LIFE, LIBERTY, PROPERTY:

(via Tom Morin):
Property Rights Champion Hernando de Soto Wins Friedman Prize for Liberty

The Cato Institute today announced that the winner of the second biennial Milton Friedman Prize for Advancing Liberty is internationally recognized economist and property rights activist Hernando de Soto.

Mideast Miracle? (Steve Forbes, Cato.org)

When it comes to the middle east, the eyes of the world focus mainly on Iraq and on the Israeli-Palestinian conflict. Yet in coming months Egypt will be initiating reforms that should dramatically transform its economy into a wealth-creating, wealth-distributing dynamo that will lead millions of Egyptians into a vibrant, increasingly democratic middle class. The country is set to become an economic miracle rivaling Ireland or Hong Kong. In doing so, Egypt will deal a devastating blow to global terrorism.

The catalyst is something that's prosaic yet absolutely essential for a sustained, innovation-oriented economic takeoff: property rights. We in America and the rest of the West take our inclusive, easy-to-access property systems for granted. You own land, for instance, and everyone recognizes it. You can readily mortgage it. Want to start a business? The legal requirements are easy. Want to sell bonds or shares or use other capital-raising instruments? The legal structures to do so are open to anyone who can meet standard requirements. Commercial contracts? They're widespread, and the courts are there to enforce them and to adjudicate disputes.

Incredibly, most of the world has no such property rights or common rule-of-law system. Japan didn't until after World War II, when, under General Douglas MacArthur's occupation, it shucked off its medieval social structure and put in place institutions and laws with principles long familiar to Americans. This dramatic change played a critical, oft-overlooked role in Japan's rapid postwar modernization and economic expansion. After all, in the early 1900s Japan's per capita income was less than that of Peru.

After several years of preparation, Egypt is about to commence a Japanese-like makeover of its society, one that will profoundly and positively impact the rest of the Middle East and the developing world. Reforms will create easy access to private property for all Egyptians, including those in city slums. All enterprises will be able to easily turn themselves into legal entities; previously, obtaining a business license had been a costly process that could take nearly two years. Not surprisingly, most Egyptian businesses are extralegal, part of the country's shadow economy.

Most development experts ignore the elephant in the room--the fact that most people in the world operate outside their country's formal legal systems. In Egypt's case, 88% of all enterprises are extralegal, as is 92% of the country's housing. Egypt and other developing countries do not lack for entrepreneurs; they lack institutions and legal structures that would enable their entrepreneurs to expand and truly flourish. The Peru-based Institute for Liberty and Democracy, which spurred this project and is headed by economist Hernando de Soto, estimates that Egypt's shadow economy has accumulated $248 billion in assets. But as De Soto notes, "All this activity and all the assets in the extralegal economy are dead capital--assets that cannot be leveraged to obtain credit and investment. To convert all of this dead capital into live capital requires the two cornerstones of a market-based rule of law: legal property rights that cover all of Egypt's assets and good business law for entrepreneurs."

Egypt has for some time now been the other shoe that we're all just waiting to drop and when it does it won't be pretty. If they could get some serious reform and institution building underway it would be an obvious help.

Posted by Orrin Judd at April 1, 2004 11:17 PM