Reinventing Development Economics

  • Public-Policy Reform
  • 1989

In the 1970s, the conventional wisdom in international aid organizations was that the biggest hurdles to the economic development of poor nations were external factors like the legacy of colonialism and ongoing exploitation by rich countries. With the help of the Smith Richardson Foundation and other donors, Peruvian economist Hernando de Soto conducted research which showed that, actually, the most serious impediments to growth in poor nations were self-inflicted government policies that interfere with property ownership and business enterprise.

In 1989’s The Other Path, de Soto demonstrated that many of the world’s poor made most of their income in the black market, and would be dramatically helped if entrepreneurship and private property were protected rather than discriminated against in law. De Soto’s Peruvian think tank, the Institute for Liberty and Democracy, pushed for land-title reforms, recognition of underground small businesses, and other market-based reforms. Developing countries in South America and elsewhere that instituted pro-market policies with ILD assistance experienced a brought a burst of prosperity in the two decades following.

In Peru, the war of ideas was also a war of bombs and bullets, and the Maoist rebel group known as the Shining Path targeted de Soto for death. During this tense period, the Smith Richardson Foundation offered protection. “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 now one of the world’s most influential development economists.