March 30, 2010

Economic Growth in Peru

It is often said that “beauty is in the eye of the beholder.” I would suggest that everyone's perception of the world is dependent on his or her beliefs. People look at the world and see it different ways, and sometimes our preconceived notions keep us from seeing the truth. The average person in Peru does not have the same quality of life as the average person in America, but this does not mean that economic growth is not occurring in Peru.

In the last 30 years Peruvians have overcome many hardships including hyperinflation. Despite difficulties the people of Peru have not given up hope, and as Marvin Olasky writes in “Peru Poco A Poco,” they are experiencing “economic improvement little by little.” Many of the ideas that are changing Peru come from the Peruvian economist Hernando de Soto. His support of private property and entrepreneurship has helped revitalize Peru.

Hernando de Soto suggested allowing Peru's poor to build homes on unused land. Once a group of homes is established the owners can legalize their claims by proving they are a community. Peruvians have done this by setting up churches, small libraries, and even community centers. Private property creates stability for these individuals and helps cement entrepreneurship by providing the foundations for businesses.

People in Peru have begun to start small businesses with the help of micro-loans. A micro-loan can range from 100 to 1,000 dollars. A small loan like this allows new entrepreneurs to buy supplies and begin working. Micro-loans allow people to become self-sufficient unlike other types of charity which can lead to dependence, if the charity does not lead to the development of a useful skill. Furthermore microloan groups are improving the community by offering business classes for members and providing support for those taking out new micro-loans. As we discussed in class one benefit of entrepreneurship is that the entrepreneur pays wages to laborers thereby bettering life for those workers. As these new business leaders use micro-loans to get started and grow, capital is beginning to accumulate in the slums of Peru.

Hernando de Soto believed that the individuals of Peru could revitalize the country by entering the market as property owners and entrepreneurs. As he said when referring to the complexities of Peru, “with millions of people whose specialization makes them interdependent, with complex systems of communication between producers and buyers... with competition and a daily flow of information from other countries, it is physically impossible to be familiar with and directly run even a small fraction of national activities.” Like Austrian economists, Hernando de Soto believes in the individual. He recognizes that a central planner cannot know everything, and that therefore an economy is more successful when individuals make decisions with the knowledge that they possess. A person in Peru many not have what I have, but the only reason I have what I have is because of the capital accumulation of previous generations. Hernando de Soto's ideas have started Peru along the path of capital accumulation, and the people of Peru have hope because of it.

Olasky, Marvin. “Peru Poco A Poco.” World Magazine. 13 March 2010.

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