The Mystery of Capital and the Indian property ... critique of Hernando de Soto

The Peruvian economist aims to revive his questionable ideas about the origin and nature of wealth by taking them to the Peruvian Amazon
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By Cesar Reyna

One of the main problems that continued to unnerve the state and indigenous communities is how to limit the lands of the latter. That is, the most appropriate way to recognize their property rights over the areas they occupy. The dilemma is generated by the lack of compatibility to secure their land under the notion of ownership as set out in the Civil Code and the ancestral concept that manages Amazonian tribes. Among both orientations there are unbridgeable differences as the natives believe that forests are part of their cultural identity. They do not only conceive of nature as a prodigious resource, but as a living environment to which you owe respect and is the base of their identity. The organic and sacred character ascribed to their habitat is of importance while most Westernized Peruvians place significance on the value of their assets. These represent contrary views as Westerners are detached from the earth, that is, they exploit the earth for their own economical benefit.

It is important to have an understanding of both views as it will impact the debate over tribal property. If we establish rights and limitations based on the Civil Code and other complementary standards, we not only aggravate the problem, but we will demonstrate our intolerance and insensitivity. Neither the Civil Code nor the laws enacted by Congress on the subject property take into consideration the native definition of property nor the ideas of economist Hernando de Soto, who argues that by regulating and defining property rights of the natives they gain immediate access to wealth. To resolve the dispute, a united and multicultural vision should be incorporated even if it goes against many legal and economic beliefs.

The solution lies in adopting a unique form of ownership since the West does not recognize the relationship that the indigenous has with the earth. The form in which Cofopri (Agency for the Formalization of Informal Property) gives title to the land is not congruent with the lifestyle of Amazonian people. The authorities disregard the fact that these people constantly migrate within a vast area in search of food and medicinal plants, as well as to escape floods and the harmful effects of deforestation and environmental pollution. The aboriginals hunt, fish, gather fruits and pass their knowledge to young people by taking them into the dense jungle. They are travel many kilometers to support their families and to maintain their ties with nature. Any limitation whether it be capricious, arrogant or wrong directly affects their view, that is to say, the way in which things are conceived.

The only one way to respect their right to existence is to recognize them as natives and extend to them land ownership without limitation or reduction to a particular geographical area. Recognition must be made on the basis of the traditionally occupied territories (acknowledging that some areas overlap; are shared with other people). Therefore to give them "x" acres of forest in a collective manner as required by law, or individually, as proposed by De Soto, fails to resolve the issue because it leads to confinement and a loss of connection to nature. The Western notion of ownership is not a conceivable solution unless it seeks to wipe out the natives as did the Spanish Crown when in 1570 it implemented the Toledo reductions, in which many Andean and coastal ethnic groups were mixed in order to facilitate cultural assimilation, through forced study of Spanish and religious conversion.

Another reason to abandon the concept of ownership as per the Civil Code is that there are isolated tribes and others who have chosen to ignore the state and modern civilization to preserve their customs. These people must be respected as they have decided to live in the same way as their ancestors. Entrance by into their territory by illegal loggers, oil companies and settlers living from agriculture, could endanger their immune system has it has not built up defenses against infections foreign organisms.

De Soto has done well to recognize that process of communication must take into consideration the interests of communities. Prior consultation alluded to in his documentary is a constitutional right which addresses minority rights. This right allows them to know in advance the effects and potential harm of any incursion into their territories.


To date, Cofopri and regional governments have securitized 13,788,953 hectares in the Amazon. This is not the most effective way to approach the matter as the Indians will continue to move within the jungle as they have done in the past. Further problems will arise because the allocation of a certain number of hectares, which is reflected in proportion to the number of members belonging to a tribe or community, is totally unviable. In addition, the traditional use of the forests and their resources by the Amazonian people is unknown thereby making it unfeasible.


Many advocates of economic liberalism (entrepreneurs, analysts and academics) hide behind the Constitution indicating that the subsoil resources belong to the nation so only few can exploit them. However these resources are located in the naturally protected areas and territories that belong to the natives. Many claim to be liberal and boast of it, but if they were indeed they should argue the opposite. Namely that the land owner also owns the subsoil, as in America, where ordinary people can dig wells exploit oil and mineral deposits without state intervention.


De Soto intended to "green" in the Peruvian jungle with his theory that the capital was born miraculously of the property (recognized land titles in order to be more exact). The proposal could not be verified in slums, informal settlements or neighborhoods of poor countries, is now sought in the Amazon where there are property disputes and many riches to be exploited. As in the sands of Lima there was only dry land without basic services that can serve as collateral to banks for loans granted. His analysis is now focused on the jungle where he hopes to receive the recognition he was denied.

The commercial that promotes the documentary "The Mystery of Capital of the Indigenous Amazonian" features a native of the state of Alaska and an Aboriginal Bora from the Peruvian jungle. The Alaskan native talks about his success in business and the Aboriginal Bora talks about her material poverty. The Alaskan native runs a corporation that generates revenues of 2.3 million dollars a year while the Aboriginal Bora has nothing. The difference between the two, according to de Soto, is that the former uses the mechanisms offered by the market and the other does not because she is unaware of them or lacks access to them. A point not mentioned is that the Alaskan native has proprietary rights over the subsoil and all their wealth (such as oil), while the Aboriginal Bora does not because the Peruvian constitution states that the Peruvian State is the sole holder of the natural resources.

If Native Americans have prospered it is because they have received generous compensation from the state and enjoy privileges not available to other citizens and corporations, such as tax exemption on their reservations where they build casinos and luxury resorts.

In theory De Soto’s idea seems simple because it would only have to provide title to all natives so they can interact in the market like any other trader. However, the issue is not as simple due to the bureaucratic red tape and informality that impedes the development of the natives. The issue is much more complex and can not be addressed solely from an economic perspective but requires a multidisciplinary and multicultural format.

The Peruvian economist thinks that the granting of titles is the only prescription for all ills of the Indians. Without adequate knowledge of legislation governing native and communal property, ventures to propose ideas that exist in law and the very existence of indigenous communities there is the possibility that they will transfer part of their territory to third parties for commercial purposes. (There is a minimum number of people from whom the government wanted to facilitate the transfer of their land.)

What de Soto proposes is that every family can own a portion of the collective territory, thereby dividing the communal property to facilitate the inflow of capital to the Amazon. Some natives will be interested in selling, while others will lease. The rest will preserve their land as is so as to maintain their roots. To allow the division of communal property to be condemned as ethnic jungle without land, the main element that unites many of its members, will lead to migration to other places, separating the members of their community. Many languages, customs and ancestral traditions would be in danger of disappearing if the vision of De Soto becomes a reality.

The ignorance of De Soto is alarming because it ensures that the natives do not receive any compensation when a company enters into their territory to quarry for an oil, gas, etc. This is not valid as companies must reach an agreement with native and peasant communities before beginning exploration or exploitation in their territories. The natives must be financially compensated for the use of their land and changes to their lifestyle.

The main error of De Soto, who seems not to have read Adam Smith, is that he believes wealth comes from what he produces or can be extracted from the earth. Physiocracy, a school of economic thought originating in France, was defeated over two centuries ago precisely because Smith, the father of political economy. De Soto believes that wealth comes from the ground but does not mention take into consideration intellectual capital, which is what really moves the world. De Soto is the antithesis of thought as Antonio Raimondi, who also believed that wealth was under the earth but not the talent of individuals.

Larger countries like the U.S., Japan, China and the European Union were not developed based on the exploitation of natural resources, but rather based on the contributions of human capital expressed in products, innovations, designs, patents, technologies and marks.