I agree with you and I think that you are saying much the same thing that Hernando de Soto is saying. So, let’s think about what that model involves.

The United States was designed to be a market economy based on the ideas of the Enlightenment, which were popular at the time that the US Constitution was drafted. So, what are some of those key concepts of the Enlightenment?

Adam Smith in the Wealth of Nations talked about his proposed system of free markets as "a system of liberty." It is nice that free markets create wealth, but even more important to Smith was the fact that a free market economy is a voluntary system, which allows each individual to make her own choices about what she will buy, what she will sell, as well as what she will do for a living. All this can be decided by each person, without a king or someone at the center making all the important economic decisions.

Another important idea of the Enlightenment is "private property." The development of this concept ties into the development of the Common Law, as well. The history of the Common Law is a history of gradually developing areas of legal protection for the individual against the power of the Crown. At the center of these protections is property. If you "own" something, that means that you have certain rights related to that thing, which are protected by law. The King cannot say to you, hand over your house or your business, without following specific rules. This is clearly stated in the 5th Amendment to the Constitution. The government cannot take your property, without granting you "due process of law." Further, if your property is taken, the government must pay you just compensation for the value of your property. Thus, under the US constitution you could not have a situation like we saw in Bolivia this week, where the government nationalizes an industry by sending in the troops without any due process and the payment of fair value.

While there are Civil Law countries, which have developed good systems of property law, the Civil Law has a much different history than the Common Law. While Common Law developed as a restriction on the powers of the Crown in favor of the individual, the Civil Law was developed by the Roman Emperor Justinian in the 6th Century AD, when he gathered legal codes from all over the empire and had legal scholars standardize the law and create one set of laws for the entire Empire. He then had all the prior laws destroyed to ensure that the same law would be applied everywhere.

As you would expect, the interest of an emperor is not in checking his own authority, but in maintaining his power and preserving stability throughout the empire. The great popularizer of the Civil Law throughout the world was Napoleon. Napoleon imposed the Civil Law on the lands which he conquered and in turn some of those lands imposed it on lands that they conquered. The Civil Law was also voluntarily adopted in places like Japan, by regimes with many of the same interests as Justinian and Napoleon, i.e., stability.

Latin American countries are all Civil Law countries. The US and Canada (with the exceptions of Louisiana and Quebec) are Common Law countries. So, why do countries in Latin America still hang on to incredibly complicated property systems? Here I can only speculate. First, if you are at the top of the pile and you want to maintain your control, a complicated property system gives you incredible leverage and discretion in determining who get what in society. If you want to help your friends and punish your enemies, the government has a great deal of control over who gets to own what. Second, if you are a corrupt government official, a simple property system will hurt your bottom line. Many Latin American countries have 100 to 200 steps required in order to obtain title to real property. Each step is an opportunity to extract a bribe. In many countries, government salaries are very low. But, government jobs are seen as real prizes, because people filling those positions expect to make a lot of money through bribes. Third, there is probably still a lot of fear in simply letting go. More than 200 years after Adam Smith, there are still a lot of people out there who have a hard time believing that allowing people their freedom will not simply end in chaos. Even in America, it is not hard to find people who think there must be a conspiracy of powerful people someplace, who are secretly pulling all the strings.

 For whatever reason, those countries without the Common Law history behind property rights still struggle with ideas that the Common Law generally takes for granted. But, even with this strong history behind the Common Law, there are still times when this idea has been challenged. This happened in Great Britain after World War II, and in India when it gained independence from Great Britain. In both countries, the abandonment of the importance of private property led to economic disasters. In recent years, both countries have turned back toward the importance of private property and while India still has much to do, both countries have benefited greatly.