One of the governing narratives about poverty is that the world’s poor are dominated by markets and that justice requires they be protected from competition and the ups and downs of a market economy. This is widely promoted by everyone from development professionals to religious leaders, but this perhaps one of clearest cases of getting something almost entirely wrong. The poor are not dominated by markets. They are excluded from markets.
In the attempts to help the poor, we provide food and clothes, and give aid for health, education and infrastructure, but we often miss what is most needed. Every several years there is a new global call to eradicate poverty from the latest United Nations plan or Christian leaders saying that if North American Christians were more generous we could raise $80 some billion and end extreme poverty forever.
No we couldn’t, because poor people are not poor simply because they lack stuff. Poor people are poor, primarily because they lack the institutions of justice that enable them to create prosperity for their own families and communities.
We tend to miss what the poor really need because we focus on the immediate and tangible things like infrastructure, health care, and education. I am not suggesting these things are unimportant or unnecessary, but they are secondary to more fundamental concerns of justice— things like clear title to land, access to justice in the courts, freedom of association and the ability to participate and be entrepreneurial in the formal economy. These are the foundational conditions for development and the creation of wealth.
Much development policy is rooted in a fallacy of correlation and causality: i.e., that because wealthy nations have solid infrastructure, widespread education and healthcare, we need to provide these things to developing countries so that they too will become wealthy. But as important as they are, these things are the result of wealth before they become of the cause of it.
One of the leaders in drawing our attention to the core institutions of the justice for the poor is the Peruvian economist Hernando De Soto. He is the president of the Institute for Liberty and Democracy, and the author of The Other Path and The Mystery of Capital.
As DeSoto and his team worked with poor communities, they began to ask not what causes poverty, but what poor people need in order to create prosperity. They also asked why entrepreneurs emerge in certain places like America or Europe but not throughout the developing world. The problem was not a shortage of entrepreneurs. As De Soto notes, the developing world is “teeming with entrepreneurs.” What is lacking was not uniquely gifted individuals or government policies that encourage entrepreneurship but what he called “the mystery of capital,” things so fundamental that we take them for granted. De Soto especially focused upon the issues of clear title to land and ability to start and register a business without undue burden. These institutions of justice may not sound remarkable and they are not the things that inspire celebrity campaigns or the imaginations of policymakers and economists who see almost every problem as a case for intervention, but they are essential for economic development and human flourishing.
In many countries in the developing world over 50 percent of the land has no clear title. If you don’t know who owns the land that you are living on, then you don’t have incentives to build it up because it can be taken away from you—especially if you are a widow or very poor. De Soto also demonstrated that clear title to land creates a whole network of ownership and relationships that allow people to get access to capital and create space and opportunity to exercise their entrepreneurial gifts.
Private property is only one of the mysteries of capital. De Soto also documented another great force of exclusion for the poor. We don’t realize how often the poor are locked out of the formal economy by a web of complex rules and regulations that only the rich and well connected can navigate. To prove this point, De Soto and his team set up small sewing shop just outside of Lima, Peru and assigned four student lawyers the task of registering the business legally. They had to fulfill every requirement and could only use public transportation just like a poor person. It took 289 days. As De Soto put it, “the legal systems are simply unfriendly to poor people.”
Over the years Hernando de Soto and his team have helped more than a million families get title to their land and thousands of businesses register in the formal economy. He has been a force for promoting justice for the poor by highlighting what most in the West have forgotten—how the institutions of justice laid the groundwork for flourishing communities and widespread economic development. This may be bad news for the poverty industry and development professionals, but it is good news for the world’s poor.
• Michael Matheson Miller is Director of the documentary film Poverty, Inc., and Research Fellow at the Acton Institute.
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