2009 Upton Forum - Hernando De Soto
We were pleased to feature internationally renowned economist Hernando De Soto as the 2009 Upton Scholar. As the President of the Institute for Liberty and Democracy (ILD) and author of the influential books The Other Path and The Mystery of Capital Mr. de Soto has been a leading intellectual voice championing the ideas, institutions, and enterprise necessary to wealth creation in the developing world.
One of the central arguments Mr. De Soto advances is that poor countries remain poor because the assets ordinary citizens hold tend to be in forms that are extra-legal, meaning that assets lack the clear ownership and titling documentation required for such assets to be leveraged toward wealth expansion. Though informal economies are often the site of intense and vigorous entrepreneurship, the lack of well-defined property rights keep people from realizing the potential for wealth creation that exists right in their own back yards.
In his keynote address as the Upton Scholar, Mr. De Soto considered this theme in the context of the developing world and also in the context of economically advanced countries such as the United States. Mr. De Soto argues that the recent financial crisis has been fueled by the lack of clear ownership rights in the market for financial derivatives such as mortgage-backed securities, collateralized debt obligations, and credit default swaps. Because the exchange of such assets was not publicly recorded and did not detail what was owned in a standardized form, De Soto argues, over time it became less and less clear what these paper assets represented and thus how to value them. Without this clarity, people began to doubt whether the assets they and others were holding represented real value. Absent this trust, other financial and contractual arrangements, such as those in the credit and insurance markets, began to collapse. Thus, Mr. de Soto concludes, the lessons learned about the necessity of clear, standardized, and publicly documented ownership rights learned in the developing world have a great deal to teach economically advanced countries such as the United States.
For a brief overview of Mr. De Soto's argument, see "Toxic Assets were Hidden Assets," in The Wall Street Journal Online, March 25, 2009.