Property Rights
Property Rights

Other commentators focus on particular aspects of culture as the engine of success. Hernando de Soto argues that the secret to development lies in the structure of private property rights. In The Mystery of Capital, he says that the world’s “poor” actually possess great wealth. The problem, he writes, is that this wealth is usually tied up in “dead capital” due to the legal and social customs in many developing countries (De Soto, 2003).

For example, many people in Egypt, as in America, own their homes and attached properties. But there is a difference between the American and Egyptian conceptions of property.  While Americans can utilize their homes to raise capital for an economic activity like starting a business, Egyptians often cannot.

In America, ownership is well documented and there is an efficient legal system that can enforce contracts. Therefore, a homeowner can take out a loan with a bank using his or her property as collateral. In Egypt, traditional land ownership rules make it impossible for a landowner to prove to the bank that he owns his home. In addition, because the Egyptian legal system is not strong in forcing debtors to repay loans, Egyptian banks may not wish to lend money as readily as their American counterparts.

De Soto believes that by reforming land tenure and land ownership registration systems, developing countries can enable their citizens to convert the dead capital that they hold in various land and other properties into huge sums of money that can be used to expand development efforts. De Soto’s research estimates the value of real estate now trapped in dead capital to be $74 billion in Peru and $133 billion in the Philippines. In Egypt, $240 billion is tied up as dead capital, 30 times the value of all shares on the Cairo Stock Exchange and 55 times the value of all foreign investments in the country. De Soto argues that if these funds were available for economic activities, the speed of development could be greatly increased (De Soto, 2003).

To learn about the impact of property rights, on Cuba’s development, click here.

 

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