Assessing De Soto

The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else by Peruvian economist Hernado De Soto has been on my to-read list for a while. De Soto's thesis is interesting: the reason capitalism hasn't resulted in a robust middle class in the Third World is because the majority of people living in the Third World are squatters who do not have title to the land and house they are living in. Without a title, they cannot use their equity in their home to bootstrap a small business like is common in the West.

However, it may not work out so well, as John Gravois reports in Slate. The reason? Houses in slums aren't worth anything, so after the government gives squatters titles, the banks just change their lending policies.