Everything that is good is built from that triangle at the center. I believe that all the physical, political, economic problems of the world are caused by government bodies trying to shove something between property rights and the three axioms.

That's it, in a nutshell. All the talk, all the bull, all the terrorism, all the genocide, is all about government bodies trying to occupy that space. They are quite successful, and the natural result occurs. A disconnection between individuals and their property similar to a disconnection between an Individual's shoulder and the rest of his arm. None of us have any property rights at all. There is nothing that we think we own that cannot be taken away by government, nothing.

The first day after we have property rights guaranteed by the constitution and seriously backed up by the law of Realm, things will be forever better.
Joel K
0 points
When I read the title, I was admittedly somewhat myopic, thinking John was going to share his ideas just on Americans who tend to stay poor. Upon reading that his was a world view of all people, it became clear that his explanation is still valid when applying it just to America.

For about a century, certain of our government's elected officials have been working to separate us from our property, through taxation, regulation of the use of the property, and confiscation under the guise of eminent domain. Like watching a hillside break loose and slide down into a river to be washed completely away, in my lifetime I have seen these property rights be modified bit by bit until I see that although I DO have a recognized address, I am in many ways just a renter of the property.

Someone reminded me that if I wanted to demonstrate who really owns a paid-for, deeded home, just fail to pay property taxes. Then you will discover whose rights are greatest. You will see who trumps the owner's "right" to retain the property. It will be foreclosed and liquidated out from under you by government. Yes, we did vote for property taxation, but that was, in my opinion, a surrendering of property rights when that property could be confiscated for failure to pay those property taxes.

In 2010, Congress passed a Health Care Law, nicknamed by some "Obamacare." This is an unconstitutional law saying that we do NOT have a right to keep our after-tax earnings, which is ALSO property, and spend it as we wish. They have mandated in this law that simply by being an American, we MUST engage in commerce, specifically, the purchase of insurance. This has never been done before in this nation's history, and I hope clear heads see the unconstitutionality in this and overturn it, or else it opens the Pandora's Box of this government extrapolating this legislated command of having to buy something to everything we do in our lives. They will tell us what to wear, what to eat, and how to conduct many facets of our lives that we currently feel are our choices to make.

Many with this wish of removing property rights are also working to make us more poor by restricting the creation and use of energy. (Barack Obama: â??Under my plan of Cap and Trade, electricity prices would necessarily skyrocket.â?) Skyrocket? Why would he want to do such a thing? For our own good? It would make us more poor. But we are being made more poor without Cap and Trade, through increased energy taxation and government restrictions on our efforts to tap non-renewable resources in the ground. (Not letting a crisis go to waste, President Obama has restricted drilling in the Gulf of Mexico and continues to resist opening up Anwar in Alaska to drilling)

The poor in America stay poor for myriad reasons, but all seem to come right back to John Stosselâ??s original point, recognizing property. Many poor who give up the struggle to own property become convinced that itâ??s no use struggling to get ahead, and instead rely on government to distribute to them property that has been confiscated from others.

Why work to obtain property of your own when you can be convinced that you somehow have the right to receive the property of others? This aberration is a cancer to Liberty and to the U.S. Constitution.
Very good article - and I enjoyed your show on this topic as well.

When governments take from those who are able to invest capital (and thus create jobs) and give subsistence financial aid to the poor, politicians not only reduce the ability of those who would otherwise be able to invest and create jobs, but they fail to enable the poor to raise themselves out of poverty. A stable Jobs-market (one with stable jobs!) requires diverse investment by those who are seriously responsible for the money invested.

Being more of a libertarian anarchist than a minarchist however, I'd like to point out that the 'rule of law' is only needed as individuals the world round live under a military/police tyranny (even democracy is a form of tyranny). When we stop giving sanction and resources to government to 'protect' us, and take that role upon ourselves either individually or by hiring private security firms, then the rule of Positive property law (government property law) shall no longer be required as people will not fear making a mal-investment in property that may later be confiscated by government.

The rule of Natural 'individual' law shall always be in effect where people of reason consider that their long term best interests are best served by having a civil society.
The idea of property rights have proved a cornerstone for lifting people out of poverty and the emergence of civil societies in modern times. But the article suggests that property rights alone will lift poor nations (and people) out of poverty - introduce property rights and all will be magically wonderful. Terrific story illustrating the value of property rights, but thoroughly misleading if the suggestion is that the other umpteen requirements for creating broad wealth throughout a free society aren't required or will somehow manifest through the introduction of property rights. Consider where the idea of property rights comes from in the first place. That's a good place to start.
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