The Mystery of Capital

1
The Mystery of Capital
Hernando de Soto
2
Essential Points

• The underdevelopment of legal institutions in
  developing countries undermines the operation of
  capital markets
• The underdevelopment of capital markets in
  developing countries undermines the productivity
  of labor and savings
• Policymakers in developed countries have a poor
  understanding of the social reality of the lives
  of the poor in developed countries so their
  policy recommendations are generally misguided
• Bringing law reform and markets to the majority
  of people in developing countries would permit
  them to lift themselves out of poverty
• Any application to traditional knowledge and
  genetic resources issues?

3
Who is Hernando de Soto?

• Son of a Peruvian diplomat who lived in
  Switzerland until he was 39
• Focused his attention on the informal economy in
  Peru and how to bring it into the formal economy
  in The Other Path
• Reform property law to give the poor rights in
  what they possess
• Reform government to prevent bureaucracy and
  corruption from wasting resources

4
What Law Reform Is Needed?

• De Soto noted
• Hundreds of insurmountable practical obstacles
  facing poor entrepreneurs who attempt to leave
  the informal economy
• Minimal obstacles to entrepreneurs in developed
  countries
• Recommended law reforms to reduce role of
  bureaucracy and increase transparency in areas of
  concern to the poor
• Narrow focus on giving poor clear property rights
  has been controversial

5
What Impact on Growth of Law Reforms?

• De Soto believes reducing bureaucracy and
  strengthening property rights will release
  productivity of the poor
• What if redistribution is needed as well as lower
  transaction costs? What if strengthening
  property rights in the absence of redistribution
  merely facilitates transfers of wealth away from
  the poor?
• Empirical evidence of effectiveness of de Sotos
  recommended reforms is mixed

6
Applying de Sotos Ideas to TK

• Is traditional knowledge a form of capital that
  the poor have access to today but that they
  cannot exploit commercially because of uncertain
  rights?
• Would the establishment of the kind of IPR
  required by TRIPS help solve this problem?
• Would the establishment of sui generis rights in
  traditional knowledge help solve this problem?