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Being a congenital do-gooder and know-all, I spend a third of my time on good causes, serving on various commissions and on advisory groups on economic and development issues.  Every now and again a serious report emerges that nails the issues and its ideas are put centre stage, and success is when they become clichés.  A report generated by German Social Democratic leader Willy Brandt, invented the words, ‘North/South’, and put the idea of 1% aid as an obligation of rich countries to poor countries on every nation’s agenda.  Norwegian leader Bro Bundland’s report on the environment put the phrase, ‘sustainable development’, into popular usage.  Now every conference and political manifesto feels obliged to put the word ‘sustainable’ before every resolution and policy statement. 

Reports matter, they are easy to dismiss and mock because so often they disappear and impress only the authors.  I’m the least distinguished member of a high-level UN Commission on the Legal Empowerment of the Poor, chaired by former Secretary of State, Madeleine Albright, and Peruvian Economist Hernando DeSoto, and includes outstanding individuals such as former US Treasury Secretary Larry Summers, and Supreme Court Justice Kennedy.  This Commission’s report, due out later this year, will be profound and may change the thinking on how we alleviate poverty.

Why is it that countries that should be wealthy, that have resources, have continued to under-perform?  Poverty is a man-made thing so we can fix it.   What’s the common denominator in success and failure?  Open economies always do better.  Trade and competition drive up better results and are powerful weapons to drive out corruption, as well as allocate resources more efficiently.  Private ownership, spread through society, works.  The tragedy of large scale privatisation in countries such as Russia was the brutal insider wealth grabs.  A free market without solid, trusted institutions, property rights, independent courts, a professional public service and democracy is not a free market but a black market.  Firm, predictable civil institutions create a vital factor to promote success.  Trust.  Trust in the courts, in contracts, is a serious issue.  Good governance is fundamental.  This Commission is mainly focusing on the legal rights of the poor.  Without secure, property rights, poverty will endure, corruption remain endemic, and investment wither.  People without property rights cannot realise on their assets.  The informal capital in Peru is estimated to be worth US$74 billion, Egypt US$248 billion, Tanzania US$29 billion, Albania US$16 billion, and Mexico US$310 billion. 

80% of all real estate in Latin America is held outside the law.  The poor are not without assets, in Egypt the  assets of the poor are 50 times greater than all foreign investment ever recorded.  But in Egypt it can take 77 bureaucratic steps at 31 public and private agencies to register a ‘lot’ on state-owned desert land.  This can take 5 to 14 years.  It takes 45 steps to establish a barber shop.  This explains why millions build their homes and business illegally. 

Bringing people out of the shadows formalises what they already own and safeguards them from predatory bureaucrats and local mafia.  It widens the tax base which in turn makes people want to hold their politicians accountable for expenditures not favours. 

People are driven underground because they don’t trust their institutions, which is why 40% of the economies of developing countries are in the informal economy.  Why register a company if it costs so much?  This relegates local businesses to the back streets.  Secure property rights boosts investment.  Evidence abounds that when trust emerges, investment increases.  When China established de facto securitisation of property and liberalised agriculture, productivity jumped some 42% between 1978 and 1984.  Her more open economy has lifted hundreds of millions out of extreme poverty. 

Access to justice, getting your case heard is important.  India has only 11 judges for every million people, and some civil cases can take 20 years to reach court.  Around a million cases are pending in Kenya, the average judge in the Philippines has a backlog of nearly 1,500 cases.  In New Delhi, there’s an estimated 500,000 bicycle rickshaws driven but only 99,000 licences allowed for legal drivers.  Same story for street hawkers who are kept in limbo and pay up to a third of their incomes to stay in business.  Licensing and restrictions create opportunities for the bureaucrats to take bribes and steal.

We can establish property rights which will encourage people into the formal economy where they are protected by the courts, can borrow formally against their assets and live better. 

This is not rocket science, the pattern is clear.  Those countries that are doing better  are those that are adopting these principles of good governance.

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