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THE CALL FOR ECONOMIC LIBERTY IN THE

ARAB WORLD

HEARING

BEFORE THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED THIRTEENTH CONGRESS

FIRST SESSION

MAY 21, 2013

Serial No. 113–35

Printed for the use of the Committee on Foreign Affairs

(

Available via the World Wide Web: http://www.foreignaffairs.house.gov/ or

http://www.gpo.gov/fdsys/

(II)

COMMITTEE ON FOREIGN AFFAIRS 

EDWARD R. ROYCE, California, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

ILEANA ROS-LEHTINEN, Florida 

DANA ROHRABACHER, California 

STEVE CHABOT, Ohio 

JOE WILSON, South Carolina 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

MATT SALMON, Arizona 

TOM MARINO, Pennsylvania 

JEFF DUNCAN, South Carolina 

ADAM KINZINGER, Illinois 

MO BROOKS, Alabama 

TOM COTTON, Arkansas 

PAUL COOK, California 

GEORGE HOLDING, North Carolina 

RANDY K. WEBER SR., Texas 

SCOTT PERRY, Pennsylvania 

STEVE STOCKMAN, Texas 

RON DESANTIS, Florida 

TREY RADEL, Florida 

DOUG COLLINS, Georgia 

MARK MEADOWS, North Carolina 

TED S. YOHO, Florida 

LUKE MESSER, Indiana 

ELIOT L. ENGEL, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

THEODORE E. DEUTCH, Florida 

BRIAN HIGGINS, New York 

KAREN BASS, California 

WILLIAM KEATING, Massachusetts 

DAVID CICILLINE, Rhode Island 

ALAN GRAYSON, Florida 

JUAN VARGAS, California 

BRADLEY S. SCHNEIDER, Illinois 

JOSEPH P. KENNEDY III, Massachusetts 

AMI BERA, California 

ALAN S. LOWENTHAL, California 

GRACE MENG, New York 

LOIS FRANKEL, Florida 

TULSI GABBARD, Hawaii 

JOAQUIN CASTRO, Texas

AMY PORTER, Chief of Staff THOMAS SHEEHY, Staff Director

JASON STEINBAUM, Democratic Staff Director 

(III)

C O N T E N T S 

Page

WITNESSES 

Mr. Hernando de Soto, president, Institute for Liberty and Democracy ............ 8

The Honorable Madeleine K. Albright, chairman, Albright Stonebridge

Group .................................................................................................................... 24

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

The Honorable Eliot L. Engel, a Representative in Congress from the State 

of New York: Prepared statement ...................................................................... 3

Mr. Hernando de Soto: Prepared statement .......................................................... 11

The Honorable Madeleine K. Albright: Prepared statement ............................... 26

APPENDIX 

Hearing notice .......................................................................................................... 50

Hearing minutes ...................................................................................................... 51

(1)

THE CALL FOR ECONOMIC LIBERTY IN THE 

ARAB WORLD 

TUESDAY, MAY 21, 2013

HOUSE OF REPRESENTATIVES,

COMMITTEE ON FOREIGN AFFAIRS,

Washington, DC. 

The committee met, pursuant to notice, at 9:40 a.m., in room 

2172 Rayburn House Office Building, Hon. Edward Royce (chairman of the committee) presiding. 

Chairman ROYCE. This committee will come to order. Today we 

will look at the economic factors behind the unrest in the Middle 

East and the unrest that swept across North Africa. In particular, 

we are going to look at how the basic lack of access to property 

rights, the basic lack of access to rule of law, and the basic existence of endemic corruption contributed to the economic hardship of 

tens of millions. 

The upheavals that have swept across the Middle East and 

North Africa since 2010 have forever altered the region’s political 

landscape. They call into question longstanding U.S. policies toward Arab governments. They also present an historic opportunity 

to advance reforms that would economically empower impoverished 

individuals throughout the region and ultimately help stabilize 

these countries. 

Unfortunately, generations of families in the Arab world have 

been forced to endure human rights abuses, forced to endure political repression. So it would be easy to mistake the Arab Spring for 

a purely political uprising. But that would mean overlooking a key 

source of the region’s justifiable unrest. 

It was not the speeches of opposition leaders that inspired millions to take to the streets. From a fruit vendor in Tunisia to the 

unemployed youth, these protests were driven by students and 

merchants and would-be entrepreneurs demanding the opportunity 

for a better future, demanding their economic liberty. 

Economic repression, not ideological strife, is what has driven so 

many Tunisians and Egyptians and Yemenis to the drastic step of 

suicide in recent years. Regrettably, this alarming trend of self-immolations has continued along with the calls for change throughout 

the Arab world. 

In a political transition, those giving aid have historically focused 

on strengthening political parties, on organizing elections, on writing constitutions, on drafting laws, but what happens when the 

popular uprisings are, in this case, more economic than they are 

political? What happens in that set of circumstances? If we don’t 

2

consider the economic forces behind the Arab Spring, the lack of 

legal protections for personal property, the endemic corruption, and 

other constraints to growth, then no amount of U.S. aid will bring 

prosperity to the region, which is very much in our interest. 

We need a major shift in how we view these countries if we are 

going to respond effectively. For example, can economic growth be 

achieved in an environment where the majority of citizens are systematically barred from entering the formal economy—where it 

takes thousands of dollars and up to 2 years to obtain all of the 

proper permits and all of the proper documentation to get a license 

to even make a living? How can access to credit programs be sustained when the majority of entrepreneurs don’t have secure property rights and, thus, real means to provide collateral? 

Unfortunately, overcoming these constraints to economic freedom 

and growth in the Middle East and North Africa is not going to be 

easy. It is not simply about getting good laws on the books. In 

many cases, reasonable commercial and personal property rights 

laws already exist there on paper, but these laws do not materialize in practice. And that is the problem. 

Today we will hear from Mr. Hernando de Soto, an economist 

who literally wrote the book on the importance of these types of 

changes and the importance of moving from the informal to the formal sectors in the developing world. He has worked closely on 

those issues with former Secretary of State Madeleine Albright, 

who offers her own unique perspective on the relationship between 

the rule of law and economic prosperity. We are fortunate to have 

them both here today to discuss how U.S. policy should respond to 

these challenges. 

At this time, I would like to recognize our esteemed guests from 

the diplomatic community as well as a delegation of private sector 

leaders from the Middle East and North Africa. We want to recognize those who are with us as well. And they are working to realize 

the economic aspirations of the people of their region. Thank you. 

I will now turn to the ranking member of the Middle East and 

North Africa Subcommittee, Ted Deutch, for his opening remarks. 

Mr. Deutch? 

Mr. DEUTCH. Thank you, Mr. Chairman. I thank you for holding 

today’s hearing. Thank you to our distinguished witnesses for being 

here today to discuss this vitally important topic. 

Ranking Member Engel couldn’t be here because he had to attend a funeral this morning. Mr. Chairman, I ask unanimous consent to enter his statement for the record. 

Chairman ROYCE. Without objection. 

[The prepared statement of Mr. Engel follows:]

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Mr. DEUTCH. It has been only 21⁄2 years since the Tunisian street 

vendor changed the course of history in the Middle East. And, as 

we all remember, Mr. Bouazizi, an unlicensed street vendor, was 

being harassed by police and accused of evading an arbitrary fine. 

The police confiscated six crates of his fruit and his electronic scale, 

slapped him in the face, and denied him any appeal. 

In debt, tired of being harassed, and without recourse, Bouazizi 

set himself on fire. His act became a catalyst for the Tunisian revolution and wider regional upheaval, inciting demonstrations and 

riots throughout and protests of social, political, and economic 

issues. 

After years of brutal repression of freedoms and human rights 

abuses, the people of Tunisia, Libya, Yemen, and Egypt deposed 

long-time dictators and are now struggling to rebuild their shattered nations. And it has not been easy. 

Syria is engaged in a bloody civil war as Assad slaughters tens 

of thousands of Syrians in a desperate attempt to cling to power. 

We cannot ignore the impact that this harrowing struggle is having 

on the region as millions have been displaced from their homes and 

their country. 

As the youth population in the Arab world grows, their calls for 

a better life will not be silenced. As Mr. de Soto has previously 

written, there were institutional barriers that kept Bouazizi and 

others like him from ever ascending into the formal economy. At 

the time of his death, it would have taken at least 140 days and 

$3,000 to register his business. The $3,000 is roughly 12 times his 

monthly net income and subjected Bouazizi to a life with no social 

or economic mobility. 

Today, Egypt’s official unemployment rate is 13.2 percent, up 

from 12.6 percent in the first quarter of 2012. But the reality is 

likely that it is well beyond 20 percent. 

Political unrest has scared away direct investment and tourism. 

A major economic driver has yet to recover in North Africa. 

In the midst of Assad’s reign of terror, it is estimated that Syria’s 

economy has crumbled, shrinking between 30–45 percent since the 

start of the revolution. This continued contraction is impacting its 

neighbors, Lebanon and Jordan, as they struggle to deal with the 

sharp decrease in trade and the influx of refugees. 

According to reports last week, there has been a sharp slowdown 

in Lebanon’s economic growth since the start of Syria’s conflict 

from 7 percent to barely 2 percent. And Jordan is unable to find 

employment for its 1⁄2 million refugees. 

One bright spot is the announcement by the Tunisian prime minister yesterday that the economy grew 3.2 percent. 

While its economic inequality was an element of the instability 

that led to the Arab Spring, I am not convinced that it was the primary cause. We cannot discount the appalling lack of basic human 

freedoms, the role religion played in the region, sectarian rivalries, 

and the growing youth population. 

U.S. engagement in the region must respond to all of these factors. We cannot ignore gross human rights abuses. We must work 

to ensure basic freedoms, which will be essential to sustainable economic growth. 

7

There needs to be a true commitment to promoting democracy 

and human rights, substantial economic investment, and a serious 

attempt to address corruption so that a new generation of Arab 

youth isn’t subjected to the same stagnant government rule. USAID currently has $800 million in programs in 32 countries. 

They are strengthening the resource rights of many of the world’s 

poorest people. And I commend them for their work and encourage 

them, where possible, to engage in similar programs in the Middle 

East. 

Secretary Albright, as someone who has served this country during a time of great political and economic transformation around 

the world, we look to you and Mr. de Soto today for guidance in 

helping our committee develop a policy that facilitates a successful 

transition to democracy. 

Efforts to reform the economic and political systems throughout 

the Middle East and North Africa will take many years. And results obviously will not be immediate, but we face few foreign policy challenges of greater importance. 

And I look forward to your testimony. I thank you. And I yield 

back, Mr. Chairman. 

Chairman ROYCE. Thank you. Thank you, Mr. Deutch. 

This morning, we are honored to be joined by Mr. Hernando de 

Soto and by Secretary Madeleine Albright. Mr. de Soto is the president of the Institute for Liberty and Democracy, a globally recognized think tank headquartered in Lima, Peru. In his notable career, Mr. de Soto has held numerous positions in the public and 

private sectors, including serving as a governor of Peru’s Central 

Reserve Bank. Mr. de Soto is credited with designing the reform 

of Peru’s property system, which has provided land titles to over 

1 million people and helped integrate informal businesses into the 

formal economy in Peru. He has advised leaders in 30 countries 

and published numerous works, including his seminal work, ‘‘The 

Mystery of Capital: Why Capitalism Triumphs in the West and 

Fails Everywhere Else.’’

Secretary Albright was confirmed the 64th Secretary of State in 

1997, making her the first female U.S. Secretary of State. Secretary Albright currently serves as chair of the Albright 

Stonebridge Group, a global strategy firm; and is chair of Albright 

Capital Management, an investment advisory firm focused on 

emerging markets. She continues to serve in numerous positions, 

including chair of the National Democratic Institute and as a professor in the practice of diplomacy at Georgetown University. She 

has also authored five New York Times best sellers and in 2012 

was awarded the Presidential Medal of Freedom. 

We are going to go to two more opening statements for 2 minutes 

each. And then we will go to Mr. de Soto and Secretary Albright, 

but let’s go to our chairman emeritus here, Ileana Ros-Lehtinen. 

Ms. ROS-LEHTINEN. Thank you so much. Thank you, Mr. Chairman. 

And welcome to our witnesses. It is a delight to see you both 

again. And Secretary Albright is a real hero in our community for 

many reasons. 

As we have heard this morning, it is a challenge to understand 

the root causes of the Arab Spring because there is no one root 

8

cause for this movement, understanding any large-scale social 

movement is difficult. The image of the Tunisian street vendor selfimmolating in protest over government officials confiscating his 

goods has widely been credited as the catalyst for the start of the 

Arab Spring, but the tensions have been simmering for years 

across the region. 

These areas, as we know, are rife with poverty, with unemployment. The people lack economic mobility and security. And, most 

importantly, there is no democracy, no real foundation for democracy, to speak of. Corruption at all levels of the government is endemic. And these countries have large numbers of youth with no 

jobs; no prospects; and, worst of all, no other options. 

In 2009, the unemployment rate for the entire Middle East and 

North Africa region was 24 percent. In Libya, unemployment for 

those under the age of 30 before the Arab Spring was 23 percent, 

while it was 27 percent in Egypt, 31 percent in Tunisia. So it was 

just a matter of time before it all came to a head. 

There is no rule of law. The laws they have are prohibitive to fostering the economic growth that is needed. These countries can’t 

grow their economies. They can’t build wealth. And in order to do 

that, these countries need to dramatically and drastically reform 

their governments, reform the laws because the government needs 

to be reformed. And until that happens, the laws can’t be reformed. 

So, Mr. Chairman, thank you for calling this hearing because if 

the laws cannot be reformed from the bottom up, the economy cannot grow. There cannot be economic growth without security. And 

so we are stuck in a vicious cycle unless democracy comes to the 

Middle East. 

And I look forward to hearing from these two excellent witnesses 

about the way out and the way forward. Thank you so much, Mr. 

Chairman. 

Chairman ROYCE. Thank you. 

We go now to Mr. de Soto. 

Mr. DE SOTO. Thank you, Mr. Chairman. 

STATEMENT OF MR. HERNANDO DE SOTO, PRESIDENT, 

INSTITUTE FOR LIBERTY AND DEMOCRACY 

Mr. DE SOTO. I would like to say, first of all, how we Latin Americans got involved with the Middle East. We have been around for 

about 30 years. And it was simply because we had been studying 

what we call in Latin America, much of the Third World the informal economy and had, as a matter of fact, had an important role 

in Peru and El Salvador and a few other Latin American countries 

in terms, when there was great violence, of bringing these people 

into the formal economy and producing in the case of my country, 

what is today Latin America’s highest growth economy. And it was 

because the aid people came in and made the difference. 

Now, when we were called in, we were asked the first thing by 

the governments we work with, is, ‘‘Give us how big the informal 

economy is.’’ So I would like to define, first of all, what I mean by 

‘‘big.’’

Informal economy for us is all those who are entrepreneurs and 

who do not have the tools to do what entrepreneurs do, which is 

combine. God gave us natural resources. And He put them all in 

9

the wrong places. And the question is, entrepreneurs come. And 

they combine them and make things work and make them useful. 

Not one thing in this room comes from one place. Everything is a 

combination. And that is what entrepreneurs do. 

But entrepreneurs can’t bring things together if they don’t have 

nails or things that fix things together. Where do they need to fix 

things together? Not just the market. What they need is, on the 

one hand, a title to whatever it is that you have got because you 

have got to transfer it. And it has got to be a fungible title. 

You need limited liability. Otherwise every enterprise you get 

into, you are risking all the things you have got. 

You have got to have property so that you give it in shares. Otherwise, how are you going to raise capital? How are you going to 

guarantee credit if you do not have the possibility to collateralize 

your goods? What do you do if you don’t have a perpetual succession? How are you going to pass whatever business you own to 

somebody else? What happens if you have as your only hierarchy, 

your family, and not a business? 

Now, the question then is, how many people, how many enterprises; for example, in Egypt, with a team of 120 Arabs, will be 

able to determine that they actually don’t have these things in our 

enterprise? And the reply is 84 percent of all enterprises. In every 

Arab country, we have gone to 84 percent of all enterprises, or 

about 85, do not have those tools. It doesn’t matter what they are 

called. They don’t have them. 

When it comes to finding out how much of real estate is actually 

under the law that you can say, ‘‘Mahmoud lives here’’ and a certificate comes in and joins that, it is only 8 percent. Ninety-two 

percent are outside the system. 

When that happens, then everything that I think Representative 

Ros-Lehtinen,—and it is very interesting—all the figures, then, on 

unemployment come into doubt because what happens—your point 

is very interesting—is that even Bouazizi, who burned up—he was 

the first to self-immolate—was a member of the unemployed club. 

And they were all entrepreneurs. And none of them was unemployed. Those statistics are a sham. They are not correct because 

the statistics don’t have place for what we call the informal economy. 

Now, what was interesting about the self-immolator, Bouazizi, 

was the following that, that when he self-immolated, he said, ‘‘The 

reason I self-immolate is for being expropriated.’’ We sent a team 

there that stayed 20 months, and when we asked if he understands 

property rights, he said, ‘‘No, I do not understand property rights. 

I understand expropriation.’’ So the other problem we have got is 

not only that ‘‘unemployment’’ is a decoined word; ‘‘property rights’’ 

is not. But they were expropriated. In the process, we found out 

that there wasn’t one self-immolator, that in a space of 60 days, literally 64 people have self-immolated. And they all said it was 

about expropriation. And they all said they all self-immolated the 

day they were expropriated. 

Now, if you add those 64 self-immolators who were capable of 

dying for that to the fact that it is 380 million Arabs who live outside the world of property rights or the rule of law as we understand a functioning market economy, that kind of explains why 

10

every time you have Arab nations trying to do something together, 

they are not able to come together. But on this, they did come together. And it had to do with property rights. 

Now, here is the big problem. Did they take away his things? No 

because property rights is more than about things. When Bouazizi’s 

property was taken away, his wares, his goods, it wasn’t under the 

law. It meant simply that everything he had was under the decision of one or two persons in a political system. Those one or two 

persons when they withdrew his right to sell there, they withdrew 

his right to credit. He could no longer use his house for a guarantee 

to buy anything. He could not form a company. He was ruined. 

The idea of the rule of law is that these things can’t happen anymore. That is what they are missing. And it is there, and it happens to be their agenda. 

One last comment regarding that. The role that America can 

play is absolutely enormous because from our point of view, America isn’t just something that starts in Canada and ends in Mexico. 

It is an idea. You were born around the idea of freedom and property. And every country in the world that is born around an idea, 

it is more an idea than a country. Actually, it doesn’t recognize 

what we consider the hundreds of millions who are entrepreneurs 

outside the law. The same way your people when your nation was 

born, these people are not being given the message that they need 

to be encouraged to do that, instead of doing something else. 

[The prepared statement of Mr. de Soto follows:]

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Chairman ROYCE. Thank you, Mr. de Soto. 

We will go now to Ambassador Albright. We know you have a 

previous commitment at 10:30, but we very much appreciate your 

testimony and being with us until then. Ambassador Albright? 

Ambassador ALBRIGHT. Thank you very much, Mr. Chairman 

and members of the committee. 

Before I begin, I would like to express my condolences and sadness for what happened to the people in Oklahoma. I think that, 

as we react to that, we will see how democracies really do behave 

vis-a`-vis the people that support it. 

STATEMENT OF THE HONORABLE MADELEINE K. ALBRIGHT, 

CHAIRMAN, ALBRIGHT STONEBRIDGE GROUP 

Ambassador ALBRIGHT. I am delighted to be here this morning. 

And, at the outset, let me say that I am testifying solely in my personal capacity and not on behalf of the National Democratic Institute, which, as you mentioned, I chair. I will, however, draw on lessons learned from my association with NDI, which has been supporting democratic principles for more than a quarter of a century. 

Mr. Chairman, I am really very pleased to be here this morning 

with my friend and colleague Hernando de Soto. And we served together on the Commission on the Legal Empowerment of the Poor, 

sponsored by the United Nations. And I learned a great deal from 

him. And, as he has testified, Arab countries, like all countries, 

would benefit from an economic system in which access to the protections of law are available to the rich and the poor alike. People 

want to vote, but they also want to eat. And economic frustration 

has contributed much to the unrest that we see in many places, including in the Arab world. 

Through their research, Mr. de Soto and his institute have established an intimate connection between legal rights and economic 

development. And this is a fact that we should bear in mind when 

observing the events in Arab countries and when we contemplate 

our own regional role. 

As a perpetual student, I think that one of the things I have 

learned is the constant argument about what goes first: Political 

development or economic development? They clearly go together. 

That is what I have learned. 

And, as we know, Tunisia, Libya, Yemen, and Egypt have overthrown dictators and are in the process of building alternative governing structures. And, in so doing, they face two fundamental 

risks. The first is that, fearing disorder, they will retreat from real 

change and, instead, offer the same kind of centralized power that 

ultimately destroyed the old regimes. 

The second danger is that the new leadership will be so fragmented and, thus, unable to govern effectively, causing a decline in 

public services, economic disruption, and popular discontent. To 

succeed, these governments must be more open than their predecessors, but they must also take practical steps to deliver on the 

promises of a better life. And that requires creating institutions 

that will address urgent problems in a visible way, ensure fair representation for all, make sure that human rights are there, and 

give citizens a chance to take charge of their own economic futures. 

25

Such a process begins, but only begins, at the ballot box. True 

democracy demands a Parliament that functions, an independent 

judiciary, a culture that rejects corruption, and an economic system 

that generates opportunity. As we have seen, revolutions and other 

sudden changes in government are often accompanied by a sharp 

rise in public expectations. People have taken to the streets in support of new leadership, and they naturally hope to see improvement in their own lives. But it is much easier to demand reforms 

when out of power than to implement them when confronted by the 

hard realities of public office. 

Across the Arab world, officials without a background in democratic government are striving to draft constitutions, write legislation, organize ministries, and forge new political coalitions. And it 

is little wonder that there are many in the region who would like 

to learn from the experience of others. In my view, we have to do 

everything we can to assist that. 

Every situation is unique, but the road from autocracy to democracy has become in recent decades a well-traveled one. And there 

is much to be gained by bringing people in the Arab region together 

with the authors of change in central Europe, Southeast Asia, 

Latin America, and South Africa. And we, too, can offer help in cooperation with other democratic governments in such tasks as organizing elections, establishing political parties, training judges, 

fostering pluralism, and extending to all citizens the protection of 

the law. 

Mr. Chairman and members of the committee, the United States 

has neither the desire nor the power to dictate what happens in 

the new Arab democracies, but we can still exert a positive influence by fulfilling requests for technical aid and by remaining steadfast in support of democratic principles. 

We must have faith that, as complicated as the democratic system often is, it is still far more likely than any other to produce 

societies that are at peace with themselves, with their neighbors, 

and with us. 

So let us not forget that the alternative to democratic support is 

embracing governments that lack the blessing of their own people. 

And that leads not to stability but to counterfeit, leaving us shackled to dictators, at odds with Arab democrats, distrusted by Arab 

populations, and unsure of ourselves. 

Make no mistake. We will all do better if Arab societies are able 

to create a new model for governance in their region and if the next 

Arab generation is known for its commitment to intellectual inquiry, its openness to fresh ideas, and its ability to thrive in freedom. 

Thank you very much again for inviting me. And it is nice to be 

back in this room. 

[The prepared statement of Ambassador Albright follows:]

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Chairman ROYCE. Thank you, Secretary Albright. It is good to 

have you back in the room with us. 

I was going to go first to Mr. de Soto with a question. I just remember some of the work that you were doing in Egypt some years 

ago and your frustration at the time with the lack of commitment 

to reform. I think it was the Mubarak administration that asked 

you to leave the country. 

You were in the process of advising them on the need to address 

this issue—and corruption was a part of the issue. But I wondered 

if you could go through that because I think it was interesting in 

terms of what you found in Cairo at the time, and what the response of the Mubarak government was at the time, in order to 

give us an understanding of the lack of adjustment to rights in 

these societies. 

Mr. DE SOTO. Thank you, Mr. Chairman. 

Yes. We were called in in the year, about 1999 and started a 

project in the year 2000 that went into 2005 by the government. 

And we reported directly to the prime minister and to the ministry 

of the treasury. And the general idea was to draft the laws that 

would allow a population that was about 60–64 percent, maybe 40 

percent depending on how you calculate it, but it was 85 percent 

of enterprise and involved 92 percent of all plots of land to come 

to the legal sector because it didn’t have all of that information and 

those tools that property gives, which allows it to combine and create wealth. 

Well the proposal was actually accepted by the Council of Ministers, and it was made operational. It just had one problem. It was 

that we had insisted that we had to get rid of the notion that property is real estate. Property is a condition under which you hold 

and exchange things. It is a much bigger phenomenon. 

Before you Americans, for example, are able now to have title insurance, you have got titles, you have got deeds, you have got 

paper, whatever you have got, you have got about four generations 

of reforms that, first of all, made that paper credible. You had a 

constituency for property, even before you had a full democracy. 

You had homesteading. You had preemption acts where Congress 

turned down certain opinions of the Supreme Court. And you made 

sure that people got into the place first. And that is how you started identifying them because they had to have property before they 

could vote. So property has to come in, more or less, at the same 

time. 

And then you had manifest destiny. The whole thing why manifest destiny worked was because you empowered people in the 

country. And they had animals on their heads, if I recall, Davy 

Crockett and Daniel Boone. And the Arabs have rags on their 

heads. And those are the constituents of a market economy when 

they came in. 

So the general idea was, are the existing property rights institutions, what they called property rights, the ones to carry the reforms, and the reply is that they are not because what is happening in the Middle East is not just about growth. It is essentially 

the Industrial Revolution. These people walking on the streets are 

essentially protesting about the rights being there. 

29

We have the films that we were going to show if we would have 

had the time, but they are going to be on record, the films of what 

these people said at the time that they were lighting up and dying. 

There was no religious implication. There were no political implications. In the case of Bouazizi, he said, ‘‘I want to see the poor people have the right to buy and sell.’’ Everything had to do with all 

of the symptoms that you have with what we call Industrial Revolution; that is to say, the passing of one society to another where 

you work at a much larger scale. 

So the issue at this time is not property rights, which is what 

the Egyptian Government and Mubarak tried to do with our plans. 

It is having the rights to property rights. It is meta rights. It is 

what you first did all throughout the nineteenth century. Do AfroAmericans have the right to the rights? It isn’t that you didn’t have 

property law. It is who had the right to it and did settlers have it. 

So that is the issue. 

And that means the following thing. That means that one of the 

recommendations that I came with is that those reforms that actually made the United States as we have studied them were not 

technical reforms. They were essentially political reforms. 

And I think that when one doesn’t understand that in the Middle 

East, what you are talking about is essentially an emerging class 

of people who are acting alone for the moment, being the only ones 

to be able to mobilize a rebellion throughout all of the Middle East. 

You are not going to be able to grasp it. You have got to be able 

to have politicians that are able to see, for example, when it comes 

to unemployment that there is none of that unemployment. 

If you are poor in the Middle East, if you are poor, and you are 

as poor as Mr. Bouazizi and you are not employed for more than 

3 months, you are dead because you have got no way to feed yourself. So all of those people are not unemployed. They are like your 

early settlers who are working. They are just working outside the 

law. 

The question is how you make them come in. How do you then 

change the basic statistics in countries throughout the world, like 

us in the Third World, where the International Labor Organization 

gives you two categories: Employed and unemployed? How about 

employed formally, making your own way through life, and then 

employees? There is a third category, which is a huge category, 

which is, as a matter of fact, about 380 million Arabs who have invented their own way of creating wealth. 

Just two images might help ‘‘de-confuse’’ what may sound very 

confusing. Steve Jobs had an Arab father. Bouazizi had an Arab father. Both of them were adopted fathers. Steve Jobs went to school 

because his father was able to mortgage the garage three times because he had a property right, and that put him through school. 

Bouazizi, we have got the whole history of how he tried to get 

mortgages and he couldn’t. And he couldn’t get access to credit, 

couldn’t get anywhere. 

Entrepreneurs are as good as their legal environment. And the 

legal environment of the Middle East is very bad. And it is not 

going to be solved by technicians because this is not a technical 

problem. This is essentially a civilization that we have seen in 

Latin America based on old ideas that are anti-market. And poor 

30

people are the ones adopting market ideas. And it is not coming 

through universities. 

Chairman ROYCE. Thank you, Mr. de Soto. 

Let’s go to Mr. Deutch. 

Mr. DEUTCH. Thank you, Mr. Chairman. 

Secretary Albright, with your experience as Secretary of State 

and the chair of the NDI, you have got unique knowledge and experience observing political transitions to democracy. And, as you just 

observed, the United States has neither the desire nor the power 

to dictate what happens in the new Arab democracies, but we can 

still exert a positive influence. 

You talked about being steadfast in support of democratic principles. You spoke about the need for democracies and for economies 

to flourish. That is where they have functioning Parliament, independent judiciary. If we could just explore that in a little more detail? What are the factors that contribute to a successful transition? And what role can the United States or should the United 

States play in helping to affect that transition? 

Ambassador ALBRIGHT. Thank you very much. 

I think that in listening again to my friend Hernando de Soto, 

there is no question that people want to be able to make a living 

and to be able to monetize what they have. But in order to do it, 

they have to have access to justice. The legal empowerment of the 

poor is what we were talking about. So how, in fact, do you get 

that? 

What I believe is that as we studied how the National Democratic Institute should exist, we said, obviously, elections are necessary but not sufficient. In order to have a functioning democracy, 

you have to have the rule of law. You have to have a legislative 

branch. And actually we decided have to have an opposition party 

because that, in fact, gives the voters a choice and provides accountability by those who are in office. And it is very hard to, I 

think, have the kind of property rights that Hernando talks about 

if there is not a rule of law in some form or another to enforce it. 

So my sense more and more is that what we have to help countries with is not just with the American model but other models in 

providing governance, that elections are important but governance 

and trying to figure out how democracies deliver is the part that 

we have to explore. 

Now, I also believe, as much as I believe in American democracy, 

we are not the only democratic system. And, therefore, what I 

think helps in this whole project is to get people from other countries that have gone through transitions to help in this transition 

process, to help those that do not have the experience of writing 

constitutions or developing an independent judiciary to help in providing training. And while I believe an awful lot in economic rights, 

as I said earlier, economic development to go forward has to be encapsulated within political development because my quote that I 

think is the simplest one to give is people want to vote, and they 

want to eat. 

Mr. DEUTCH. And when you talk about bringing together those 

from central Europe and Southeast Asia, Latin America, South Africa who have been through this, is that convening of those meetVerDate 0ct 09 2002 15:51 Aug 20, 2013 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 F:\WORK\_FULL\052113\81166 HFA PsN: SHIRL
31

ings a role for the United States to play? Is it a role for us to play? 

Is it something we should not just be encouraging but providing? 

Ambassador ALBRIGHT. Well, I happen to think we do play a very 

important role. So, for instance, NDI, which I know best of all, we 

started out in Chile, trying to help with the technical assistance on 

the No campaign. A lot of people from Chile we asked to go with 

us in some of the countries in North Africa, specifically in Egypt. 

We have had people from Central and Eastern Europe that went 

through the experience go with us into these countries in order to 

talk about their experiences. 

And I do think that the U.S. role—we cannot impose democracy. 

Imposing democracy is an oxymoron. What we can do is to help 

promote democracy and provide the nuts and bolts training; bringing people out of their countries; and, in fact, being the conveners. 

I do believe that that is an important role for us. 

Mr. DEUTCH. And, just in my remaining time, could you speak 

to the way that some of those meetings may have gone when you 

were able to bring Chileans who were involved in the No campaign 

to North Africa? 

Ambassador ALBRIGHT. Well, I think that what we learned was 

that people are very interested in their experiences. They understand that they have gone through similar, not exactly the same 

but similar, aspects of how you write a constitution, how you develop an electoral law. 

I can tell you specifically—this goes further back into central Europe—I was born in Czechoslovakia. And when I first went to meet 

President Havel, I said, ‘‘How can we help you?’’

And he said, ‘‘You can help by helping us write an electoral law.’’ 

And we brought experts from a number of different countries to 

help them write an electoral law. 

That has been similarly translated in work that we have done 

throughout the Middle East and also in North Africa. And I think 

we do provide kind of the credibility, not just of the American system but of bringing democrats, small ‘‘d,’’ from everywhere in order 

to show how a system can work and what are the elements of a 

governing, functioning democratic system. 

Mr. DEUTCH. Thanks for your insight. 

Chairman ROYCE. Thank you. 

We will now go to Ileana Ros-Lehtinen, our chairman emeritus 

and chair of our Middle East and North Africa Subcommittee. 

Ms. ROS-LEHTINEN. Thank you so much, Mr. Chairman. And excellent testimony. Thank you. 

It has been nearly a year since Morsi and the Muslim Brotherhood took control over Egypt. Yet, Egypt’s economy continues in a 

downward spiral. Morsi has failed to institute any economic reforms to address this situation. And the political reforms that he 

has instituted have served to constrain the populace, rather than 

liberate them from the economic malaise in which they have been 

mired. 

Yet, the United States continues to give Morsi over $1.5 billion a year in foreign military financing, FMF, and $250 million in economic support funds, ESF. 

Dr. Albright, you testified that the U.S. has neither the desire 

nor the power to dictate what happens in the new Arab democVerDate 0ct 09 2002 15:51 Aug 20, 2013 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 F:\WORK\_FULL\052113\81166 HFA PsN: SHIRL
32

racies. Yet, we can exert a positive influence in countries like 

Egypt, as you stated, remaining steadfast and supportive of democratic principles. 

The United States has a vital interest in the outcome of this 

Arab Spring, not just for our national security but for our ally, the 

democratic State of Israel. We do indeed have the power. We have 

the power of the purse. 

So I would ask you. These countries depend on financial assistance from outside powers. Instead of just forking it over to them, 

no questions asked, shouldn’t we condition that money, use it as a 

leverage to press these governments to accept and implement economic, political, legal, social reforms? And wouldn’t you agree that, 

instead of giving Egypt $1.6 billion in American taxpayer money in 

foreign military financing assistance, that money would be better 

spent going directly into programs on the ground that promote democracy, promote human rights, religious freedom, economic 

growth, and job creation? 

Ambassador ALBRIGHT. Let me repeat that I don’t represent anybody here. I speak in my own personal capacity. 

I do know the history of how this money has been going, both 

to Israel and to Egypt, as part of the Camp David accords. It has 

been longstanding. And an awful lot of it does have to do with 

Egypt’s very important role in its agreements with Israel. And we 

know in the last couple of days problems in the Sinai and generally 

where we depend on Egypt being able to help keep the peace in the 

region. 

I think that there are a number of aspects that you raised. I had 

believed in conditioning on certain circumstances, where you could 

actually effect change. But I personally would not withdraw funds 

from Egypt. I quote that it is important to make sure that they 

continue on a path where, in fact, the government begins to realize 

that it has to open itself up to some of the forces on the ground. 

I would like to see more money going to the various democratic 

forces that you are talking about and also try to figure out a way 

where, in fact, there could be training in a variety of democratic 

means. One of the problems has been that the government makes 

it very difficult for those organizations to function. And, therefore, 

part of what NDI has been doing is bringing people out of the country in order to provide them training. 

Ms. ROS-LEHTINEN. If I could interrupt you, Madam Secretary? 

Would you favor any type of conditioning for this aid, benchmarks 

that the government must meet in terms of democratic reforms, religious liberties, et cetera, in order to get continued U.S. funds? 

Ambassador ALBRIGHT. Again, I would like to see us say what 

kinds of things we want, but I would not like—again, personally, 

I would not like to see us in a position where we would, all of a 

sudden, stop giving assistance because ultimately what has to happen here is for the economy to get in some kind of good enough 

shape so that the IMF loans come through. And, in fact, there is 

that combination of political and economic will together. 

Ms. ROS-LEHTINEN. Let me interrupt you there. So you believe 

that perhaps if we give benchmarks, that is, you believe that that 

would mean that we would be cutting off aid? I mean, it is not a 

33

cutting off aid. It is conditioning the aid. Do you believe that we 

should have Egypt or any country meet certain benchmarks? 

Ambassador ALBRIGHT. I think that they should know what we 

expect, but I would not have it be a way that we would use it to 

cut off aid. 

Ms. ROS-LEHTINEN. Thank you very much. Thank you, Mr. 

Chairman. 

Chairman ROYCE. Thank you. 

We will go now to Mr. Sires, ranking member of the Western 

Hemisphere Subcommittee. 

Mr. SIRES. Thank you, Mr. Chairman. Thank you for being here. 

You know, as a follow-up, Madam Secretary, to Ileana’s question, 

with the money that we give Egypt, if we don’t use the money as 

leverage, how do we speak to these governments to stop abuses, for 

example, on the Coptic Christians in Egypt? How do we pressure 

them to do something about the abuses that are going on now if 

we don’t threaten them that we are going to cut off all of their 

help? Because, obviously, they don’t seem to move unless there is 

some sort of pressure placed on them. 

Ambassador ALBRIGHT. Let me just say I teach a course in which 

I talk about the national security toolbox. There are not a lot of 

tools in it. One of the problems is if you totally cut off aid, then 

you lose whatever leverage that you have had. Therefore, in some 

ways, you cut off your nose to spite your face. 

What you need to do I think is to nuance it in ways where you 

say what you want and keep the leverage on them in a particular 

way. And then always keep in mind that a lot of the money that 

we give to Egypt has to do with the Camp David accords. And 

there is no question that this is an extremely complicated part of 

this and makes it difficult to use the tools, but if you totally cut 

off, then—this is just, again, my personal view—you lose whatever 

leverage you have; whereas, if you put out what you would like to 

see and make sure that our policies are clear, it is possible that you 

would continue to have that leverage. 

Mr. SIRES. Thank you. 

Mr. de Soto, I know you have had extensive study throughout 

Latin America. And, as we know, there have been many, many revolutions in many of these countries. I was just wondering, what can 

we learn from all of these revolutions and the regime changes in 

the Western Hemisphere? Can we apply any of those lessons into 

the Middle East? 

Mr. DE SOTO. Yes, Congressman. I think that there are lots of 

similarities between what we have gone through and we are going 

through in Latin America and what is happening in the Middle 

East. As a matter of fact, we were talking about the fact that there 

are more and more private and public Middle Eastern, Latin American organizations being formed, as a matter of fact, to try and look 

into the process. But I think it is fundamentally the same. 

And to address the issues that my friend Madeleine Albright has 

been talking about, I think a lot of it in all of these revolutions are 

to a great degree about property. Now, this might sound to you 

nearly religious. But if you go back to—we had a meeting recently 

with the Prime Minister Cameron of the United Kingdom, who is 

very strong on property rights. And the whole issue is we made a 

34

list to him of since the Second World War, how many wars has the 

United Kingdom been involved in, which were about territory or 

were about property rights? 

And they are really all about property rights. Whether it is 

Libya’s invading territory, it was about who owned what. When 

you criticize Israel where they have got settlements, it isn’t that 

they invaded territory; it is about property rights. Whenever you 

look at any issue that you have been involved, who actually controls the people that are funding whether al-Qaeda or funding your 

enemies in Afghanistan, it is about property. It is who owns the 

fields and who gets a right to the fields. 

So the first thing I want to say is you are going to ask, what does 

this have to do with my question? What it has to do with your 

question is that until you address that issue, you won’t know who 

you are talking to. 

In the United States, when you started forming a democracy, before you really got your act together, you started moving West 

through Manifest Destiny and other places and put in temporary 

agreements that actually went from the California Gold Rush to 

Little Miami River. You empowered people. And you started identifying who they were, what they were. Otherwise they would have 

fallen in your unemployment categories. 

And by saying, ‘‘You have got so much corn here. Under the corn 

bill of right,’’ said the U.S. Congress, ‘‘we will identify you. You 

have got so many logs. And under the log cabin bill of rights here’’ 

at this Congress, you are identifying people by the amount of logs 

with which they made their homes. By using other pre, shall we 

say, formal democratic means, you were able to identify a large 

part of the American population that was not within the law. And 

by identifying them with your government, they wanted them to 

vote. And that is how you started assimilating them. 

One of the most interesting parts about your democracy were not 

the ones that you created in the twentieth and the twenty-first century but the nineteenth century. In the nineteenth century is 

where you started creating the idea of pre-publishing laws, of having comment and notice periods, of having cost-benefit, of having 

callback systems. 

All the systems that Western countries have that keep their governments informed about what people do are actually outside the 

electoral system. And our fear is when we Latin Americans see 

what is happening in the case of Arabia, you are putting in a sixth 

floor of a building, which is elections, without having all of those 

other means that allow those elections to be meaningful. We elect 

governments, for example, in Latin America that are going to stay 

for 5 years. 

In the case of Peruvian Government, it is going to produce 28,000 

laws over the next 5 years. And we have no way of having comment and notice periods. We have no way of intervening, of doing 

cost-benefit analysis. We have got no way of participating in anything except the elections. 

Your President Jimmy Carter comes in and says, ‘‘It has been a 

good election’’ or ‘‘It has been a bad election.’’ But none of our congressmen, none of our congressmen, are elected by district. So we 

have got no way of actually following the row. So I think that the 

35

important thing is if you are going to create an Arab democracy, 

you root it in people. 

And I think you have an incredible opportunity as Americans to 

have a guiding voice. And the guiding voice isn’t necessarily in the 

intellectual classes. And you should remember that by your Nineteenth and Eighteenth Centuries. It was very simple people who 

did it. And they had to do it how they were administering their economic areas. And you can reach them. 

And you have been able to do that before. When MacArthur went 

into Japan, which was a successful transformation, along with its 

two colonies, Taiwan and South Korea, of a feudal system into a 

market economy in 6 years, you had a plan. And you didn’t address 

the Japanese Government. You addressed the people, literally. You 

titled the whole place and empowered them and destroyed the feudal class in the process or brought it together with the rest of the 

feudal. 

So I think what you have got to really do—what do I know? I 

am not an American. But what I see is this. The people who did 

your democracy were your granddaddies. And your granddaddies 

did a series of very practical things, all of which involved talking 

to and addressing the poor. 

I think, for example, if this committee or any part of the United 

States Government were to understand that all the martyrs, all the 

martyrs that we have been able to see that tumbled those governments—there were 64 identified—were all entrepreneurs, all protesting about property rights, all dressed in blue jeans and all 

dressed with sneakers that looked like they were made in the 

United States, all with t-shirts that looked made in the United 

States. We talked about buying and selling. We would get from the 

only country in the world that actually represents those ideas, were 

addressed to. You would actually be moving much more than you 

think you would be moving because, among other things, the new 

democratic leaders, or those that are being elected in the Middle 

East, essentially understand that. 

We have been called in by every political party that you can 

think of in Egypt. And we have been called in by Tunisia and in 

other countries. And all of them are pro-market. But if the United 

States addresses only those conflicted issues and doesn’t recognize 

the other ones, you have got a whole constituency that is up for 

grabs because it isn’t a constituency formed in markets. They are 

not absolutely conscious of what they are doing. 

So I think what you can do in the United States, just your voice, 

your encouragement from the only country that represents freedom 

and property rights from the point of view of everybody would be 

absolutely immense. But you have got to do it thinking of 

granddaddies, nineteenth century, before the rule of law is in. 

What did you do before the rule of law was in in California at the 

Gold Rush, in the Little Miami River, and throughout ‘‘Manifest 

Destiny?’’ You empowered them before you had a full constitution. 

You empowered them. And there are ways of doing it. 

Thank you very much. 

Chairman ROYCE. Thank you, Mr. de Soto. 

36

As previously noted, Secretary Albright will now depart. And I 

thank you again, Madam Secretary, for joining us in this important 

discussion today. We very much appreciate it. 

Ambassador ALBRIGHT. Thank you very much. 

And I am delighted to be here with Dr. de Soto and also to be 

able to make clear that America has a role. I fully believe that we 

need to support democracies and political development and economic development. We don’t spend an awful lot of money on it. 

And the bottom line is that we have a huge influence and are able 

to make our voices heard. And I appreciate very much having been 

invited to speak here. 

Thank you so much. 

Chairman ROYCE. Thank you, Madam Secretary. 

Next we go to Mr. Tom Cotton of Arkansas. 

Mr. COTTON. Mr. de Soto, thank you for your time here today. 

Thank you for your eloquent words in defense of freedom and property. James Madison wrote in the Federalist that one of the true 

objects of government is the defense of property rights that yield 

from the diverse faculties and efforts of man. He also wrote that 

democracies have something of a checkered history of defending 

property rights, either because they tend to elect a strong man and 

you have the situation of one man, one vote, on time, or they led 

to majority tyranny. And that is why I said that governments need 

internal controls as well as the external controls of elections. 

I think sometimes we focus too much on the democracy side overseas, not as much on the constitutional side of constitutional democracy. Some of the institutional controls you have mentioned: An 

independent judiciary with life tenure and salary protection, rights 

of property, free press, freedom of religion, and so forth. 

In your opinion, is the United States Government policy as well 

as international institutions, like the IMF and the World Bank, 

doing enough to focus on those constitutional arrangements or are 

we overemphasizing the simple fact of having elections in developing countries? 

Mr. DE SOTO. I think elections are obviously the right way to go, 

but they are obviously not only not sufficient. They may not even 

be the most important part of it. 

When we were doing the transformations in the Peruvian situation in the 1990s, when we were fighting one of the most deadly 

terrorist systems, which I was in charge of the civilian policy for 

fighting the Shining Path, democracy was part of it, but, really, if 

you do not have congressmen who do not respond to districts that, 

therefore, can be accountable to districts that can go and shake 

people’s hands and find out what the hell is going on down there, 

okay, that democracy is not really a democracy. It doesn’t feed into 

day-to-day decisions. It is really sort of a beauty contest. And it 

happens all throughout Latin America. We do not have elections by 

district. 

So what is important in each of these cases is the following. If 

you want to do whatever it is that you want to do, you want to 

elect people, you want to make sure that your electoral lists, for example, as opposed to the ones that occur in Latin America, are 

really all alive, everybody that is voting for this political party, 

whether it be in Mexico or Peru, you had better have an idea of 

37

who is living where because otherwise your lists are going to be full 

of dead people that are going to swing this way and that way. You 

see that in Egypt. You see that in every Latin American country. 

Mr. COTTON. You see that in certain places in America. 

Mr. DE SOTO. That, too. Pardon me? In certain places in America? 

Mr. COTTON. Certain places. 

Mr. DE SOTO. Okay. Sure. It probably happens everywhere, but 

to the degree that it happens, everything that goes wrong with us 

goes wrong in the United States. It is a question of degree, the degree to which we can be accountable without the information that 

property provides. Let me explain this, which is very important. 

One of the reasons that democracy doesn’t know what to do according to our opinion where we have lived in Latin America is essentially because there is no feedback. The only way you know if 

things are wrong is feedback. As Madeleine said, there is no international formula for feedback. The Swiss have 

Bundesversammlungs, which are consultations of laws among people. They have got Landsgemeinde. They have got referendums. 

They change the Congress people once a year. They have got a variety of things that makes them make the pertinent decisions and 

know what their people want. 

The Japanese don’t look like it because they have got a vertical 

government, but they have shingikais, kojokais, and a variety of 

means where they don’t make a decision on one law without actually a proper consultation that can take years. There isn’t one developed country that doesn’t have a mechanism whereby it is continually accountable to the people. That to me is what distinguishes the West, but there is not one formula for it. The British 

have——

Mr. COTTON. Is the policy of the United States Government as 

well as organizations like the IMF and the World Bank? Are we 

focusing on that kind of institution, some of our member districts, 

along with things like independent judiciary to the degree we 

should? 

Mr. DE SOTO. Well, what happens is the following, I think. The 

IMF, that isn’t in their role. It could be or it should be. But you 

have to bring in that part of it along with the IMF. I mean, we see, 

for example, in the case of our Egyptian friends when they told us 

‘‘Okay. We are going to move on issues like property, empowering 

the poor. But let’s settle with the IMF before.’’ What we tell them 

is that the reason we made successful negotiations with the IMF 

and turned the country around was because you can’t just squeeze 

people, put them into an austerity program, and give them nothing 

instead. 

If everybody is already on land, if everybody already owns a business, if there are ways too easy to recognize who is on what parcel 

through a variety of different means that you were able to do in 

the United States, just two centuries and a century ago, and MacArthur was able to do it in Japan just 50 years ago, why don’t you 

launch that at the same time? 

So one of the problems that the world has, of course, is that you 

specialized different organizations in different aspects, macroeconomics. And for the issue of property or, if you want to, the 

38

rights of common people who happen to be the majority of the population of the Third World but, by far, there is no organization that 

deals with this. You have ideals. There is no organization that 

deals with that. 

But what you can do certainly with your aid is condition into the 

looking to the legitimacy of the decisions that are taken. But IMF 

doesn’t have them. IMF is macroeconomics. The other thing we are 

talking about is microeconomics. And that is why I also said before 

that I really think because we have got such little time on this that 

one of the major moves that you can make in the United States is 

understand that all of these things that we are talking about, you 

have left and abandoned to the hands of technicians. In the case 

of property, it is realtors. You are measuring land. That is not 

what it is about. The problem is access to law. And what you can 

do in that sense is look at your success in the past. 

MacArthur’s policy was when he got into Japan to change the 

feudal system and to make sure that it had roots and it was sustainable over time. He prepared a plan in 1942 that started with 

a man called Wolf Ladejinsky in Hawaii. And the plan was, how 

do we win the war, of course, and then how do we win the peace? 

And whole Japan was restructured and put in a democratic system, 

where all the Bouazizis were empowered. 

When that was done, he said and as time went by and he said, 

‘‘Our man Chiang Kai-Shek is losing the war against Mao. We will, 

on the other hand, be empowering these other three countries. 

They will get rich. They will be like thorns in the side. And eventually China will turn to being in a market economy.’’ Quote MacArthur. Quote Wolf Ladejinsky. 

So there are things that you can do, even if you are not winning 

a war, that you can tell people how to do it, how to do these things. 

You have to remember what were your successes and what was 

your own past. And it wasn’t only about macroeconomics. 

What has happened with economists, unfortunately, is that everything that relates to growth, we economists have become monopolies on that. And everything that relates to experience we have 

passed to the history departments. So it is about time you got both 

of them together and remembered were you were able to win in 

Japan. Why weren’t you able to do it in Afghanistan? Who holds 

the property rights in Afghanistan? Who holds the rights of oil in 

Libya? Why do settlement policies actually gain territory versus 

territorial policies? 

These are things that you have done, you have seen in the past, 

and you have got to bring back but you have got to bring back from 

another century. This is nothing that can be solved with global positioning systems. This is about people. And you have got people 

in blue jeans, I repeat, sneakers, and t-shirts buying and selling. 

You might take the entrepreneurs that are willing to march the 

streets of Arabian countries in defense of their right to property, 

in defense of their right to do business, you will outnumber alQaeda 100,000 to 1. You have got to find ways to recognize those 

who are on your side. And you don’t have them. And you are not 

going to get that through technical committees. If you keep on putting real estate vendors in charge of your property programs, you 

are just going to get better measurement. 

39

This is the time for politicians. That is what politics is about. 

They will figure their own way out, but you can push them in the 

right direction since people do look up to you. You are successful. 

They might not like you. Lots of us in the Third World don’t like 

you. But we can’t help but recognize that you are the most successful nation in the world. But you have to understand we are all in 

the Third World in the nineteenth century. You can’t address us 

as if we were in the twenty-first century. 

Chairman ROYCE. Thank you. Thank you, Mr. de Soto. 

We go now to Mr. Bera, Dr. Bera. 

Mr. BERA. Thank you, Dr. de Soto. 

You have pointed out a few things that I find fascinating and I 

find quite accurate. You know, being a congressman, we go back to 

our, all of us go back to our, districts. And that is where we are 

held accountable. That is where we hear what is exactly happening. 

You know, when I go back on a weekly basis, you know, my constituents who I work for let me know exactly how they feel, what 

they are happy about, and what they are unhappy about. And I am 

sure all of my colleagues can share that. 

You also touched on something that I think is fascinating, you 

know, the importance of property rights, the importance of having 

something that is yours, that is your family’s, that is worth fighting 

for, that is worth moving forward. 

What are some actionable things that we can do within this body 

or, you know, to bring those reforms? And I think about Egypt. You 

know, it is another 2 to 4 years before you see Presidential elections coming up. 

The Muslim Brotherhood obviously is the most organized political party, but we have got to help those other politicians, those 

other political parties. 

You know, Ambassador Albright brought up part of our success 

is that we do have two parties. We do have two parties that hold 

each other accountable. So one thing we clearly have to do is help 

Egypt develop and organize an alternative party. At the same time, 

we do have to create these reforms that bring that shadow economy 

and those individuals into the mainstream economy where they can 

earn a living, they can buy land that is theirs and so forth. 

So what are some actionable things that you would have us do? 

Mr. DE SOTO. Okay. The first thing that I would have actionable 

is it starts off with your own mindset, which is very important. You 

are a country where property is essentially the result of the evolution of common law, judge-made law, a back and forth with Congress, a back and forth with a Supreme Court justice, but essentially judges. 

You have to, first of all, understand the following thing that MacArthur did. I am just talking about the only successful American 

that I have seen win a war and win the countries at the same time. 

It is understood that the rest of the world goes under statutory 

law, Napoleonic law. It is not your law. So the importance for you 

is not to try and fill them with judge-training programs because 

judges don’t make the laws in our countries. They apply the law. 

That is the first thing. 

40

The second thing is to understand property as it was understood 

in the Eighteenth and Nineteenth Centuries. When you said, ‘‘the 

pursuit of property,’’ it wasn’t only about ownership. As a matter 

of fact, property, probably ownership is the less of the important 

parts. 

The important part about property is that everybody has got to 

live and work somewhere. And you want security for it. And what 

happens is that when you bring it under the law, you get people 

to tell you what they need and want. In other words, people mistrust government everywhere. From a Tarzan film I saw since I 

was a child, they don’t like government. They rebel against government. And you come and say, ‘‘I want’’ in any Arab country, in any 

Latin American country, ‘‘I want information so as to be able to 

provide the government services,’’ are you really for a market economy? Are you really for entrepreneurship, which I believe the majority of the world, at least since you won the Cold War, the reply 

is, ‘‘I am not going to tell you.’’

But if you come in and say, ‘‘I know you live here. And I want 

to give you rights so you will not be expropriated again. I am going 

to tell you how much tax you are going to pay. I am going to make 

sure that there is no way that we can tamper with your rights, 

that you are going to be able to use them to leverage credit. I 

mean, if you cannot leverage a credit from a piece of property. 

Okay? You can’t even have subprime markets and credit markets 

working in the United States. I am going to do all of that for you. 

And you are going to be able to issue shares, let’s just say, pieces 

of property against investment. Now, give me your name and tell 

me where you are. And report back to me every year or every 6 

months. And I want to know where everybody is so that everybody 

can locate everybody on this wide-scale market,’’ property will 

change the relationship between government and the people because people will then provide information to do something that 

they can clearly see is in their benefit. 

Mr. BERA. So how do we create that context, though, because, obviously, we can’t mandate that onto that country? We have to create that context where it rises from——

Mr. DE SOTO. Let me tell you my experience. We were called in 

very early on when we published our findings for each of the other 

countries by the Muslim Brotherhood in various countries. Everything I am telling you they understood. 

Now, I am not saying that the Muslim Brotherhood is the solution or the other one, but everyone in the Third World, everyone 

in the Third World, understands the following thing, and anybody 

who has been in government. If you know where one-third of your 

country is in, what addresses they have, where they really are, that 

is a lot. The majority of us know that in two-thirds of the country, 

we don’t know where people are. 

And so even when we went now to, say, Tunisia and talked to 

the private sector organization, which seemed like in Algeria, and 

said, ‘‘You have an informal economy. It seems to be 85 percent. 

And that 85 percent is obviously in business, small business. And 

if you don’t bring them in, they could take another agenda because 

basically they are angry,’’ everybody understood. 

41

So there are hundreds of ways of bringing it in. So how the 

United States has got to formulate this is a strategy. You have 

done it before. You did it in Japan. You did it in Asia at the right 

moments. You have done it in Latin America. And I think that the 

basic thing is to come in and start saying that you want to talk 

about the issue at the level of politics. 

When you formed the United States republic, the issue was, did 

America belong to the colonials or did it belong to the indigenous 

people? The issue was, was George Washington’s title the right one 

or was it the Sioux’s or was it the one that is handled by George 

III? You had to settle that first. And you built your democracy on 

that. 

Without that information, it doesn’t work. And you have to remember the people who settled your property rights issues were all 

politicians. You have got to I think at first level bring it to that 

level so that you are talking about politics, about finding out what 

people want, as opposed to measuring things. 

Mr. BERA. Right. Thank you. 

Mr. ROHRABACHER [presiding]. Hello, Hernando. 

Mr. DE SOTO. Hey. 

Mr. ROHRABACHER. Good to see you again. 

Mark Meadows from North Carolina? 

Mr. MEADOWS. Thank you, Mr. Chairman. 

And thank you so much for your testimony. Very rarely am I impressed. And I truly am impressed, not only with your ability to articulate the points but to get to the crux of the matter. So I want 

to thank you. 

I am going to follow up a little bit. Last night I was with a group 

of seven members from African countries. And their desire was 

truly the economic well-being of their people, more so than the political stability or anything else. And so I would agree and concur 

with some of your conclusions when we started to look at it. This 

is an economic renaissance that we are looking at. 

Right now we have got—the current administration has proposed 

a budget of some $580 million for the Middle East and South African incentive fund. The focus of that, however, is probably more on 

the political process, the democratic process, as we see it. Should 

that money be more spent on the encouragement of property rights 

and the formalization of this informal sector to once again grow? 

Would that be a better use of that money than establishing a twoparty system or a four-party or a six-party system, whatever it 

might be? 

Mr. DE SOTO. Yes. At least a good part of the money should go 

to that, among other things because it will make democracy viable. 

And, you know, let me tell you why. 

Regarding the details that you were talking about, how do you 

get this thing done, in our written report to you, we have pointed 

out that we have got programs 1,000 pages long. We know what 

you did over 200 years to get it until you finally got it right. We 

know it. And you are the——

Mr. MEADOWS. How do we compress that? 

Mr. DE SOTO. That is right. Now, here is the first thing how you 

can compress it. The first thing to understand—and I will repeat. 

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derstood. Your issue with the Soviet Union before you defeated 

communism was about how you held property. That is what it was 

about. 

Mr. MEADOWS. Exactly. 

Mr. DE SOTO. That is what mobilizes people. But now you weren’t 

going around throwing surveyors against engineers. You had political people who decided, ‘‘I am going to find out what people really 

want and how it is going to be organized.’’ Nobody wrote it. Adam 

Smith just picked it up. John Locke just picked it up. 

So the first thing is find ways for people to speak up. And people 

speak up when they feel secure about their business and they feel 

secure about the assets they have. 

So stop considering, I would say, that property is a technical 

issue. Consider it the essence of a political issue. All the areas you 

have been into and you have actually fought militarily in the last 

50 years were conflicts on property rights. And so when you come 

in politically but you don’t have the tools of property rights, you are 

imposing in face of an enemy that does go around titling. Ho Chi 

Minh titled the great part of Vietnam. 

Mr. MEADOWS. Right. 

Mr. DE SOTO. All right? And whoever gives the right of way actually has the—the first thing you need to do is I think understand 

that you may not—it takes humility. Twenty-first century Americans have got to learn not from us Peruvians but from nineteenth 

and eighteenth century Americans. First of all, settle who gets 

what according to what custom, what according to what law because it is not clear. Once that’s in place, the democracy part will 

come along. 

Mr. MEADOWS. So let’s look at this massive amount of money 

that we are looking at: $580 million. Instead of it being a government-led political system, where would you put the emphasis? Less 

than 25 percent of that going toward government reform and most 

of it on the private sector, private property side of things? How 

would you—you know, if you were Congress, how would you divide 

up that money? 

Mr. DE SOTO. Okay. I would, first of all, have to note that, first 

of all, the budgets for putting property into place are not that big. 

They are not huge, large budgets. 

I would essentially put the emphasis on the fact that political reforms that do not attend the reasons for which people started 

marching——

Mr. MEADOWS. And those would be primarily economic is what 

you are saying? 

Mr. DE SOTO. And they are all economic? 

Mr. MEADOWS. Not political, not religious? You are saying they 

are economic? 

Mr. DE SOTO. I am saying that anybody that we have talked to, 

starting from Bouazizi in Tunisia to all of those, have all mentioned economics. Now, the people that do the talking are the people that may be thinking about other things, like religion and others, but the guys who moved were economics. 

So the first thing I think that you want to do—I can’t think of 

the quantities now—is say that the objectives have got to be that 

everybody’s business, everybody’s home has got to be identified. 

43

And to do that, they have got to be secure enough so they can 

speak up and we can then find out what it is the Egyptian people 

want. 

How can you find out what people want and where they want it 

from if you don’t have phone books, if you don’t have address 

books, if you don’t know where they are, how many they are? How 

can you put in a line of electricity into a shantytown when you 

don’t know how many machines are working or are not working? 

Those things that underlie—that is why we call them the overriding—underlie your possibility of even having a private sector are 

the essential ones. And that means that I think the most important 

thing you can do is pass the issue from a technical level to a political level. 

Mr. MEADOWS. Okay. 

Mr. DE SOTO. And that political level means people’s identities. 

And people’s identities will come up the moment you guarantee 

them that their property rights are in place. Then they will tell 

you. But not only will they tell you. They will update that information because you have titled the United States up and down, but 

people with all the titles when it gets so expensive make it sustainable over time. 

Mr. MEADOWS. My time has expired. Thank you. I yield back, 

Mr. Chairman. 

Chairman ROYCE [presiding]. We will go to Mr. Yoho and then 

Mr. Rohrabacher. 

Mr. YOHO. Thank you, Mr. Chairman. And, Mr. de Soto, I appreciate your testimony and your thoughts here. 

We talk a lot about democracy. And going back to our founding 

fathers, they said that was the worst form of government. And I 

think we are all aware of that. You know, democracy was two 

wolves and a sheep deciding what to have for dinner. And the 

sheep always lost in that. And that is why we were so blessed in 

this country to have a republic. And that republic came out of people leaving oppressed nations coming over here for the freedom 

that they were seeking, whether it was religious, economic, or 

whatever. And we formed the country we have through trials and 

tribulations. And we are at where we are at now. And we respect 

property rights, life, liberty, and the pursuit of happiness. And that 

is what makes America unique. 

You are talking about the little people in South America rising 

up, wanting the economic freedom because, as we have learned, 

you can’t have freedom without economic freedom. And so it is so 

important. And property rights play a large portion of that. And I 

know you view the property rights. We are accustomed here with 

land and things like that to something different in Tunisia and 

Peru. 

What form of government allowed that in Peru so that they could 

develop that kind of entrepreneurship to where they raised themselves up? I mean, what do you see over there that you have that 

they don’t have in Egypt? 

Mr. DE SOTO. What we have been able to obtain over the last 25 

years is a variety of mechanisms that—it is not just one. It is a 

variety of mechanisms that allow us to find out what people want, 

which we didn’t have before. So we have now, for example, copied 

44

your comment and notice periods, a Latin American version but essentially people have the right on big laws to be able to see the law 

coming. And it is not going to be a surprise and feedback to government. 

We have already begun regionalizing. We have got a defender of 

the people. We have got an office that is close to being your Office 

of Management and Budget whereby you have got cost-benefit 

analysis so that you can see the quality of the law. There are certain laws that have got to be consulted before, which they didn’t 

have to be consulted before. 

Essentially the biggest reform, though, has been in the area of 

property. The result is now when you do that, you start finding out 

who is where. This doesn’t sound like a big deal, but let me tell 

you what just happened to us in the Amazon jungle. Now that we 

are starting to find natural resources all over the Third World, 

huge amounts, gold, uranium, et cetera, all of a sudden, big companies are interested in coming in. And, all of a sudden, the locals 

are rebelling. 

We were told in the Peruvian Amazon, that there were 1,500 

tribes. By the time we finished counting them to find out who we 

have to title and not to title, we found 5,000 tribes. 

When the Indians started looking at the area where they have 

got oil now and decided that they were not going to tend necessarily that problem, they have now found out that there is an 

army that is called the—I am trying to find—Naxalite army, it has 

risen to defend the farmers. It is about 200,000 strong in India. 

Forty thousand of them are AK–47s. And they are Maoists. And 

they are quoting our past Shining Path leader. 

What I am trying to say is that reform on who owns what and 

where, as we discover natural resources wherever you go, is going 

to produce conflict unless we have those mechanisms that relate to 

property the way you have them in the United States. So you have 

to be able to have a conduit to know who is where. It sounds so 

simple, but we really don’t know in the Third World who is where. 

Mr. YOHO. Okay. 

Mr. DE SOTO. I want to ask a question, if I may. Landing in Nigeria, the Niger Delta, you get more oil, I understand, from Nigeria 

than you do from the whole Middle East. And here is the part that 

is interesting. You land in the Niger Delta. And they say, ‘‘Welcome 

to the Niger Delta, the pearl of the Atlantic, population somewhere 

between 15 and 30 million.’’

Mr. YOHO. Right. 

Mr. DE SOTO. That is it. You have got to know where people are 

before you can serve them. 

Mr. YOHO. But, going back to South America, Peru, you have a 

government system that allows that to happen. And you were talking about how well we did in Japan, but, you know, remember 

what happened before General MacArthur went in there. We had 

a war. We crushed the Japanese Government so that we could deal 

with the citizens to teach and get away from feudalism and promote entrepreneurism and things outside of the government. How 

do you do that in the country like Egypt because we want to take 

this back to the Middle East? How do you do that in a country like 

Egypt, where they have a sovereign country, they have a sovereign 

45

government, without meddling and become the outside meddlers 

promoting our interests or our ideals in a country that may not 

want them? 

Mr. DE SOTO. I think you are so close to that because my experiences as we have been called in over the last 11⁄2 years and we 

have been dealing with business organizations and with practically 

every political party, every political party, they were very much inclined to do this. Let me give you the personal interpretation, 

which is the only one I have. 

When I first went and visited the Muslim Brotherhood in Egypt 

at their behest, the supreme guide handed me his card over. And 

it said, ‘‘Khairat El-Shater.’’ This probably meant that he was a 

head and he runs the place. And it said under deputy supreme guy 

to the Muslim Brotherhood. And the third line was ‘‘Businessman.’’ 

And everybody around him was a businessman. 

Now, when a Peruvian goes there and they ask him for technical 

assistance, which is my case, that is interesting. They want to find 

out how they can get to the people, and they found out that we 

have a formula. 

But if the most powerful country in the world doesn’t address 

that particular feature, it is not going to encourage them. What I 

am trying to tell you is that the way you talk about the Middle 

East and how you refer to everybody is much more important than 

you even think it is. You are the only power in the world. And if 

you say, I see like you do now, that ‘‘You have got entrepreneurs 

there. You are doing business,’’ and I think we should put emphasis on that, every political leader in the Middle East is going to 

turn around and say, ‘‘Ah. That is what the United States wants. 

It is not asking for this type of reform or this religious reform or 

this type of democratic reform. It also wants us to evoke the entrepreneurial side and recognize those heroes that they’ve got on their 

postage stamps,’’ you will get the kind of atmosphere that you need 

to then begin a dialogue down that right direction. 

Mr. YOHO. My time has expired. I appreciate it, Mr. Chairman. 

Chairman ROYCE. Thank you, Mr. Yoho. 

We go now to Dana Rohrabacher, chairman of the Subcommittee 

on Europe and Emerging Threats. 

Mr. ROHRABACHER. It is always good to see my old friend 

Hernando de Soto. And we met during the Reagan days, when we 

really were trying to save the world from communism. Communism 

is much different than the threats that we face today, Hernando. 

Under communism, obviously, the theories that you presented 

were, of course, incredibly relevant to the fact that communists 

don’t believe in private property for anybody, even the little guy. 

I note that in Vietnam, that when the American troops would go 

into a certain area that they hadn’t been in for a number of years 

and that the Saigon Government hadn’t controlled for a long time, 

they were usually followed by people who had pieces of paper 

claiming that, actually, the owner of all of that property was living 

in Saigon and that the peasants would now have to be providing 

rent in order to stay on the land that they had been farming for 

over a decade. That didn’t do us much good there, I don’t think. 

But today radical Islam that we are talking about, that force that 

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pared to communism, radical Islam does not necessarily—in fact, 

I don’t think that Islam itself or radical Islamic characters believe 

that entrepreneurship and ownership is a bad thing. So we are not 

actually fighting that inclination on their part. 

So your message, while it really helped in the Cold War, perhaps 

may not help us defeat this radical Islamic enemy as well as you 

helped us defeat communism. 

Mr. DE SOTO. Excuse me. The last part you said? I missed the 

last part, where you said——

Mr. ROHRABACHER. Radical Islamic forces are not opposed to 

ownership and not opposed to entrepreneurship. When we first 

forced active the ultimate threat in the world to our safety with Soviet communism—and, yes, communism was opposed to those 

things. And your theories went right to the heart of the matter——

Mr. DE SOTO. Yes. 

Mr. ROHRABACHER [continuing]. And helped us win the Cold 

War. 

Mr. DE SOTO. Right. 

Mr. ROHRABACHER. In fact, I would give you some good credit 

there. 

Mr. DE SOTO. Yes. 

Mr. ROHRABACHER. But in terms of radical Islamic things, the 

entrepreneurship is not necessarily—they are not necessarily opposed to that. 

Mr. DE SOTO. Yes. Well, I think where the factor comes in is the 

following one. It is that they are not opposed to entrepreneurship, 

but, you know, entrepreneurship, like I tried to say at the beginning works provided that you have got the legal environment that 

works. All people in the world are not entrepreneurial. Britain 300 

years ago, 30 percent of the population was already in manufacturing, way before you had the possibility of even calling it a market economy. 

The issue isn’t that. The issue is, are the rules of the game uniform for everybody? That is what a property right is, not whether 

you possess that because you have got a bigger dog, because I have 

got two bodyguards but whether it is ruled by law. 

Mr. ROHRABACHER. I see. 

Mr. DE SOTO. That makes the difference. Now, that is where the 

challenge of the Middle East is. 

Mr. ROHRABACHER. Okay. 

Mr. DE SOTO. The challenge of the Middle East is that at this 

moment, you are never secure as to what you own or what you 

have if you are 85 percent of the population. The problem is I repeat the statistics. If you look at the statistics as they are implied 

today, it says the majority of the population or a good part is unemployed. There is no such thing as a poor man unemployed who 

hasn’t died the death of famine. Those people are working. They 

are working the extralegal economy. And they are not even in the 

statistics. 

That is why I am saying that the transformations that have got 

to take place are those whereby they have got—it is not about getting property rights, and it is not about getting paper. It is about 

getting the rights to those rights. Once you get those rights to 

those rights and the paper starts getting good, there is no way any 

47

Arab government of any possible inclination is going to find out 

how they are going to title and award people a property right without consulting them and without putting them in control. 

Mr. ROHRABACHER. Okay. 

Mr. DE SOTO. Because no GPS system in the world is going to 

tell you—they are going to tell you where the land is but not where 

the people are. And that is essentially a very—was the initiation 

of all democracies. 

That is why, Dana, I talk about coming in and talking like the 

nineteenth century. In the nineteenth century, the whole issue 

wasn’t who had the property of the United States. The whole issue 

was whether everybody was informed. 

Mr. ROHRABACHER. Okay. I noticed that you are mentioning 

more now today the idea of districts has been important to democracy. And let me just note that you were right on target on that 

as well. 

For example, in the Philippines, the biggest problem is they elect 

the Senate totally and nationwide. And, thus, all the senators come 

from one geographic area representing one power group in the Philippines. And so districts are very important. And I noticed that you 

have emphasized that now. 

One last note. In our own revolution, it was when King George 

I think decided he was going to start enforcing laws by kicking off 

the people who really were the owners of the property and give all 

that land to his nobleman cronies. And you can still see that here 

in Virginia with Lord Halifax and the rest of them. I think that is 

when the American Revolution really started because the people 

who were on that land working it. And they were the ones who 

really owned it, and it is the king’s right to give it away. 

So thank you very much, Hernando, for all you have done to help 

us in this struggle for freedom and individual personal dignity of 

every person. So thank you. 

Mr. DE SOTO. Can I make a comment on that, Mr. Chairman? 

Just I will try to be as brief as I can. One of the hardest things 

we have—we are called all over the world. I mean, we come from 

a tiny, little country with no importance. I mean, Peru, you could 

be anywhere. We are 1⁄3 of 1 percent of the world’s population. Yet, 

we are called in by 40 heads of state. 

I have not found a head of state in the Third World that has 

called us in that hasn’t understood what we are talking about. And 

I wonder why we have so much difficulty in the United States because at an ideological level, there is a connection. We say the word 

‘‘property.’’ We say the word ‘‘freedom.’’ We say the word ‘‘capital.’’

And I think it is the problem with all of us people who believe 

in freedom and fought against Marxism, where our shortcoming is, 

that we don’t understand the world of class. That was very clear 

to Marx. People get into collective action to do one particular thing. 

It is a class. Okay? 

What I am trying to tell you is the following thing, that in all 

the Third World, the biggest class of people is entrepreneurs, poor, 

not in pinstripe suits. They are starting off like you or I started off 

many, many, many years ago, and like you see them in the ‘‘Gangs 

of New York,’’ to take a film. You see them in any of these Clint 

Eastwood films. They are all there. They are fighting it out with 

48

guns. There is an old system that is collapsed. And they are trying 

to build a new system. And that new system awards. There is a 

lot of violence here. You are a U.S. marshal now. Go out and defend yourself until you get the whole act going. 

That kind of people in the Middle East according to our figures 

is more or less than 60 and 70 percent. And it is not in the official 

statistics. 

And until you get a sense that you have actually got entrepreneurial class that is the majority, that is the one that moves and 

shakes the way our associates in the Middle East now, which the 

private sector have seen because when you demonstrate that these 

people are burning for entrepreneurial reasons and they have seen, 

you have got a class that then you have got to address because it 

is the same class of people that your government addressed once 

it was born or to even make the American revolution. 

So it is not about the employers and the employees. It is not 

about the AFL–CIO and these other guys. There is something in 

the middle that is much bigger. And that is what occurred during 

the Eighteenth and Nineteenth Centuries. These poor people had 

large amounts of employment. You had that other class, which you 

have got to address because it looks just like their nineteenth century class. 

Chairman ROYCE. Well, thank you. 

I should mention we also have four individuals who flew in from 

the Maghreb Board for Investment and Integration. They flew in 

here from the Middle East. If I could ask them to stand? If you 

could just stand for a minute? Go ahead. Thank you very much for 

being with us. 

In closing, I want to again thank Mr. de Soto for his participation in this important hearing. The United States already has marshaled $1.5 billion to support democratic transitions in the wake of 

the Arab Spring. Hundreds of millions more have been requested 

by the administration for the next fiscal year. But if we do not understand the underlying causes of the conflict in the region, all of 

this assistance will be wasted. I believe we need to bring greater 

focus to the economic drivers of unrest—corruption, weak institutions, unenforceable property rights—as we work to support the 

Arab voices for change. 

You have helped shine a spotlight on these issues, Mr. de Soto, 

and I support you in your efforts. We stand adjourned. Thank you 

again. 

[Whereupon, at 11:15 a.m., the committee was adjourned.] 

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