From Peru to Persia, Economic Freedoms for Everyday People

Hernando de Soto’s October 10, 2014 Wall Street Journal essay is titled: “The Capitalist Cure for Terrorism: Military might alone won’t defeat Islamic State and its ilk. The U.S. needs to promote economic empowerment.”

The article includes a short WSJ video, and my previous post here includes a longer video with DeSoto making his case for economics-based policy. In the WSJ interview, DeSoto explains how the U.S. could shift its emphasis (first by just announcing it). “Why don’t we take that extra step?” asks the WSJ interviewer. DeSoto responds by citing successful U.S. policy priorities in both Japan and Germany after World War II.

DeSoto notes that terrorists took over much of Peru a generation ago for much the same reason: the majority in poverty lacked of access to the legal system so many were willing to support Shining Path revolutionaries who promised reform.

DeSoto says “the West must learn a simple lesson: Economic hope is the only way to win the battle for the constituencies on which terrorist groups feed.” Today many seem to believe such economic reforms aren’t possible in Syria, Egypt, Iraq, and Iran. Many similarly believed Latin American cultures were somehow not ready or open to economic and legal reforms. DeSoto responds:

The conventional wisdom proved to be wrong, however. Reforms in Peru gave indigenous entrepreneurs and farmers control over their assets and a new, more accessible legal framework in which to run businesses, make contracts and borrow—spurring an unprecedented rise in living standards.

Because economic and legal reforms were not a priority for the U.S. State Department and the other federal agencies spending billions to help “rebuild” Iraq, market reforms never happened. As I argued in an earlier post: Because the U.S intervention in Iraq wasn’t able bring economic freedom and secure opportunities for everyday people to start business enterprises, Iraq continues to be a failed state. Megan McArdle’s Atlantic article (“When Freedom is Bad for Business“) reports on the lack of economic freedom in Iraq. McArdle’s blog post on the story, “Doing Business in Iraq,” adds more details.