91av

What’s the big idea?

More than 4 billion people, 70 per cent of the world’s population, are virtually excluded from participating in the global economy. Existing property laws block them from participating by denying them access to the tools that would allow them to transform their assets into usable capital. Despite these obstacles, the poor have managed to accumulate $9.3 trillion worth of assets worldwide. In Egypt alone, for example, real estate accumulated by the poor since the end of the Second World War is worth $241 billion, which is 55 times Egypt’s total recorded foreign investment. But because they do not have access to a comprehensive system of property law, they cannot use it to produce additional wealth. We want to give these people access to formal property rights so they can release the potential locked up in their assets.

Are any countries taking you seriously?

Peru, Egypt, Haiti, the Philippines and Mexico have publicly acknowledged that we are working with them. There are others I cannot talk about because they would rather be discreet. All the people who have contracted us, without exception, are heads of state. We can’t afford to get caught in the cogs and wheels. The heads of state who are looking at the face of the watch all the time understand exactly what we’re talking about. We talk about how to change a nation, not how to change a municipality or a company.

Has it changed Peru?

In Peru, we completely changed the system by which property is registered so that it is easier for people to bring real estate and businesses into the legal sector. We “formalised” more than 300,000 personal businesses. This created employment for over 600,000 people and raised tax revenue by over $1.2 billion. It was dramatic. It meant that it was cheaper for people to be in the legal system and pay their taxes than it was for them to continue to be out in the cold. We’ve also managed to legalise the rights on 75 per cent of all homes in Peru. This is a major transformation. This is a country that was mired in violence and in which many people didn’t see any hope within the legal system. That has now changed and, up to a point, we are responsible for that.

In developing countries, formalising property rights invariably involves huge bureaucracy. How do you explain that?

In the same way I would explain it in developed countries before they became developed. Even Britain has had a formalised system for only about 200 years. Underdeveloped countries tend to have large bureaucracies. We don’t criticise bureaucracy because we think that ultimately politicians are responsible for the obstacles. The bureaucracy does nothing more than implement the law, and if the laws are bad—for example, if it takes 300 days to get a licence for a motor cycle—you are also fomenting corruption. So we think that almost all corruption, the obstacles, are ultimately solved by good politics.

So there’s no fundamental difference between what’s going on in the developing countries now and what was happening in developed countries before?

Right. The difference is that we’ve got computers now instead of long quills. They just haven’t found the way to make a good law.

In the US when the settlers’ rights were eventually formalised,it happened spontaneously without someone like you to point the way.If you left things alone in developing countries, would it happen spontaneously?

Yes, I’m convinced it would. But we don’t just sit back and say, “It’s a question of waiting.” Why? Because the transition from the feudal, patrimonial system to the market economy with more or less equal rights costs a lot in social revolutions. In the West, that transition caused considerable social conflict, two world wars and the cold war. In many cases these were about whether you were going to go with one ideology or with another. There’s every reason not to repeat that mistake. The idea is to speed up the process. There’s no reason why, now that we know what happened in the West, we shouldn’t just expedite it. We’re doing it in everything else. In certain parts of Latin America, we’re learning to build planes before we build automobiles. In some cases we’ve got better digital telephone systems than you do in Europe. Why shouldn’t we also leapfrog in the area of government?

What’s holding it back?

A lack of awareness of the facts.

Among politicians?

Among politicians and the population in general. When we’re invited into a country by a head of state, they’re doing it because things aren’t happening in the way they want them to happen. Then they start to think they’re losing face and that it must be a cultural problem: “I wish I had a British population. They’re so educated, well dressed, courteous, and they obey the rules.” Then we come along and say, “It’s not the culture, you know. There is something that is reformable, which is your legal system.” Now that’s very attractive. In the case of Peru, we tell them, “Did you know that your government is producing over 28,000 rules and regulations a year, that’s 106 every working day, and in that shower of rules there’s no way that anyone can find out what they’re supposed to do, especially if they’re poor.” That alone makes them change. So a large part of it is ignorance. Outside Peru—where they decided to cut us back for political reasons—we don’t think we’re going to get any more resistance to our ideas than if we’d been introducing digital telephones to Britain or Italian neckties into France.

Does culture play a role in determining how receptive nations are to changing their legal systems?

Culture plays a role, but it does not determine how ready a country is to become a modern republic. Sure, if you’re going to change the rules that govern property, you have to look at their culture first. Our work involves going into the informal sector in these countries and discovering the rules they abide by. Those rules, although they’re informal, are the product of a culture. We then try to codify them and see how we can integrate them into the legal system, then everybody can feel comfortable with the formal sector because it uses the same vocabulary they’ve been using before. But I disagree with people who claim certain cultures are more inclined to, say, violence than others. You could go down that line, or you can get together and say, “Aside from all these differences—the English putting mint on their meat, the French eating liver—what do we have in common?” If you start picking out big cultural tendencies then you just pave the way for another Hitler.

Yet cultural arguments persist…

That’s because they tend to be exciting. You can lay out all this data and lead people to say, “Now that I think about it, I should never trust an Arab.” The arguments that Hitler used, and those that Osama Bin Laden uses, are cultural. I’m not saying that culture doesn’t matter, but you have to look at it within a very tight context so as not to get carried away, because it’s too emotional. If you look closely, everybody’s just as entrepreneurial as, say, the British. The thing the British had way before the rest was a legal system that gave them a tremendously powerful enabling framework. Now there’s no reason why that framework can’t be built everywhere, and that the same thing can’t happen. Look at what the Japanese did, look at what the Germans did.

Do you have to have multiparty democracy for those changes to take place?

No, I don’t think it needs democracy, because a lot of countries reformed their property rights when they weren’t democracies: Japan, Taiwan, South Korea, Singapore, Hong Kong. However, property rights will eventually lead to democracy, because you can’t sustain a market-oriented property system unless you provide a democratic system. That’s the only way investors can feel secure.

Is there an alternative to capitalism?

Maybe. But we don’t know about it yet. Hypothetically, you could get a much more human society. I’d certainly love to see a system that didn’t encourage the kind of greed you now see for example with the collapse of Enron. But show me a better alternative—I haven’t seen one. No one is really proposing an alternative system, they’re all working around the same system. They’re proposing that capitalism should be guided by sensitive policies and good ideological objectives. When I walk among the poor, I see them competing, I see them creating enterprise, I see them buying and selling and loaning. Even cooperatives work within the market economy. I don’t see any government in the world trying to implement anything different.

Isn’t poverty inevitable within the capitalist system?

I hope not. No system is perfect, and when you decide to get rid of total poverty, you’re left with the dysfunctions of the system. I hope one day we’ll find a way to create a social net that will avoid poverty and extreme inequality.

What’s your view of theanti-globalisation protesters who claim that the biggest obstacle to reducing poverty is themultinational companies?

I’m not convinced that that’s true. In some cases, multinational companies have created lots of opportunities and saved a lot of lives. The protesters make a lot of very good cases and they deserve debate. We’d better have debate because otherwise it’s going to go onto the streets with massive loss of life.

Can free trade work for a country in which, say, 90 per cent of the people are outside the formal economy?

Of course not. And nor will globalisation, because globalisation is all about the right to participate in the global economy. If 90 per cent of the people can’t participate in the global economy, it’s always going to be a global economy among the elite—or rather, it’s going to be a global economy between developed countries, and among the elite in developing countries. The elite in developing countries will get wealthier and their incomes will outstrip even further the incomes of the poor, and that will make it socially unsustainable. As Marx would say, it is a contradiction within the capitalist system, and that’s why until the poor get into the market, the capitalist system is not sustainable in these countries.

What do you think will happenif capitalism remains exclusive—if you don’t “speed up the process”?

So long as you have more than 70 per cent of the world’s population on the outside looking in, it is going to be very dangerous. What’s going to happen? The same thing we have now: revolts, people marching on the streets, governments feeling insecure. There are big changes going on in these countries. Oliver Twist is coming to town and if you don’t do something about beating the contradictions of capitalism and bringing people inside the system, he could become a very dangerous member of society. There’ll be the possibility of world wars and of terrorism if people don’t find that they can use the legal system to make prosperity.