Peruvian economist Hernando De Soto has pioneered the concept of empowering the poor with the use of market principles of property titling.

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The economist spoke to Mint on a range of issues, including his conversations with officials and impressions of Gandhi.

Edited excerpts:

What brings you to India this time?

I was invited by Ficci to give a few conferences and to meet a few people in government that had an interest in the sort of things I was talking about. I just met your Prime Minister (on Saturday). We talked about his projects of inclusion. And he felt that I could be of assistance to them during our discussion and if some of the things that we had learnt that worked and didn’t work in the world could be of benefit. So we have agreed that I would write up something to that effect and we will meet very shortly again.

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What gives you the impression that this government is serious about inclusion?

The first thing is it’s an important government. I mean, this is not a government of a Central American country with a population of five million. This is the Central government of a country with nearly 1.2 billion.

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What are these problems?

They are of various sorts. One of them is how you tackle the issue (of poverty). There are some people who believe that what you should do is give away property titles. That is not the way it works. That’s a Western way of looking at it; the Western world in the 21st century. To make it really simple, if you go to somebody that I have seen in Dharavi and you say I am going to give you security over your home, he will say thank you, but he won’t say much. He’ll take that piece of paper and he will slip it in the desk and not recirculate it again.

Why? Because from what I have seen in Dharavi, he not only has a home, he has an industry. So his question will be, you are telling me that it’s okay to have my home, but you’re not telling me if my industry is okay and you’re not telling me what you’re going to do with taxes. So, you cannot title homes in developing countries. You got to title everything.

Today, in the West you can say that, because you live in one place and you work in the other. But in the 19th century, Americans had industries in their home too. And they didn’t go around just titling homes. They did the whole thing. The first thing, no titling process of homes is going to work unless you include all other aspects of life—commercial, business, identity, credit and you wrap it up. We learnt that the hard way. It doesn’t work.

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Because the government can’t give it, doesn’t know how to give it—it wants to, but hasn’t yet found out—well, the terrorist groups will give it to them at gun point. And so, anything that you are looking at that you don’t like in India—you want education, you want clean water, you want all sorts of things. The issue is, can you do any of the things that creates the wealth to get that without one way or the other getting property to people and my reply is still—no.

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You are aware that India has launched a huge programme to give an ID to every citizen.

Absolutely. The general idea behind this is that when you look at developed countries, even say Germany, 130 years ago, it was 50 or 60 little countries. But since then, it has become a country of 80 million and the world’s become a country of seven billion, and there’s just no way we can get to know each other if it is not through documentation. And documentation means identity.

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Since your visit to India in 2007, the world has undergone a dramatic reality check on market economics. Do you still believe in the power of the markets?

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I figure, the next two-three years, as all of a sudden everybody starts beginning to understand that the recession we’re facing, is basically an epistemological crisis. It’s the lack of knowledge of how much paper there is representing wealth that could be either very deflationary or very inflationary... So I maintain my faith in markets that are ruled by law. When markets are not ruled by law, they become shadow economies. And what is surprising since the time you and I last met, is that I would have expected a developing country to produce the biggest shadow economy. It is the West that has produced the largest shadow economy.

What happens to your thesis of empowering the poor through the power of the markets, when the market itself is undermined in this manner?

It works better than ever. Because what I’m telling you is, look what happens to countries where they don’t have property rights. They get into a crisis. All I’m telling you is, the poor are in a permanent crisis. If the poor had their assets identified, over time, they would become a lot more interesting than even these derivatives. So my argument is that everything that is secure and identified is a lot better than anything that is insecure and unidentified.

Do you believe that market economics are a natural corollary to democracy?

Yes. Very much so. In one case you are accepting political vote, an independent vote; and in the other case, you are thinking of an economic vote, which is, do I buy this or do I buy that? So, I do think that they are complementary.

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