The rights that make us rich

By MIKE MOORE

The struggle against poverty is being won, and where it's going backward there's a reason. The reason is manmade, which means it could be solved by the correct policies.

In the past 60 years, more wealth has been created than in all of history. The number of people living on less than a dollar a day has dropped from 40 per cent in 1981 to 18 per cent in 2004.

During the same period, the numbers living on less than $2 a day have dropped from 67 per cent to 48 per cent. Alas, half a billion still live on a dollar a day, and 2.6 billion on less than $2 a day.

The worst places are where there are war, corruption, vicious leaders and closed economies. These are always run by the most unpleasant of leaders. If they don't allow economic rights, then they are most likely to suppress human and political rights.

I'm the least distinguished member of a United Nations Commission on the Legal Empowerment of the Poor, chaired by former United States secretary of state Madeleine Albright and Peruvian economist Hernando de Soto.

It also includes a former US Treasury secretary, a US Supreme Court justice, former presidents of Tanzania and Ireland, a Nobel prizewinner from Iran, and former finance ministers from Egypt and Afghanistan. The commission's report may change the thinking on how we alleviate poverty.

Private ownership works. Open economies always do better, competition and trade drive up better results and drive out corruption, as well as allocate resources more efficiently.

A free market without solid, trusted institutions, property rights, independent courts, a professional public service and democracy is not a free market but a black market.

Firm, predictable civil institutions create a vital factor to promote success. Trust in the courts, in contracts, is a serious issue. People are driven underground when they don't trust their institutions, which is why the informal economy makes up 40 per cent of the wealth of developing countries. This relegates local businesses to the back streets. Evidence abounds that, when trust emerges, investment increases. When China established de facto securitisation of property and liberalised agriculture, productivity jumped about 42 per cent between 1978 and 1984. People without property rights cannot realise their assets.

Informal capital in Peru is estimated to be worth US$74 billion (NZ$95 million), Egypt US$248 billion, Tanzania US$29 billion, Albania US$16 billion, and Mexico US$310 billion.

Of all the real estate in Latin America, 80 per cent is held outside the law. The poor and indigenous people are not without assets; in Egypt the assets of the poor are 50 times greater than all foreign investment ever recorded. But in Egypt it can take 500 days, 29 visits and 29 agencies, compliance with 315 laws, and costs 27 times the monthly minimum wage to open a bakery.

In New Delhi, there's an estimated 500,000 bicycle rickshaws driven but only 99,000 licences allowed for legal drivers. Same story for street hawkers who are kept in limbo and pay up to a third of their incomes to stay in business.

Licensing and restrictions create opportunities for bureaucrats to take bribes and steal. In the Philippines, 65 per cent of homes are unregistered, in Tanzania 90 per cent. This explains why millions build their homes and businesses illegally.

Bringing people out of the shadows formalises what they already own and safeguards them from predatory bureaucrats and local mafia. It widens the tax base which in turn makes people want to hold their politicians accountable for spending their money, not just favours.

Access to justice – getting your case heard – is important. India has only 11 judges for every million people, and some civil cases can take 20 years to reach court. Around a million cases are pending in Kenya; the average judge in the Philippines has a backlog of nearly 1500 cases.

We can establish property rights which will encourage people into the formal economy. It's not that radical, it simply suggests that poor people in poor countries should have the rights that rich countries have. Perhaps that's why they are rich.

* Mike Moore is a former prime minister of New Zealand and former director-general of the World Trade Organisation.