Of Note:The Wealthy Poor: Legal Property Rights in Developing Countries Samuel Yim The poorest people in the world have a lot of wealth. According to Peruvian Economist Hernando de Soto of the Institute for Liberty and Democracy (ILD), the poor in developing countries have value in their homes and land worth about U.S. $10 trillion.1 However, the poor lack an integrated system of legal property rights that makes it difficult for this demographic to leverage their informal property wealth into capital. With formalized property rights, the poor could use the property they informally own as collateral for loans, borrow money for their business, and become entrepreneurs. Legal ownership of their property could form the basis for economic growth in the developing world. However, much of the property informally owned by the poor in developing countries remains legally worthless because it is not registered in a formal legal system. For example, a person living in a Calcutta ghetto has potential capital in the land that they informally own but they do not have an address for their property. When one does not have an address, one cannot establish legal title.2 In most cases, without a legal title, one cannot borrow money from banks with one's property as collateral for a loan to create a new business. This simple obstacle stifles entrepreneurship and retards economic expansion in many developing countries. The amount of potential capital held by the poor in developing countries is tremendous. For the entire developing world, the ILD calculates that the total value of all the property held, but not legally owned, by the poor is more than 90 times the volume of all foreign bilateral aid they receive. That is 50 times bigger than private, foreign, and direct investments and 40 times larger than all international financial-institution loans from institutions like World Bank and Asia Development Bank.3 The amount of wealth available within the poorest countries themselves vastly exceeds anything that the leading industrial countries have donated to them. So what prevents the poor from tapping into their wealth? The ILD researched the process of obtaining legal titles in developing nations and concluded that government bureaucracy is the main hindrance that prevents people from obtaining property rights. For instance, in Egypt a person who wants to acquire and legally register a property on state-owned desert land must wrangle through at least 77 bureaucratic procedures at 31 public and [End Page 45] private agencies that can take 5 to 14 years.4 In Haiti, someone can settle legally on government land by first leasing it from the government for five years and then purchasing it. According to the ILD, to obtain a lease from the government took around 65 bureaucratic steps requiring a little more than two years. This does not include going through the process of trying to obtain actual ownership of the land, which is more burdensome.5 Because of these complicated bureaucratic obstacles in many developing countries, potential entrepreneurs give up the hope establishing legal property rights and businesses. Instead, they turn to 'underground' or 'informal' economies that provide an opportunity to earn an immediate living without going through the years of bureaucratic hassles. Thus, the government loses vast amounts of potential tax revenue and the informal entrepreneurs continuously have to hide their businesses from the government.6 The vast amounts of wealth that the poor already have are not used because their property is not registered in their country's legal system. Hence, many of the world's poor cannot use their land as collateral to raise capital for entrepreneurship and raise their standard of living. When bureaucracy and frustrating legal systems drive economic activities underground, both the developing country's people and the government lose. Legal systems of developing countries need to incorporate mechanisms to transfer from informal ownership to formal ownership. Ultimately, the developing countries can be their own solution to their economic problems through legal property rights. Notes Opportunity International United States of America. "Interview with Hernando de Soto, February 2005." Opportunity International. http://www.opportunity.org/site/pp.asp?c=7oIDLROyGqF&b=667883. De Soto, Hernando, The Mystery of Capital: Why Capitalism Triumphs...