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And what is there now? For The Mystery of Capital, de Soto took satellite photos of the slums of cities like Cairo, Lima, and Port-au-Prince. His research team then imposed a grid on the photos and counted the number of slum dwellings within each square of the grid. They inquired locally about the value of these dwellings, and found that it might be as little as $500. Then they multiplied: the dwellings value times the number of dwellings in the square; then times the number of squares in the entire slum. He concluded:

So what is the value of all the buildings that are owned extralegally, especially by the poor, in Egypt? The reply is $241 billion. What percentage of Egyptians own real estate outside the law? The reply is 92 percent

How much is $241 billion? It's fifty-five times bigger than all foreign direct investment in Egypt over the last 200 years, including the Suez Canal and the Aswan Dam, thirty times greater than the market value of all the companies recorded on the Cairo Stock Exchange, and roughly sixty-eight times the value of all foreign and bilateral aid received by Egypt, including World Bank loans. In other words, the group in Egypt with the largest accumulation of assets that could be converted into capital are the poor, but theyre not inside the legal system and you cant create a market economy out of them until they are governed by the rule of law.

(I should mention here that de Soto hired me to help him finish The Mystery of Capital.)

De Sotos remedy: Give these de facto owners legal title to their dwellings. Give them the ability to buy and sell their dwellings, to rent to tenants, to borrow against their homes to start businesses or educate their children. Follow that step with other reforms to bring factories and farms and jitney buses within the law, too. Then watch.

De Sotos two books made him an international intellectual celebrity who conferred with presidents and prime ministers. He became a large figure inside Peru, too, perhaps the most visible face of market-opening reform. But the reforms he urged were not quite the reforms that arrived.

In November 2000, Peru returned to democracy after the seven-year dictatorship of Alberto Fujimori. Along with his many abuses, Fujimori bequeathed a legacy of economic reform: controlled public spending, moderate public debt. (Pre-pandemic, Perus debt totaled about 25 percent of GDP, less than half the burden borne by neighboring Bolivia, and about two-fifths of that carried by neighboring Ecuador. But Fujimori did not accomplish the de Soto agenda of bringing the poor into the legal economy. To this day, two-thirds of Peruvians work in the nonlegalor informalsector of the economy, one of the highest rates on Earth.

Peruvians might hear on TV or radio about the benefits of sound finances. But they experience low-quality schools and clinics, rutted roads, inadequate electricity, undrinkable waterthe public goods that the government had skimped on to keep public spending low. The more tangible benefits urged by de Soto remain largely concepts for the international conference circuit.

Continued here:
Peru: The Collapse of a Once-Promising Democracy - The Atlantic