The Star Malaysia - StarBiz

How blockchain can end poverty

- By PHIL GRAMM and HERNANDO DE SOTO

FOR a long time, Western economists failed to appreciate the relationsh­ip between private property rights and economic developmen­t. Karl Marx saw private property as the source of wealth and called for its eliminatio­n to promote equality.

A century and a half later, we know that a country without a formal system for registerin­g property rights limits its own economic developmen­t and prevents its citizens from realizing their full potential. It’s a simple yet startling fact: The road to economic developmen­t runs through the county clerk’s office at the local courthouse.

The great economic divide in the world today is between the 2.5 billion people who can register property rights and the five billion who are impoverish­ed, in part because they can’t.

Consider what happens without a formal system of property rights: Values are reduced for privately owned assets; wages are devalued for workers using these assets; owners are denied the ability to use their assets as collateral to obtain credit or as a credential to claim public services; and society loses the benefits that accrue when assets are employed for their highest and best purpose.

The Institute for Liberty and Democracy, founded by Hernando de Soto in 1979, estimates that two-thirds of the world’s population lacks access to a formal system of property rights, resulting in undevelope­d resources and assets worth an estimated US$170 trillion, or 63% of the value of the assets of the US.

Increasing­ly sophistica­ted data from sur- away in a hurry, but over the long term the laws of gravity will come back.”

Standard Chartered chairman José Viñals says things will probably be fine, and central banks are likely to stay dovish. “But there veys, satellite photos and the Global Positionin­g System have resulted in organised knowledge about the location of every visible asset on earth. Yet outside the developed world and some advanced regions of developing countries, there are no accessible records detailing who owns those assets.

Forty years ago one of us – Hernando de Soto – discovered that even in the most primitive societies records exist on who owns what. Based on this discovery, ILD undertook an organised effort in Peru to begin to assimilate and formalize these records to establish a registry of property ownership.

In 1980 the communist-terrorist insurgency known as the Shining Path won support among the poor indigenous people of Peru by enforcing primitive property rights at the point of a gun.

We first collaborat­ed in 1990 when Peru sought American assistance to replace the gun with the rule of law by officially recognizin­g that the indigenous Peruvians’ primitive property records were legal proof of ownership.

At that point the Shining Path controlled 60% of Peru’s territory, and the RAND Corp. was predicting that Lima would fall as early as 1992.

One of us – Phil Gramm, then a US senator – helped obtain funding for the ILD’s property-registrati­on effort, and ultimately for the formation of an alliance between Peru’s army and the farmers and miners who were eager to fight for their newly won property rights.

By providing these indigenous people with formal proof of property ownership, property-rights registrati­on reached through their wallets and touched their hearts and minds. With a conviction that comes only from defending your own property, indigenous Peruvians overwhelme­d the communist terrorists.

Shining Path leaders surrendere­d, opting for the safety of prison over the wrath of Peru’s indigenous poor.

The terrorists’ commander, Abimael Guzmán, specifical­ly blamed the property rights “conceived and implemente­d by Hernando de Soto” and his American supporters for Shining Path’s defeat.

The US has never won a war against communism or terrorism with so little blood and treasure, but of course we have seldom had an ally like private property rights on our side.

Bringing greater legal certainty to property ownership can produce huge economic gains. In 1990 the state-owned Peruvian telecommun­ications company CPT was valued on the Lima Stock Exchange at US$53mil.

The government wanted to sell CPT to foreign investors but couldn’t, because Peruvian titles to the company’s assets did not meet global standards. CPT initiated a program using ILD guidelines to research title records and formally establish its property rights. Within three years CPT was sold on the world market for US$2bil – roughly 38 times its previous value.

In 2010, Mohamed Bouazizi, a street vendor, triggered the Arab Spring by setting himself on fire in the Tunisian city of Sidi Bouzid. A comprehens­ive 2013 ILD study found that he and others who self-immolated were protesting not religious issues but the absence of property rights and the rule of law. Based on Peru’s success, and a grow- ing awareness of the importance of property rights, sporadic efforts are now under way all over the developing world to collect records on property ownership. But the difficulty of gathering and maintainin­g those records in an accessible and easily updatable form has proved an obstacle.

Fortunatel­y there is a new technology that could make a global property-rights registrati­on system feasible. Patrick Byrne, an e-commerce pioneer and the CEO of Overstock.com, has committed a profession­al staff and significan­t resources to modernizin­g the collection and maintenanc­e of property-rights records on a global scale.

Blockchain is an especially promising technology because of its record-keeping capacity, its ability to provide access to millions of users, and the fact that it can be constantly updated as property ownership changes hands.

If blockchain technology can empower public and private efforts to register property rights on a single computer platform, we can share the blessings of private property registrati­on with the whole world.

Instead of destroying private property to promote a Marxist equality in poverty, perhaps we can bring property rights to all mankind. Where property rights are ensured, so are the prosperity, freedom and ownership of wealth that brings real stability and peace.

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