The 2004 Sir John Crawford Memorial Lecture
The Mystery of Capital: Role of Poverty Rights in Creating Wealth and Alleviating Poverty

by
Hernando de Soto
Founder and President, Institute for Liberty and Democracy (ILD), Lima, Peru

"In the fight against poverty, property rights matter" was the central thesis of Hernando de Soto's stimulating lecture delivered to a capacity crowd at the Hotel Sheraton Centro Histórico in Mexico City.

To make his case, he brought along an apple, ordered from room service, paid for in cash, and showed the receipt that certified the transaction. His point was simple. The receipt conferred on him ownership of the apple, opening up a wide array of options such as the freedom to sell, lease, pledge, or even consume the apple. Because poor people lack such precisely-defined "ownership" of assets, they get locked out of two great benefits-private property rights and the rule of-that are common in industrialized societies.

Credit, he explained, is drawn from the Latin "credere" which is "I believe in you, and I believe in you because you have something to lose. And if you have nothing to lose, you have no credit." For poor people, including millions of farmers who lack tenancy rights, the lack of credit translates into a gloomy future with no possibility of breaking free from the viselike grip of poverty. The answer, he said, lies in empowering poor people with access to finance and ensuring enforceable property rights.

Painting a broad canvas, the speaker noted that creation of wealth depends on an interplay between people, institutions, laws, and trust. Increasing productivity, whether in manufacturing or farming sector, depends on people being 'inside' the legal system, and therefore having access to efficient markets, just laws, transparency, accountability, and enforceable property rights. All these are key to creating wealth. Poor people lack both the legal capacity to organize the division of labor essential for increasing productivity as well as the legal capacity to represent the value of their assets. In essence, these are the people who run the risk of being bypassed by the benefits of globalization.

Hernando de Soto has been called a "Hero of Third World Capitalism" for being a tireless advocate on behalf of the world's poor people. "The Economist" has hailed de Soto's book "The Mystery of Capital" as "the most intelligent book yet written about the current challenge of establishing capitalism in the developing world." His earlier book, "The Silent Path" published in 1989 has also received rave reviews. The raison d'ętre of the Crawford Lecture is simple-it seeks to challenge all those involved in agricultural research and development to think outside the proverbial box. Hernando de Soto's talk fulfilled that criterion admirably.