- The Washington Times - Tuesday, November 1, 2005

Even the United Nations on occasion does something right. So it’s a shame the media and the public, understandably fixated at the time on Hurricane Katrina’s impact on the U.S. Gulf Coast, missed it.

The “it” was the mid-September announcement that the United Nations was establishing a new commission that will focus on the legal hurdles people in the underdeveloped world face as they try to work their way out of poverty.

Institutions like the United Nations typically create commissions as a substitute for actually doing something about a problem. Thanks to its leadership — former U.S. Secretary of State Madeleine Albright and Peruvian economist Hernando De Soto — the new “High Level Commission on Legal Empowerment of the Poor” might actually accomplish some good.

Mrs. Albright, of course, gives the commission political credibility. Her co-chairman, however, gives it intellectual authority, because nobody in the world has a better working knowledge of the problem the commission will tackle: the fact that you can’t fight poverty without legal systems that recognize and protect the property rights of the poor.

Founder and director of the Institute for Liberty and Democracy (ILD) in Lima, Peru, and author of the landmark 1986 book on property rights, “The Other Path,” Mr. De Soto has demonstrated to policy makers worldwide that an organized “legal property system” is the single most important factor — the “hidden architecture” or “missing link,” he calls it — that will determine whether individual entrepreneurs and national economies have even a chance of achieving success.

In capitalist economies, Mr. De Soto notes, business transactions are made possible by widely accepted rules governing legally defined property. Such concepts often don’t exist in the developing world, where existing legal systems (or the lack thereof) may not recognize the assets and transactions of some 70 percent of the population.

“Unlike assets in Western nations,” the ILD notes, “real estate and equipment in the developing and former Soviet world act only as physical shelter or tools; they cannot be leveraged to produce additional wealth.” In effect, he argues, they are “dead capital,” leaving large numbers of people virtually cut off from the economy.

The reform program he developed for his native Peru resulted in the legalization of an estimated 300,000 enterprises that previously operated off-the-books. When political leaders in other countries saw how the Peruvian reforms moved some 560,000 workers from the underground economy to the legal economy and generated some $300 million a year in new tax revenues, they started to understand.

That’s why Mr. De Soto’s initial work in a country always focuses on the assets of those people who earn their livelihoods outside the formal economy. His recent work in Egypt, for example — one of the countries offering financial support for the new commission — found that the poor had accumulated “no less than” $241 billion in real-estate assets since the end of World War II, an amount “55 times greater than all of Egypt’s recorded foreign investment.”

This finding led Egypt to enlist Mr. De Soto and the ILD to direct the country’s property rights reform program. He has done the same in some 20 other countries, including such unlikely places as Honduras, Tanzania and Haiti.

With the poor owning — in fact, if not under their local laws — an estimated $9.3 trillion in “unregistered” assets worldwide, the near equivalent of the U.S. gross national product, property rights reform should be a priority in every poor country.

The new High Level Commission on Legal Empowerment of the Poor should give this reform effort a needed boost.

As Mrs. Albright observed, “While many worthy initiatives are under way to fight global poverty, our commission will focus on a unique and overlooked aspect of the problem: the inexorable link between pervasive poverty and the absence of legal protections for the poor.”

The fact that the United Nations chose Hernando De Soto to co-chair the effort substantially increases the likelihood of success.

Alejandro Chafuen is president of the Atlas Economic Research Foundation in Arlington, Va.

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