Hernando de Soto on “Legal Empowerment”

Posted on August 17, 2012 | PE

Throughout the developing and post-Soviet world, some four billion people are forced to live and work outside the law. No matter how enterprising or talented they might be, the rules of the game are stacked against them: in too many countries, the laws and institutions for formalizing property and businesses are so burdensome, costly, discriminatory and just plain bad that most people are forced to operate in the shadows of the law.

To be sure, the rule of law is essential to justice, security and protecting human rights; but the law is also the gateway to prosperity. And right now the majority of the world’s people cannot get the legal tools that the elites in their countries and everyone in rich countries take for granted: property rights (a human right, according to the Article 17 of U.N. Declaration of Human Rights), forms to organize their businesses productively and identity devices to expand their markets beyond family and neighbors.  The goal of “legal empowerment” is to help the world’s poor majority gain easy access to those legal tools. That requires persuading governments to reform their legal institutions to make it easier to welcome ordinary people into the mainstream economy where they can protect their assets, use them as collateral to maximize their value and thus lift themselves – and their countries – out of poverty.

The new twist that the legal empowerment movement brings to development is that it is a bottom-up approach:  reforms evolve out of research and analysis on why the legal system fails to serve all the people; researchers look for the legal bottlenecks that make formalizing property and businesses so time-consuming, costly and often impossible; they listen to ordinary people’s explanations about why they resist formality and document how business gets transacted and people protect their assets in the informal economy.  Armed with that information, governments can design reforms to make the legal system more user friendly to people whose encounters with the law have been marked by corruption and fear.  What is truly innovative about legal empowerment as a development tool is that it recognizes that the poor are not the problem for economic development but their enterprise – and property and business assets – are a major part of the solution.

Most important, giving the poor access to the legal tools they need to succeed works.  While the movement to legally empower the poor is relatively recent, my organization, the Institute for Liberty and Democracy (ILD) pioneered formalization reforms in our native Peru between 1982 and 1992, the benefits of which have been documented by independent studies. In addition to arguing for and drafting 184 pieces of legislation to make it easier for ordinary people to get access to property and business rights, we also set up – and then ran – the national agencies for registering immoveable property (Registro Predial) and for formalizing property held in the informal sector (COFOPRI).  According to the latest COFOPRI data, more than 11 million Peruvians have benefitted from those titling programs.

To date, the ILD has assisted 23 countries, such as Egypt, Mexico, Guatemala, Haiti, Tanzania, Ethiopia and Albania, with their reform efforts. In 2005, for example, we helped Tanzania set up a property and business formalization program –known by its Kiswahili acronym, MKURABITA – which has received two awards from the UN for “public service.” Influenced by the ILD’s ideas and work, such countries as Thailand, Ghana, South Africa, and even Russia have benefited over the past decade by formalizing assets held in their shadow economies and thus legally empowering their poor. And thanks to the Commission on Legal Empowerment of the Poor (CLEP), sponsored by the United Nations Development Program (UNDP) and which I had the honor to co-chair with former US Secretary of State Madeleine Albright, the issue is now on the UN’s development agenda, continues to be an integral part of UNDP’s initiatives around the world, and has inspired similar legal empowerment programs by the World Bank and the Open Society Foundation.

Legal empowering the poor is not just the right thing to do as well as a proven strategy for reducing poverty and increasing economic growth, it is also the path to restoring justice to the center of life in developing countries, where too often the majority of people see the law as only the source of their political repression and economic exclusion.  To echo the Legal Empowerment commission’s 2008 final report – “Making the Law Work for Everyone” – “If the law is accepted and understood as offering protection and equality of opportunity, and ensuring access to fair and neutral process, then the law will be revered as a foundation of justice.”

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Hernando de Soto

Founder
Institute for Liberty and Democracy (ILD)

Hernando de Soto is the President of the Institute for Liberty and Democracy headquartered in Lima, Peru, a think tank considered by The Economist as one of the two most important think tanks in the world. Time Magazine has chosen him as one of the five leading Latin American innovators of the century. Forbes has chosen him as one of 15 innovators "who will reinvent your future". Entwicklung und Zusammenarbeit described him as one of the most important development theoreticians of the last millennium. Forbes, Time and The Economist have chosen him on separate occasions as one of the leading innovators in the world. More than 20,000 readers of Prospect and Foreign Policy ranked him as one of the world's top 13 public intellectuals. He has served as President of the Executive Committee of the Copper Exporting Countries Organization, as CEO of Universal Engineering Corporation (one of Europe's largest consulting engineering firms), as a principal of the Swiss Bank Corporation Consultant Group, and also as a governor of Peru's Central Reserve Bank. Mr. de Soto has published several articles and papers on economic policy. He is the author of The Other Path: the Economic Answer to Terrorism, and his seminal work, The Mystery of Capital.

The views expressed on the blog are solely those of the blog post author, and do not necessarily reflect the views of the World Justice Project.