Property Rights and the Arab Spring

This morning, The Atlantic hosted a forum on high-growth business (video should be posted on the site later for those interested) and I got to moderate the first session -- where Gallup Chairman & CEO Jim Clifton hammered on the point that despite the economic fragility and doldrums of the US economy today, America's system of laws, particularly contract law, creates a base for entrepreneurs unmatched in the world.

Clifton said that prevalent corruption in many places around the world -- the forced forfeiture of property that entrepreneurs develop which ends in the hands of a government official's cousin or son -- compels small firms to sell out before the government takes what they have.

Clifton was quick to note that the sub-prime crisis and the lack of accountability in that fraud were a problem for the US -- but largely, America led the rest of the world on legal protection for business owners by leaps and bounds.

Along these lines, I just read this segment of a piece by Peruvian economist and property rights evangelist Hernando de Soto that recently ran in the Financial Times.  The piece is called "The Free Market Secret of the Arab Revolutions":

If Marx taught us anything, it is that the powerless can crystallise into a revolutionary class when they become conscious that they share a common suffering - and especially when a martyr embodies that suffering. There is no doubt that millions of Arabs see Bouazizi as their icon. "We are all Mohamed Bouazizi," Mehdi Belli, a university IT graduate working as a merchant in L'Ariana market in Tunis, told me.

To understand this you have to appreciate the details: Bouazizi flicked his lighter on at 11.30am, one hour after a policewoman, backed by two municipal officers, had expropriated his two crates of pears ($15), a crate of bananas ($9), three crates of apples ($22) and an electronic weight scale ($179, second hand). While a total of $225 might not appear to justify suicide, the fact is that, as a businessman, Bouazizi had been summarily wiped out.

Without those goods, Bouazizi would not be able to feed his family for more than the next month. Since his merchandise had been bought on credit and he couldn't sell it to pay his creditors back, he was now bankrupt. Because his working tools were confiscated, he had lost his capital. Because the customary arrangement to pay authorities three dinars daily for the property right to park his vendor's cart on two square yards of public space had been terminated, he lost his informal access to the market. Without property and trade, his reputation as a reliable administrator of goods was now undermined in the only market he knew.

He was not on a salary. He was a budding entrepreneur. According to his mother and his sister, his goal was to accumulate capital to grow his business. But this was impossible as we discovered when we investigated the records and the laws he had to comply with.

I'm meeting with de Soto this afternoon along with some other journalists to explore his latest thinking and commentary -- much of which is provocative and also the target of reasoned criticism.

But it seems to me that many in Washington who talk about aid and development towards newly liberated Arab Spring countries and other nations low on the development track tend to organize around what the West can do in terms of deployed dollars to these countries -- rather than focusing to a greater degree on the internal legal organization of these countries.  My sense is that attention needs to focus on what sorts of 'market failures' these governments and partners abroad can fix that either provide a better foundation for people to buy and sell -- and thus help themselves as opposed to waiting for some command and control engineered opportunity from a foreign aid giver.

Nancy Birdsall's team at the Center for Global Development do very good work in this arena -- but it still seems to me that in a world where there is not enough resources, certainly not enough US-provided aid, to raise people from impoverished circumstances, we need to focus on some of the frameworks that Jim Clifton and Hernando de Soto suggest.

Along these lines, just on Monday, Visa announced its first full national partnership with a foreign government, Rwanda, to create a "branchless" financial market system that essentially allows anyone with a cell phone, which is a vast majority of the population to get out of operating in cash and to operate in point to point financial transactions.  This may have a real impact on opportunities for the kinds of entrepreneurs that Tunisia's Mohamed Bouazizi aspired to be.