Copyright 2002 Federal News Service, Inc. Federal News Service
July 24, 2002 Wednesday
SECTION: CAPITOL HILL HEARING
LENGTH: 6589 words
HEADLINE:
PANEL II OF A HEARING OF THE HOUSE INTERNATIONAL RELATIONS COMMITTEE
SUBJECT: ECONOMIC DEVELOPMENT AND INTEGRATION AS A
CATALYST FOR PEACE
CHAIRED BY: REP. HENRY HYDE
(R-IL)
PANEL II
WITNESSES: RIMA KHALAF HUNAIDI, UNITED NATIONS DEVELOPMENT
PROGRAM; AND HERNANDO DE SOTO, FOUNDER, INSTITUTE OF LIBERTY AND DEMOCRACY
BODY: REP. HYDE: We have a second panel
that we will ask to step up to the table. We welcome Dr. Rima Khalaf Hunaidi,
the United Nations assistant secretary general and assistant administration, and
regional director of the Regional Bureau of Arab States of the United Nations
Development Program. Dr. Hunaidi is a Jordanian citizen who studied economics at
the American University of Beirut, and completed her graduate education at
Portland State University. Dr. Hunaidi has held high-ranking positions in
Jordan, serving as minister of industry and trade from 1993 to '95, minister of
planning from '95 to '98, and most recently deputy prime minister and minister
of planning, 1999 to 2000. Dr. Hunaidi -- Hunaidi -- I hope I'm pronouncing that
right; I'm probably not -- has been in the news lately as the coordinator of a
groundbreaking report on human development in the Arab world. A study of the
Arab world by Arab scholars, this report points to deficits in some areas of
political participation, women's participation, and the spread of information
technology. While noting positive aspects of life, such as improvements in
education, the solidarity of the family, and the ability of Islamic charities to
keep many people from falling into destitution. Dr. Hunaidi, we look forward to
hearing your testimony, and hope to hear how the lessons of your most recent
study can inform economic development programs for the region.
We also would like to extent our welcome to Hernando de Soto, who is
president of the Institute of Liberty and Democracy, headquartered in Lima,
Peru. Mr. de Soto was President Alberto Fujimori's personal representative and
principle advisor until he resigned two months before the president's auto coup
d'etat. He was instrumental in modernizing Peru's economy, allowing it to return
to international financial markets. Today, Mr. de Soto and the ILD are
designing and implementing capital formation programs to empower the poor in
Asia, Latin America and the Middle East. He asks simple but important questions,
such as why don't poor people know what the law is? And why can't poor people
use their own property productively? And suggests answers that bring all the
benefits of hard work and property ownership to a wider segment of society.
We're indeed very happy to have both of you with us today.
And Dr. Hunaidi, if you would open, make your remarks. If you can, confine them
to five minutes or so, we will have time to ask you some questions. And your
full statement will be made a part of the record.
MS.
RIMA KHALAF HUNAIDI: Thank you, Mr. Chairman, Congressman Lantos. My name is
Rima Khalaf Hunaidi, and I am the U.N. assistant secretary general and director
of UNDP's Regional Bureau for Arab States. And I am here to speak about the Arab
Human Development Report for the year 2002. The report, which was published
earlier this month, was commissioned by UNDP and was prepared by a team of some
30 Arab experts, guided by a senior advisory board consisting of distinguished
academics and political figures from the region. In my five-minute remarks, I
shall focus on the implications of the report's findings on development
strategies for the region. I then look forward to answering any questions you
may have.
The report acknowledges progress made by Arab
countries in some areas of development, notably in increasing life expectancy,
at birth, and reducing infant mortality. Moreover, there is much less dire
poverty in Arab states than in any other developing region. But the report also
flags some warning signs that cannot be ignored. Growth over the past two
decades has been the lowest in the world, except for Sub-Saharan Africa. Labor
productivity has been on the decline since 1960. Sixty-five million people are
illiterate. One out of every two women can neither write nor read. Ten million
children are out of school. Unemployment has reached 15 percent, with regional
hot spots suffering from much higher rates; 50 percent in the Palestinian
territories.
The region has lagged behind other
developing regions in achieving human development, and behind the aspirations of
its people. The report notes the serious implications of such a crisis in
development. As an indicator, the report team followed a cross- section of Arab
youth. Fifty-one percent of all the adolescents interviewed, and 45 percent of
younger ones, expressed a desire to emigrate.
The
report proves the roots of this crisis -- occupation, conflicts, sanctions, and
instability have their toll on human development in the region. But in addition,
the report looks at internal sources and traces them to three key deficits. A
freedom deficit is stifling creativity and true participation. Secondly, a
women's empowerment deficit is depriving societies of half of their productive
potential. And thirdly, a knowledge deficit is weighing heavily on the ability
to grow and compete.
The report concludes that the
solution lies in adopting and implementing a three-pronged strategy that
simultaneously aims at, one, building human capabilities through quality
education, health and social services, and quality research and development
activities, promoting creativity and technological empowerment. Two, using human
capabilities through revitalizing the economies and providing equal
opportunities to all, especially women. And three, liberating human capabilities
through promoting systems of good governance, including the reform of state
institutions and activating the voice of the people.
This is a huge undertaking that demands substantial resources and
requires the concerted efforts of many actors, including governments, donors,
and the private sector. An equivalent of a Marshall Plan for the region cannot
be timelier to provide people of the region with hope and bring them closer to
their aspirations for a better life. The report notes that the mismatch between
aspirations and their fulfillment has in some cases led to alienation, and it's
offspring, apathy or discontent. Any effort to be successful needs to focus on
simultaneous measures for building, using, and liberating human capabilities.
Estrangement and frustration arise not only when one is deprived of capabilities
such as quality health and education, but also when one is deprived of the
opportunity to use such capabilities in productive employment due to economic
stagnation or legal biases, or when such capabilities are stifled by lack of
freedoms or through systems of government.
Such a
strategy may require adjustment of current development strategies advocated by
donors, international financial institutions and implemented by
governments. The fiscal and current account deficits which are the focus of such
strategies may have hindered growth in some countries and hence the focus on
reducing them. But without addressing the other real and more critical deficits,
the dream of development will remain elusive.
The
private sector can play an important role in the revitalizing economies, but
creating job opportunities by the private sector will remain of limited effect
if capabilities are not built or liberated to benefit from such a fortune as
this.
Governments, with the support of donors, will
need to show that the responsibility of building the capabilities of people,
particularly the poor and the marginalized. This requires establishing
responsive and fair health systems, combating illiteracy, extending compulsive
and basic education to 10 years, expanding and improving the
quality of higher education, creating an institutional system for adult
education that continues for life, and paves the way for renewal, excellence and
creativity. Governments and donors need to facilitate and encourage the role of
the private sector through establishing the necessary infrastructure an enabling
business and legal environment.
Systems of good
governance need to be promoted. For the non-oil producing countries, this
requires huge investment outlays that are currently beyond their financial
means. The Marshall Plan approach can tremendously help in pulling them out of
their predicament. It can be instrumental to making that shift from a struggling
region to a progressing one.
Mr. Chairman and members
of the committee, I would like to thank you for giving me this opportunity, and
I look forward to answering any questions you may have in light of my opening
remarks and supporting documents you received. Thank you, Mr. Chairman.
REP. HYDE: Thank you, Doctor. Mr. de Soto.
MR. HERNANDO DE SOTO: Thank you. Thank you, Mr. Chairman. Thank you,
Mr. Ranking Member, Mr. Lantos.
I thought the previous
words of Senator Mitchell were really very interesting, and he said something
which I have said (so by ?) myself when I've been traveling throughout the
Middle East during these past years, that it's full of knowledgeable, skilled
and energetic people. As a matter of fact, all over the world, the reputation
and the dexterity of Middle East businessmen is very well known. And it's very
hard to walk in the streets of any Middle East country without actually seeing
people trying to make deals every block. So, here we have wide
entrepreneurship.
The question is why is there no
development like there is no -- there's not the kind of development we would
like to see in Latin America and elsewhere. And I think it has a lot to do with
the fact that there is a lack of a property system, understanding the property
system as the entry point into the rule of law.
I have
come here, Mr. Chairman, with my apple. This is my apple, I'd like to say, and
I've got various witnesses who say it's my apple. But no matter where I look at
this apple -- on top of the apple, around the apple, or I break it open --
there's no way to actually distinguish an apple that's mine from a stolen
apple.
There's nothing on that apple that says whether
I can pledge it, whether it's collateral, whether it's mine, whether I can
transfer it, whether I can rent it, whether I can loan it, whether I can
distribute it into shares, whether I can mortgage it. There is nothing in the
apple itself that allows it to enter the market.
What
allows things to enter the market are the property titles and the property rules
that are behind them. And so the real question is, how do -- (inaudible) --
enter markets? When somebody in the United States wants to sell 10,000 head of
cattle in the Chicago Mercantile Exchange, they don't drive 10,000 head of
cattle into the Chicago Mercantile Exchange. They come in with a property
paper.
When somebody in the London Metal Exchange wants
to sell copper coming from Jordan, nobody comes in with a forklift that lifts
the copper from one side to the other. They have property documents that do so.
When, in Wall Street, you try and see whether the capital value of your goods
are going up or down, you don't look at the goods; you look at the property
titles, which are the shares and the bonds and all things represented on
property paper.
So the real question, Mr. Chairman, is
how much of the Middle Eastern assets are on property paper and can therefore
enter the market, and therefore you can have a viable market economy, in
countries where obviously they're thriving in terms of entrepreneurship but not
in terms of law?
I distributed among you gentlemen and
ladies this sheet, which we actually established together with the Egyptian
government, which is the result of the study we are doing and the reforms we are
carrying out with different governments throughout the world. This one
specifically is in the case of Egypt, where we have determined, together with a
group of over 100 Egyptians, that only 8 percent of all real estate is within
the property system. And only 12 percent of all businesses operating within the
property system are legally established.
In other
words, 92 percent -- and this is no different than my country, Peru, and no
different from other Latin American countries -- only 92 percent of all physical
real estate assets in Egypt, which is the country I'm using as an example, but
it is not an exception, are within the law. And 88 percent of businesses are
outside the law.
The question then, Mr. President,
becomes -- Mr. Chairman -- becomes the following one: If the majority, if
nine-tenths of the assets of these countries are outside the law, how can they
function? You will see, at the end of a document that I have given you, titles
and deeds that are currently being used in Egypt.
The
interesting thing about these titles and deeds over real estate, as well as over
businesses, is that none of them are really issued by governments. They're
issued by local organizations, which also means, therefore, that there's no lack
of respect for law. It's just that there isn't a common standard legal system in
those countries.
So how much are all of these assets
that are outside the economy worth? Well, it so ends up being that of all the
assets that the poor hold outside the law, they're about $245 billion -- $245
billion that the poor hold outside the law. It's 55 times greater than foreign
direct investment in Egypt since the time of Napoleon, 200 years ago until
today.
It is 30 times bigger than the market value of
all the companies registered on the Cairo stock exchange. In fact, when we have
calculated the value of the poor in the Middle East outside the legal system, it
is 40 times greater than all the World Bank loans and all the bilateral
aid that you've given to them and that the Europeans have given to
them.
What that tells us, therefore, Mr. Chairman, is
that maybe it's not so much a Marshall Plan that you may need for that part of
the world, as Congressman Gilman was saying, but rather the MacArthur program
that you yourself induced and began in Japan after the Second World War, where a
feudal regime was changed into a property-earning regime through initiatives
carried out by the Americans and carried out by the Japanese. That's why it was
very interesting to hear Congressman Gilman talking about being cautious on
resources and, as a matter of fact, thinking of laws and institutions.
Interestingly enough, when the Europeans begin to think
about development -- for example, when Spain and Portugal wanted to (accede?)
the European Union, and they were receiving foreign aid up until 1978,
what the European Union did was not so much toss money at them but help them in
their legal reforms to create good property law and good company law. And today
Spain, which 22 years ago was receiving foreign aid, is now actually
giving foreign aid to ourselves.
So my problem,
generally speaking, since you've asked me here to become a witness, is never
talking to leaders of developing countries, whether they be in the Middle East
-- and I talk to various of them -- or the former Soviet Union -- and I talk to
various of them as well -- or Latin America. They understand the regime of
property law.
The interesting thing is that in
countries such as yours who are in the developed world, I don't even see one
budget item relating to property law and I don't see one budget item relating to
major legal change in those countries, which was what gave you your success in
Japan, the two former colonies, Formosa or Taiwan, and Korea, or your own
country.
This very Congress, Mr. Chairman,
interestingly enough, all throughout the 19th century created 32 preemption
acts, which established the property system of the United States and gave you
your prosperity of today. And that seems to have been forgotten, Mr. Chairman.
It's very important to recall it, because I think those are the challenges that
you also have in the Middle East today.
Thank you,
sir.
REP. HYDE: Thank you, sir. Mr. Rohrabacher.
REP. DANA ROHRABACHER (R-CA): Thank you very much, Mr.
Chairman. And I am disappointed that I didn't get a chance to ask questions of
the last panel. To say officially, I was here for the opening statements of the
chairman and the ranking member, and usually that positioning permits someone a
chance to ask questions.
REP. HYDE: If I may respond,
Mr. Rohrabacher, I don't watch the door or see when people come in. I rely on
staff to make that list. The rule is that if you're here early, you get called
early. We try to do the best we can. There is no disposition to deliberately
avoid you, because your questions are always among the most illuminating.
REP. ROHRABACHER: (Laughs.)
REP.
HYDE: So I hope you will forgive us. And next time we'll try to do better.
REP. ROHRABACHER: Yes, I understand that. Being the
chairman of a subcommittee, I understand that staff does make the list, and
certainly chairmen can't see who's coming in the door and at what time.
With that said, thank you very much for giving me this
opportunity to ask. Mr. De Soto -- or Dr. De Soto, I should say -- I think it's
fascinating that you're suggesting the dichotomy between the Marshall Plan and
the MacArthur Plan in terms of development. And I don't think many people in
this committee and in this Congress has ever really thought about that point.
And certainly MacArthur was dealing with a situation that
was far different than what happened in Europe. Maybe you could enlighten us a
little more about the difference between those two approaches and why the
MacArthur approach is more applicable towards the situation in the Middle East
and other developing countries.
MR. DE SOTO: May I
answer, Mr. -- thank you. Well, what's -- I wonder if the reason that this is
not being so well-recorded or significantly recorded in U.S. history was because
maybe the objectives at that time were not necessarily the development of Japan.
But when the war against Japan ended in 1945, General MacArthur had, I think,
one first concern.
One first concern was that they
should allow -- the United States shouldn't allow another regime, which was able
to concentrate so much powers and wage war again. One of the problems there had
been that, to a great extent, the revenues that had allowed the Japanese
expansion before the Second World War actually came from the feudal class.
And so the objective at that time was to undo the feudal
class, compensate it, of course, and create a widespread property system. This
way the basis for Japanese military expansion would be withdrawn. This was, as a
matter of fact, being planned by a commission headed by, I believe, somebody the
United States Department of Agriculture called Wolf Ledjinsky (ph) in Hawaii
since about 1942. So it was a carefully thought-of plan.
Then the second problem, of course, that MacArthur had at that time was
a traditional ally in China, Chiang Kai-shek, under the Kuomintang, was being
defeated by Mao Zedong. Mao Zedong was coming down from the interior to the
south, and in the process (piking?) property -- of course, not private property,
but collective property.
So what the United States
wanted to do was give a response to all of that. The response was an edict by
MacArthur instructing the Japanese to do something about the change of property
regime. And he identified, among the Japanese, since the major restoration over
the last 60 years, before that, that many Japanese did believe in the
transformation of a feudal system to a property system.
And so what they did was a group of Japanese, some of which I had the
privilege of interviewing just a few years ago to bring this history together,
which is so badly collected, actually put together the transformation of a
property system. It wasn't done by the states. It was sponsored by the
states.
REP. ROHRABACHER: Was this accompanied by large
amounts of foreign aid, as we would -- did the United States pump in a
lot of money into Japan? Was that part of the Japanese miracle? Or was it more
just a restructuring, as you said?
MR. DE SOTO: Do you
know that I'm not familiar with that. But the big effort, like in the case of
Spain or Portugal or the other countries that (are acceding ?) to the European
Union, was essentially the restructuring of the legal society, because that's
where -- I mean, at that -- as you know, I am Peruvian, and at that time, I
mean, Japan's GNP per capita was not much higher than the one of Peru, where
they were only about 10 percent higher.
You will
remember that a president of Japanese extraction, Fujimori of Peru, actually
came from Japan to Peru just before the Second World War because we were a more
prosperous country than Japan.
What really changed
Japan around, as you will see from your own aid budgets, was not your
aid budgets as much as the fact that it got the legal institutions of a
market economy. And we continually forget that a market economy is not stable
money -- which is, of course, very important -- and it's not fiscal balance; it
is essentially a system of rules which somehow or other seems to have, to a
great extent, slipped out from your development or your foreign assistance
budgets.
REP. ROHRABACHER: Again, before my time runs
out, you're suggesting that a huge percentage of property in countries like
Egypt and other developing countries, and the countries we're talking about
today as well, that that property is not titled. Thus, if you compared that to
40 times the value of that, it would be 40 times the amount of export-import
bank loans into Egypt.
So if we wanted to see an
immediate increase in the wealth availability in those societies, we would not
depend on wealth transfers from the United States but instead on a restructuring
of their legal system to provide title, thus ownership, thus giving value,
economic value, to that property that they already have. Is that correct?
MR. DE SOTO: This is correct. And I'd like to insist on
the last words about giving economic value. Let me give you an idea of some of
Latin America's experiences throughout the '90s, which were all not bad. For
example, when we retitled state corporations, which is an exercise generally
called privatization, where we took, for example, the Peruvian telephone
company, which in 1990 had a value on the Lima stock exchange of $53 million,
and retitled it -- that's what it was, essentially; changed its property
documents and the underlying property law so that it would be acceptable for
investment by the Bell Souths, by the AT&Ts of this world -- we were able,
three years later, to sell it in an auction, and it was bought by Telefonica of
Spain at $2 billion.
In other words, we jumped from $53
million to $2 billion, 37 times its value. We didn't paint the building. We
didn't repair the broken windows of the Peruvian telephone company. We didn't
even mow the lawn. We didn't touch the apple. We inserted it in the legal system
so that it entered the expanded market, so that now bonds could be issued for
loans, so that shares could be issued to welcome investment.
Of course, if you have 90 percent of the assets in the Middle East,
like probably Latin America, untitled but especially ungoverned by good law, the
result is relative poverty, as you had in the United States in the 19th century
when you were a third world country.
REP. ROHRABACHER:
Thank you, Mr. Chairman.
REP. HYDE: Ms. Lee.
REP. BARBARA LEE (D-CA): Thank you, Mr. Chairman. I want
to thank both of you for your testimony. And I wanted to ask Dr. Hunaidi a
couple of questions. I mean, you paint quite a sobering and I guess the report
painted quite a sobering picture of the Arab world. Many of the facts are quite
astounding.
I wanted to ask you -- well, many of us
believe, and it's often said that poverty breeds terrorism. Yet many of the
hijackers of 9/11 were primarily middle class and well-educated. So in your
view, I'd like to just ask you, what is the connection between poverty and
terrorism? And what do you think, in terms of the Marshall Plan? And you heard,
I think -- and I would support a Marshall Plan -- but you heard the questions
and statements of Senator Mitchell from this committee.
So, quite frankly, I would like to find out, in the absence of a
political settlement and a cessation of violence in the Middle East, do you
think that there's a reasonable -- the conditions are such that a Marshall Plan
would actually provide for economic development of the region and begin to
address some of the statistics that you have provided?
MR. HUNAIDI: On the issue of poverty and whether poverty breeds
terrorism or not, I go beyond what is in the report to venture my personal
opinion. I don't think that poverty per se breeds terrorism. I mean, you can
look at the poorest continents in the world are not breeding terrorists.
The report does not address the issue of terrorism, but
the report points out the fact that it's the mismatch between opportunities and
potentials that can, in some cases, lead to any nation. It's also the
deprivation of rights, political rights, that can lead in many cases to
frustration, can take more than one path. It could be apathy or it could be
discontent.
So what the report is advocating is
basically how to overcome this mismatch. And we think it is essential. And it is
from that perspective that I was looking at the Marshall Plan. The mismatch is
arising because, in some cases or in some countries of the region, capabilities
are not built. You have less-educated people than in other regions.
In other countries of the region, people are more
educated, but they're deprived of two types of opportunities -- first, the
opportunity to participate in the economy fully because of lagging or economies
in recession, economies that are not being vitalized. And this issue can be
addressed. And in this case, probably the private sector can play a big role.
And the second is what I call or what the report calls
political opportunity. The only way to overcome this is by political
participation and making sure that we have the rule of law, all the items that
were discussed this morning.
Will a Marshall Plan make
sense in the absence of a political settlement? I mean, also now at this point
I'm venturing my personal opinion because of my knowledge of the region. I think
two types of actions are needed. One is to help the region reach a political
settlement, and the second is peacebuilding once political settlement is
reached.
In order to move towards a political
settlement, probably a lot needs to be done in the areas that were identified in
the report, and they touch not only on the Palestinians but other countries of
the region. So I look at it as activities that will help us reach that goal and
then activities that will help us build on any political settlement to make sure
that peace has a chance and will change the lives of people in the region.
REP. LEE: And let me just ask you one other question. Mr.
Chairman, may I have another -- do I have a little bit more time? Your report
also called for the complete empowerment of Arab women. How do you see that
emerging, and what is it that we can do to enable Arab women to move forward in
the full empowerment effort, and how long do you think that may take?
MS. HUNAIDI: There are a number of impediments. A certain
set of impediments have to do with whether women are getting the proper
education, and whether they are being trained, they are given the capabilities
that are a necessity for them to participate fully in economic and political
decision-making. And this is an area where I think U.S. aid or assistance
that goes to the region, it can focus on, which is how do we -- how women obtain
their capabilities.
The second, has to do the legal
rights of women. As we mentioned in the report, the women are deprived of many
legal rights and equality before the law. In some cases they're not allowed to
vote and participate in elections and so on. In many of these cases you will
find that governments have been more progressive than the generous --
(inaudible) -- were. But in Jordan it was the government which proposed
legislation in order to address the issues of honor crimes. In Kuwait it was the
government that proposed to parliament a legislation that -- the objective of
which was to give women equal political rights. In certain cases I think
governments of the region can benefit a lot from technical assistance and
probably support from the United States in order to make this happen.
REP. LEE: How important is culture and religion though, as
it relates to impediments to the empowerment of women? Is that an obstacle as
you see it? Did your report go into that at all?
MS.
HUNAIDI: Some maintain that it is an obstacle, but my opinion is probably the
most serious obstacle is lack of opportunity. I mean, it has been the case in
Arab countries in many other regions of the world where you have a recession and
people start fighting for job opportunities and they just can't find them.
Usually the first victim would be women's opportunities in obtaining a job. So
that's why we are calling that any move or any strategy by governments of the
region will really need to look at the three, because which is you build
capabilities and then you create opportunities and you also liberate
capabilities.
If we focus on one and we ignore the
others, then we risk the emergence of a mismatch or an imbalance that may not be
helpful for our country.
REP. LEE: Thank you, Dr.
Hunaidi.
REP. HYDE: Mr. Leach.
REP. LEACH: Thank you, Mr. Chairman. First let me say that I think Mr.
de Soto has raised a very interesting philosophical contrast between the
Marshall Plan and MacArthur -- but it's a very frail one. After all, General
MacArthur was the military commander of a foreign country, and we don't
visualize that happening in the Middle East. And so that contrast is a very
serious one.
But you do raise some timely and
substantive kinds of concerns that I think are really at the heart of what
Congress has to be concerned about. What Chairman Hyde is suggesting implicitly
is that within all of the context of all of the Middle East issues the United
States Congress is prepared to help provide hope at the end of the road, if
there is a peace agreement. And that is a very important ingredient in the whole
circumstance.
Then there is the timing situation. And
their -- from America's point of view is it pretty clear that an
Israeli-Palestinian settlement is probably the single greatest issue in our
foreign policy -- not just the foreign policy and the concerns of the region,
but in the United States national interests. And the difficulty we are
confronted with, and the world is confronted with, are two parties that have
decision-making outside of our control; that is, it is important for the United
States national interests, but to get there we have to have Mr. Sharon and Mr.
Arafat or other leaders somehow come to agreements with each other.
And here it strikes me that there's some very interesting
dilemmas and catch-22s and chicken-and-egg circumstances. For instance, there
has been a lot of emphasis on process in negotiations without quite the same
emphasis on what is the final delineation of borders. So one of the questions
always is, Is a prerequisite for peace the ending of violence? If it is, can you
ever end violence? And then the question is, Can you have a peace process that
works without a delineation of the final product? And I think that is one of the
most -- maybe the largest issue on the table today.
Now, having said that, that then ties into can you have a Marshall Plan
without a peace? And that seems fairly unlikely. And then, if you can't have a
peace without a delineation of the final product, you are holding up the
Marshall Plan to that particular approach. And so it's almost a chicken-and-egg
circumstance without an incubating environment.
And so
my question is, and first to Mr. de Soto because of this intriguing notion of
MacArthur setting down new rules for society, and the Marshall Plan which is
basically assisting societies that have rules, at least historical rules that
were more appropriate -- can we proceed with anything like substantial American
assistance without a finally delineated border circumstance, or at least the
process to achieve a final delineation that everybody knows? And what comes
first, the aid or the agreements?
MR. DE SOTO:
Regarding your question, congressman, about the situation in which General
MacArthur found himself, I use that example to show the result of a very
successful U.S. program. But that program of creating property rights to find
peace is not only MacArthur in Japan, it is also Switzerland in 1908, it's
Germany in 1806. All the property systems in Europe, if you want me to use
another example, were borne out of conflict, and they took place during times of
conflict. In the case of Germany the idea was essentially to fight away
Napoleon. And the way to create a sense of sovereignty within Germany was to
give people property rights. And that's what the Stein-Hardenberg reforms were
about. So I chose an example simply to be close to the United States to be
understood. But essentially what I am saying is that the rule of law or the
entry point of property rights seems to mean what to achieve peace in many
countries, not only Germany -- excuse me, not only Japan being occupied by the
United States.
But you raise another interesting point
there, which is -- and I would like to take up the question asked before to Dr.
Hunaidi, which was, How does this relate to terrorism? And that I would like to
relate to property rights in just one minute. We don't find -- we haven't found,
since we have worked in countries fighting terrorism, like my own which was in
war with the Shining Path throughout the 1980s and early '90s -- we haven't
found that it's poverty that is at the root of violence; it's exclusion. Poor
people are generally docile people -- they are generally tame people. But when
poor people feel excluded -- this is basic Marx 101 -- they become alienated,
and that's when they take up arms and get very angry.
When you look at all the situations in Europe -- I will stay away from
Japan, though the laws of Japan and the history experience of Japan remains
perfectly valid -- but just simply to illustrate with an alternate one, when you
get a case like France where you have this territory between France and Germany
called Alsace-Lorraine, which has shifted sovereignty many times, like the
Palestinians have shifted sovereignty many times, as we heard Senator Mitchell
say -- the interesting thing about it is that property law was fully in order at
that time, and so Herr Schmidt owned his property and Monsieur du Pont owned his
property, and you didn't have terrorism, because people didn't have to rely only
on sovereignty to protect their assets. They could rely on property rights,
which is a much less conflictive way of looking at things. So I would tell you
that, yes, there is no reason why money well spent is not going to save lives,
it is not going to save a lot of suffering. But until you change the
institutions, until you give people property rights as well as sovereignty, you
will find that generally speaking you will not achieve the peace or prosperity
you would have found if you dealt first with the issue of creating a prosperous
market economy where people were individually secure.
REP. LEACH: Well, I thank you. My time is expired. I would only stress
that I am in agreement with you on the importance of property rights. In fact,
Locke, who was the philosophical godfather of Jefferson, talked about the rights
of life, liberty and property. But, having said that, the real issue for peace
right now is property, not property rights. What is the property of a new state,
and what is it going to look like? And I think you may be right that a potential
prerequisite for aid is to make sure that any aid that is given is
given in a structure where people can take advantage of the circumstance. To
take advantage of the circumstance in a socially important way involves property
rights, so that you have among other things not simply the right of theft of
people in high office but I think property at the moment in terms of sovereignty
probably comes before property rights in terms of getting to a peace itself.
MR. DE SOTO: Am I allowed to react to that?
REP. HYDE: You certainly are. You are encouraged to
react.
MR. DE SOTO: Thank you very much. The way we see
it, from my institute, from my research organization, is that essentially human
beings have found two ways to organize the surface of the earth, which is what
we live on. One is called the concept of sovereignty, where essentially it's
government to government. And the other one is the concept of property, which is
individual to a government, individual to individual. And they are both very
highly interrelated. The countries that generally have sovereignty and property
rights are generally more successful. For example, when your troops fought
against Latin American troops back in the 19th century, yours had not only the
possibility of a sovereign United States, but also a property title in their
back pocket, and they were a lot more efficient, and you created a definitely
much more prosperous country than we did.
Next,
property rights not only helps create wealth, it also helps the enforcement of
the rule of law. How can you enforce the rule of law where you don't have
addresses? You were victims of an atrocious attack back on September 11th, but
three days afterwards you knew where all the terrorists had been and how they
got organized, because they left, thanks to property rights and records, a paper
trail, so that you could identify them and eventually inoculate the cells that
created that violence.
Well, Osama bin Laden, who lives
in a country without property rights is very difficult to locate. You can
enforce the law, to start off with, if you don't have property rights. You may
recall, Mr. Congressman, that there is a very amusing series on U.S. television,
or there was at least at one time, called "Miami Vice," which consisted
basically of two good looking American policemen that generally were after a
Colombian or a Peruvian like myself. And as you go through that series, you will
see that at the beginning they go, and they go to one address, and they ask,
"Where is Hernando?" And they say, "He's not here -- he's at 101 Ocean Drive."
And then they go to a second address and they find out that he's in 353 Stewart
Street. And 45 minutes later they catch him. You can't have police action -- you
can't enforce anything against terrorism in a civilized manner without
addresses, and addresses are a product of property rights as well as wealth.
REP. LEACH: You are welcome in this country at any time.
(Laughter.)
MR. DE SOTO: Thank you.
REP. HYDE: Thank you, doctor, and Mr. de Soto. We will take a recess,
and you are dismissed so you don't have to hang around. You've made a great
contribution. We will feel free to get back to you with more specific questions
if we have them. And I want to thank you for your contribution.
MS. HUNAIDI: Thank you, Mr. Chairman.
REP.
LANTOS: Mr. Chairman, I want to join you in thanking our two distinguished
guests. They have made significant contributions.
REP.
HYDE: I will announce a resumption at 1:30, so you have 45 minutes to get
luncheon or whatever. Hillel (ph) promises to show you how to get lunch. I
haven't figured that out myself. And we'll see you at 1:30 -- except Mr. de Soto
and Dr. Hunaidi, who are free to go.
