The Competitive Enterprise Institute, a Washington-based think-tank, has announced that it will bestow on Peruvian economist Hernando de Soto the honour of its annual Julian Simon Memorial Award.
What possible relevance could a Peruvian economist and the Washington institution have to SA? Quite a lot, as it happens, particularly given the debate over land expropriation without compensation.
De Soto, author of The Other Path and The Mystery of Capital, rose to prominence in the 1980s and ’90s when Peru was locked in a bitter struggle with Marxist terrorist group Shining Path.
He recognised that while the poor had plenty of entrepreneurial ideas and a will to improve their lives, they were locked out of the formal, legal economy. As he said, "they have houses but not titles; crops but not deeds; businesses but not statutes of incorporation".
Many developing countries have recognised the unparalleled power of the free market to lift people out of poverty and improve their lives
De Soto set about advocating for the Peruvian government to give legal titles to those whose assets were recognised only informally by the community. Worldwide, a lack of proper titling means the poor cannot sell their assets, borrow money or trade in the formal economy and are often subject to the whims of a corrupt bureaucracy or criminal gangs.
De Soto convinced the Peruvian government to fix the problem, bringing millions into the formal economy. He also convinced other governments to do the same and in so doing unlocked billions of dollars of "dead capital".
De Soto’s campaign directly challenged the Marxist insurgents and their vision for a Peru that would resemble North Korea. The Shining Path bombed De Soto’s offices and machine-gunned his car, but thankfully these assassination attempts failed. In time, not only was the Shining Path defeated militarily but its ideas were rejected by Peruvians determined to pursue a better path towards peace and prosperity through free markets and the rule of law.
Of course, clearly defined and tradable property rights are not the only thing thriving economies need. Low taxes, limited government, predictable and limited regulations and an openness to trade are also essential to increased growth.
Many developing countries have recognised the unparalleled power of the free market to lift people out of poverty and improve their lives. This is where the connection to Simon comes in.
Simon was a professor of business administration at the University of Maryland but, more importantly, he was an optimist. Simon argued against the orthodox view that the state of the environment was worsening and that the prospects for humanity were gloomy. He exposed the folly of those in favour of population control by pointing out that humans were "the ultimate resource", the title of his most influential book.
Simon crossed swords with Paul Ehrlich, a leader of the population-control movement who favoured "increased death rates" in poor countries to avert what he thought would be an unavoidable global famine.
In a famous 1980 wager, Simon bet Ehrlich that the price of five commodities — copper, tin, nickel, chrome and tungsten — which Ehrlich selected, would be lower 10 years later.
He was proved right. Instead of running out of resources, the lower prices indicated increased abundance.
Far from being a drain on the world’s resources, humans, when free to trade, experiment, innovate and exchange, have been able to solve pressing problems. As the online website HumanProgress.org shows with the help of thousands of data points, life on earth is now better, longer, more prosperous and safer for almost everyone, rich and poor, than at any time in history. Not only is life better for humans, but in most parts of the world our environment is rapidly becoming cleaner.
However, these gains are not evenly distributed, with citizens in some countries racing ahead while those in others, such as Venezuela, hurtle backwards.
The evidence from around the world, covering many decades, shows unequivocally that life for ordinary people, particularly the poor, is vastly better in freer countries than in less free countries. When it comes to human progress, it turns out policies and the institutions of a free society matter a great deal.
Simon was right about humans being the ultimate resource, but to use their resources humans need the institutions, such as the protection of private property, that De Soto champions.
SA has abundant natural resources, but the most important resource is its human capital. As the government contemplates expropriation without compensation, it would do well to learn the lessons from Peru and other countries that are advancing, and choose the right path, where basic institutions such as the promotion and protection of property rights and the rule of law are respected.
• Tren is a writer based in Washington.
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