Knowledge, Archives and Development

Hernando de Soto, Director of Peru’s Institute for Liberty, and author of The Other Path and The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, opened his address by stating he believed the Bank’s new policy of making its archives more open to the public can promote more than just more development, but peace as well. De Soto said that when he returned to Peru in the late 1970’s, a terrorist movement called the Shining Path was entrenched throughout the country. He wondered why such a violent movement had support and wondered what grievances they may have had. He began to conduct surveys. He learned that Peruvians wanted a clear sense of property ownership and wanted to improve their entrepreneurial opportunities. From his research, de Soto said he learned that the Shining Path had come to a similar conclusion. The Shining Path was extending informal, non-legalized property rights in rural settings, just as Mao, Ho Chi Minh and Napoleon had done before them. In urban settings, the Shining Path was helping micro entrepreneurial activities. De Soto said he realized that there was something fundamentally important about what he had learned. Recording of assets and titling of land was not new for Peru, however. The Spaniards had recorded property of the indigenous Indians hundreds of years earlier. Something was missing.

To find out what was missing, de Soto said he contacted the World Bank. He said he thought that the Bank could provide the right sort of information to understand what was not working in Peru. Knowledge, de Soto said, must also include the knowledge of failure. The success of market economies is the knowledge of failure. Progress cannot be achieved without a clear idea of what not to do. The Bank, he noted, has more knowledge about development failures than anyone else and therefore has the most valuable knowledge at its disposal. To make a comparison, de Soto noted that in a command economy, knowledge of failure is forbidden. Conversely, the Bank’s archives contain the roots of success, he said. De Soto said he went to the Bank to access information on their project work and reports. He wanted to go further and talk with project managers to learn what they knew. He was denied. So, he turned to friends in the U.S. government, which regularly received the information from the Bank that he was seeking as an interested stakeholder. What he learned was that the Bank had been involved in many failures, and thus had a tremendous vault of knowledge. There is no excuse for holding back information when you have a wealth of it, de Soto asserted. He began to look at information on a large Bank project in Brazil. Without access to Bank records, he talked with former Bank staff and consultants to learn what they knew. The issue in Brazil, he learned, was not land tenure but the rule of law. Residents wanted all the benefits associated with the rule of law, and that included things beyond property rights. De Soto said the second thing he learned from the Bank officials was that a large percentage of money was spent on record keeping and cartography. Mixing legalization with redistribution does not work, he added. De Soto said that what was also learned was that the former Bank project managers complained about the lack of political support. That made him realize the stakeholders best positioned to change the laws were the politicians. He recounted an anecdote from American history that revealed it also was a violent society until the establishment of property rights. Ownership must also be tied to credit. Most employment comes from small business in the U.S. Business owners get loans from lenders using their property as credit. Without property, people have trouble getting credit. He cited an example of the impact of titling on getting credit. The Peruvian telephone company was worth $53 million on the stock exchange, but when it was privatized and titled was worth $2 billion.

Learning these lessons could not have been possible without access to the knowledge the Bank had created. Motivated by the desire to achieve peace in Peru, de Soto and colleagues had aggressively pursued the Bank’s information. He characterized the effort to learn about failure, going the extra mile, which de Soto said is where all the solutions are. He called the Bank’s new disclosure policy courageous. To understand the lessons that have been learned by the Bank in development and to identify opportunities for the future, the archives must be available, he suggested. He said it was not only a matter of human rights, free speech and democracy, it was the way the Shining Path was defeated to achieve peace and help build a democratic society. He urged the Bank to go further in its disclosure trend by making information available in bulk rather than only the type of information that external stakeholders were specifically requesting.