Solving poverty through cooperation

By Emily Senger

From sharing crayons, to playing together, cooperation is one of the earliest lessons children learn in school, and according to world-renowned Peruvian economist Hernando de Soto, learning to cooperate is part of the key to economic prosperity in the developing world.

De Soto, who was nominated for the Nobel Prize in economics in 2002, addressed a packed crowd at the University of Calgary Tues., Oct. 3 to argue that developing countries lack adequate laws to foster the small-group cooperation necessary for economic development.

“Cooperation is only possible if you have good laws,” said de Soto. “Westerners have been exporting good laws for many hundreds of years now. Practically all of us in developing countries have photocopied your laws.”

Photocopying laws directly from the West means liberal democracy has become the only possible form of government since the fall of the Soviet Union in 1989. But, when this system doesn’t work for them, people in developing countries begin to resent the West, argued de Soto.

“As we open newspapers we can see this system the West has fostered-people that don’t like it are coming back with a vengeance,” said de Soto.

“In the Middle East, in Latin America, you heard it at the UN,” he said, referring to Iranian President Mahmoud Ahmadinejad ‘s verbal attack of American President George W. Bush Sept. 20 during a speech to the United Nations General Assembly.

Though de Soto did not have a single solution to the resentment of western systems, he suggested markets in developing nations should be examined through what he called a “microscope,” rather than a “telescope.”

De Soto noted that while the West fosters laws which allow people to conduct business, much of the developing world does not.

“The developing world lacks certain aspects of the laws you have,” he said. “That is, facilitative law that binds things together and allows people to cooperate.”

De Soto cited the example of his passport, a single document, which provides a legally-recognized identity, and allows him to travel to and do business with other countries. In addition to lacking passports, de Soto noted the majority of people in developing countries lack equally important land titles.

“What happens if you don’t have a proper title?” he asked. “It means you don’t have a legal address. Ninety-five per cent of people in developing countries don’t have legal addresses.”

Without adequate laws, said de Soto, developing countries are relegated to an economic system of patronage, rather than one of merit, and this system will

never result in economic prosperity.

“Law allows you to determine the truth,” he said. “When you can follow the truth you can cooperate and when you can cooperate you can be rich.”

De Soto is the president and founder of the Institute for Liberty and Democracy, an orginization which designs and implements programs to empower the poor in developing nations.

He is also the author of two books: The Other Path and The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else.

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