Reinventing Development Economics

  • Overseas
  • 1989

In 1981 a Peruvian economist named Hernando de Soto formed a nonprofit in his country called the Institute for Liberty and Democracy. He had become convinced that a lack of property rights was the ultimate problem dragging down economic production in most poor countries, not traditional bugaboos like the legacy of colonialism or exploitation by rich countries. His 1989 book, The Other Path, demonstrated that many of the world’s poor were forced to earn most of the income in the black market because entrepreneurship and private property were discriminated against by blockheaded governments.

By the late 1980s, private land-titling, recognition of small underground businesses, and other market-based reforms initiated by the ILD were being implemented across Peru, with dramatically positive results. This caught the attention of American donors like the Smith Richardson Foundation, Lilly Endowment, Omidyar Network, and John Templeton Foundation. They began to support the ILD and help it export its insights and practical reforms to dozens of other poor countries. They funded research, books, films, and other methods of spreading the message on the power of secure private ownership to bolster economic output.

De Soto’s work brought him into conflict with the violent Marxist group in Peru known as the Shining Path, which targeted the economist for death. Among its other contributions to his work, Smith Richardson paid for protection for de Soto. “The foundation is an old and loyal friend which, when the ILD was being bombed and shot at during the early 1990s, provided us with a bullet-proof vehicle, thus enabling us to continue with our work,” wrote de Soto in the acknowledgments to his 2000 book, The Mystery of Capital. De Soto is today considered one of the most important and influential analysts of developing-world poverty.