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1. Woodruff’s review of “The Mystery of Capital” is a mixture of praise and reproach for the way Hernando de Soto has brought attention to the struggles of the world’s entrepreneurial poor and linked those struggles to possible solutions toward including them into the capitalist system. De Soto’s cause is worthwhile, however development researchers have scrutinized some of what he presents as evidence to support his claims about the importance of property rights for the poor.

   Woodruff echoes researchers’ main criticisms, including questioning the reliability of the data de Soto reports, the vague methodology with which he collects it, and the oversimplification that property titling can serve as an easy remedy to poverty. Woodruff suggests that it may be the case that some of the statistics de Soto provides are inflated estimates, exaggerated to make his points. Also perhaps de Soto could have done more to reflect on the previous studies on property titling and how much of an effect it had on opening up capital markets to those in the developing world – one of his major claims is that formal rights to property allow people to use that property as collateral to access credit with which to build their businesses.

   However what is well-chronicled and less controversial in de Soto’s book is what Woodruff notes to be its most persuasive points: It is not for lack of entrepreneurial spirit or desire that the poor continue their struggles around the world. Formalizing their economic activities, such as through property titling as de Soto recommends, is one concrete way to begin to bring them up from the underground economies where most of the world’s poor live and work. No top-down development solution could be as effective as the creative ideas that emerge from the bottom up, essentially from the people themselves.

   Where Woodruff strongly agrees with de Soto is in the importance of also having an institutional environment within which people’s innovation and hard work will thrive and improve their lives. In this effort, governments can fulfill a specific role by establishing and enforcing the rule of law that will allow economic development to flourish in ways that wealth transfers will not promote. Hernando de Soto’s work on the importance of property rights for the poorest in the world is a key piece to a larger development puzzle, but as Woodruff explains, it is likely not the full picture.

   posted 11 Apr 2010, 9:00 PM by Roxanne Alvarez