This message is in response to the question "How do property rights and the rule of law work together and why are they important when it comes to eradicating extreme poverty?”
In the documentary, Poverty Inc., the topics of property rights and the rule of law come up in the discussion of different problems in these third-world countries. Many of these third-world countries have fundamental issues in lack of legitimate property rights, as well as extremely poor rule of law. These two problems coincide with each other and need to be addressed in any third-world country before any real progress can be made in bringing that country to an industrial era.
Many of the economic problems that third-world countries face can be attributed back to the lack of legitimate property rights. In the documentary, one problem addressed is the lack of middle tier businesses, with most if not all businesses being very small or very large. One of the reasons it is nearly impossible for small businesses to grow to a medium businesses is because of the inability for business owners to gain loans at affordable rates, due to them unable to provide any collateral. One business owner stated that he was paying somewhere around 10% monthly on his loans, in other words 120% compounded annually, a loan impossible to pay back and take profits at the same time. With the proper documentation from the government to show they can back up their loans and provide collateral, these loan rates would be much more respectable and would allow business owners to put money back into their business to grow and stimulate the struggling economy.
The lack of rule of law is the reason for the lack of property rights, along with many other things. With an enforced, standard rule of law, third-world countries would be able to understand how they can economically prosper the right way. No first-world country does not have a rule of law. The documentary compares having a strict rule of law to having rules in a soccer match. Without any rules, the game would be chaos and would never start. The same can be said for a third-world economy.
Overall, eradicating extreme poverty in third-world countries starts with the economy. To start up the economy, there has to be an understanding of a strict rule of law, and from that would stem official documentation of property rights.