What results when people don’t have firm legal title to their property, protected by the government? Hernando de Soto, a Peruvian economist, told us in his classic The Mystery of Capital: The impoverished Third World is the result.

As de Soto documents, vast portions of the human race, in the billions of people, are hard-working, honest, thrifty … and hopelessly trapped in poverty, in favelas and shanty towns with unreliable services dominated by criminal gangs, for one simple reason: It is almost impossible for the poor to protect their property rights. The elites that dominate such societies have set up formal legal systems that take no account of the real, existing property relationships. Hence most of the populations of enormous human settlements such as Mexico City or Rio de Janeiro are formally squatters, with no legal claim on the homes that they built, the land they improved, or even the businesses that they founded.

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