The Foreign Service Journal, July-August 2003

and concluded that the traditional Marxian analysis, which saw the poor as exploited proletarians rather than budding capitalists, was, at best, inadequate and, at worst, mis- leading. True, they are exploited and discriminated against, not by greedy capitalist bosses but by the legal system itself, which leaves them at the mercy of corrupt officials and venal moneylenders. Nevertheless, he recently calculated that the assets of the world’s poor exceed nine tril- lion dollars, which is 20 times the total amount of direct foreign invest- ment in the Third World. In 1986, de Soto wrote a book set- ting forth these conclusions, The Other Path , which made him well- known throughout Latin America. When Alberto Fujimori became president of Peru in 1990, de Soto became one of his top advisers. Soon 1.6 million of the country’s 2.3 million illegal buildings were registered and titled. For the first time in Peru’s his- tory, this type of asset could be used as collateral by the poor to finance the start of a small business or to meet the needs of an ongoing one. In addition, 280,000 formerly illegal businesses were made legal so that their owners didn’t have to pay cor- rupt cops or greedy politicians any more bribes. Nor did they have to go to loan sharks for their financing. The next step was for the banks to formalize the phase of the project that was to grant short-term credits and loans. Unfortunately, at this point de Soto broke with President Fujimori because of his refusal to enact democratic reforms of Peru’s political process, and not long after- ward, Fujimori was ousted as presi- dent and forced into exile. As a result, de Soto’s credit reforms have not yet been implemented in Peru, but he has turned his attention abroad. Several major politicians have contacted him in the past sever- al years to discuss implementing his ideas, including President Hosni Mubarak of Egypt, former President Joseph Estrada of the Philippines, President Jean-Bertrand Aristide of Haiti, several African presidents, and the president of the World Bank, James Wolfensohn. As de Soto has consistently point- ed out, by changing their legal system to recognize micro-businesses, gov- ernments are simply acknowledging something that already exists and functions. He calls the current sys- tem “legal apartheid” and points out that the major difference between the developed and developing world is that in the former realm, legal titles, property rights, and business licenses are taken for granted at all levels of society. In developing coun- tries, only the upper and middle classes are able to acquire titles and pay taxes. Clearly, the change will take time and effort to implement on a practi- cal level. The initial process of assigning title to individual owners, and resolving the inevitable spate of ownership disputes, will be tricky. (This is especially true because many of the beneficiaries of the change lack education or even literacy, and are used to operating in the shadows.) But in countries like Mexico where the state already owns all land, trans- 66 F O R E I G N S E R V I C E J O U R N A L / J U LY- A U G U S T 2 0 0 3 Until fairly recently, the economic activity of street vendors was not counted as part of Mexico’s gross domestic product. w ww.stayatresidenceinn.com/ embassyevacuees