[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
            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


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                      COMMITTEE ON FOREIGN AFFAIRS

                 EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey     ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida         ENI F.H. FALEOMAVAEGA, American 
DANA ROHRABACHER, California             Samoa
STEVE CHABOT, Ohio                   BRAD SHERMAN, California
JOE WILSON, South Carolina           GREGORY W. MEEKS, New York
MICHAEL T. McCAUL, Texas             ALBIO SIRES, New Jersey
TED POE, Texas                       GERALD E. CONNOLLY, Virginia
MATT SALMON, Arizona                 THEODORE E. DEUTCH, Florida
TOM MARINO, Pennsylvania             BRIAN HIGGINS, New York
JEFF DUNCAN, South Carolina          KAREN BASS, California
ADAM KINZINGER, Illinois             WILLIAM KEATING, Massachusetts
MO BROOKS, Alabama                   DAVID CICILLINE, Rhode Island
TOM COTTON, Arkansas                 ALAN GRAYSON, Florida
PAUL COOK, California                JUAN VARGAS, California
GEORGE HOLDING, North Carolina       BRADLEY S. SCHNEIDER, Illinois
RANDY K. WEBER SR., Texas            JOSEPH P. KENNEDY III, 
SCOTT PERRY, Pennsylvania                Massachusetts
STEVE STOCKMAN, Texas                AMI BERA, California
RON DeSANTIS, Florida                ALAN S. LOWENTHAL, California
TREY RADEL, Florida                  GRACE MENG, New York
DOUG COLLINS, Georgia                LOIS FRANKEL, Florida
MARK MEADOWS, North Carolina         TULSI GABBARD, Hawaii
TED S. YOHO, Florida                 JOAQUIN CASTRO, Texas
LUKE MESSER, Indiana

     Amy Porter, Chief of Staff      Thomas Sheehy, Staff Director

               Jason Steinbaum, Democratic Staff Director


                            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


            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 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:]

    
    
    
    
    
    
                              ----------                              

    Mr. Deutch. It has been only 2\1/2\ 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.
    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 cause for this movement, understanding any large-
scale social movement is difficult. The image of the Tunisian 
street vendor self-immolating 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 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 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.
    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.
    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 Afro-Americans 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 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 
meetings 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 
democracies. 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 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 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 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.
    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 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 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 al-Qaeda 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.
    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.
    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.
    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 two-party 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. I know it sounds tremendously ideological, but it 
has got to be understood. 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. 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 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 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 1\1/2\ 
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 I would say is the main force that we are trying to 
battle, as compared 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 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 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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