I still remember my preschool days. My only concern? Getting my hands on the most coveted toys. I would strategically position myself after recess to seize the desirable set of Jenga. I wasn’t the only one who loved this Jenga set – but I was definitely top of the class when it came to staking a claim!
When I entered grade school, the back row desk, ideal locker location, and a seat at the cool table during lunch became the new coveted goods. Now, in the workforce, parking spots, refrigerator space, and staplers are the new contested items. These
scenarios may be trivial or meaningless to some, yet they illustrate the necessity of property rights, a requirement of markets often taken for granted. Fortunately, in the US, enforcement of property rights is prioritized. Historically, however, this has not the been the case for Peru, the home of economist Hernando de Soto. In 1980, Peru was embroiled in a struggle for power. Tired of the years of coups and military dictatorships, a branch of Peru’s communist party self-called the “Shining Path,” formed a guerrilla army and attempted to overthrow the government.
After nearly six years of intense conflict over two undesirable ends, Hernando de Soto enters the conversation by explaining an alternative to the “Shining Path” with his book The Other Path: The Invisible Revolution in the Third World. De Soto decided to jump into the often heated debate in what makes a country rich or poor. In a recent interview with the Oslo Freedom Forum, de Soto explained the differences in his thought processes. “The poor aren’t just poor, they’re also entrepreneurs,” he stated, “people who have a potential to earn their wealth.” Where the “Shining Path” saw the proletariat as dependents on the system, de Soto saw entrepreneurs with a potential to earn their dignity.
This difference in view meant little, however, to the Peruvians who had been stuck in a cycle poverty for ages. They asked, “Why, if the poor of Peru were truly entrepreneurs, have they not been able to usher themselves into prosperity?” De Soto explained that this is equivalent to the problem faced by my fellow preschoolers and I. What has been lacking in impoverished countries, like Peru, as well as my preschool classroom, is well-defined property rights.
According to de Soto, because of the lack of a formal system to classify property rights, informal markets will appear. The poor in Peru still had areas that they called home in which they would sleep at night, make their meals, and keep what little materials they did have. But the government wouldn’t recognize that people had any legal right over these areas, which caused all sorts of problems. For example, because an individual did not legally own the shack that he or she was living in, the local water company could not set up a pipe system into the house. The only way for this person to get water was to buy it from a tanker truck. This is far more time consuming than simply being able to turn on the tap! Borrowing, selling, getting a job, and even moving can be difficult without properly recognized ownership of property.
De Soto’s ideas were so radical that he was forced into hiding after multiple assassination attempts and traveled in a bulletproof vehicle. But de Soto takes this as a sign of encouragement. In his interview, he said, “…if we weren’t being shot at, it would have been an indication we weren’t making an impact. We were making an impact.”
So, what does this have to do with preschool, staplers, or parking spaces? De Soto’s concept of property rights can solve each one of these issues. If de Soto ran my pre-school, he might have assigned rights to each one of the toys and games to an individual preschooler. Sure, this may seem unfair at first. After all, why does he get the Jenga set and not me?!? However, the kid with the Jenga set could trade it with me for some time with the soccer ball. And we could both truly enjoy recess, knowing the chance to play with both toys doesn’t depend on beating everyone else to the ball.