Question

In: Economics

What are the key issues discussed by Hernando de Soto, particularly related to why capitalism and...

What are the key issues discussed by Hernando de Soto, particularly related to why capitalism and free markets tend to work in the United States, but not in many other parts of the world. What would Hernando de Soto say should be done to improve the economic progress of less developed countries.

Solutions

Expert Solution

Hernado De Soto is one of the key economists to have defined the core reason for the wealth of the free markets or those markets which are well developed and compared it rightly so with the underdeveloped ones.

He advocated that the core reason as to why, developed nations are so prosperous are because they offer property rights to one and all, because of which business owners not only own the business which they run for numerous years, but also the property wherein the business currently stands. This allows continuous income generation for the developed world which is lacking in the developing or underdeveloped. He also stated the same for household properties as well.

In his theory, he mentioned that the ability of households as well as business owners to take loans from commercial banks and expand their operations is limited to the developed world. The developing or underdeveloped worlds lack this and always remain at a significant risk of losing title over their property to the government or to others.

This he believed is the core reason for the existence of poverty in developing as well as underdeveloped regions across the globe. He was of the firm assumption that the only way forward to ensuring that all sections of the world improve on their lifestyle and living conditions could take place, only when strong property laws were put into place.

Once property laws are placed in developing and developed nations, he believed that assets will turn into cash making ones and entrepreneurship would stem from the easier availability of loans to all kinds of people. This he believed is the core differentiation between a rich and a poor country, and would allow for higher gains to business if implemented correctly.

Please feel free to ask your doubts in the comments section.


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