RIO DE JANEIRO (Thomson Reuters Foundation) - When it comes to alleviating poverty and allowing people to live up to their potential, prize-winning Peruvian economist Hernando de Soto divides the world into two groups: the ones who have defined property rights and those who do not.

About two billion people have full rights to the property they live in and the land they farm, according to the director of the Lima-based Institute for Liberty and Democracy.

For the 5.3 billion who do not have such rights, the implications are stark: people are unable to leverage their resources to create wealth, and their assets become "dead capital" which cannot be used to generate income or growth.

As a result, the poor remain trapped by the "tragedy of the commons" where their unregistered assets can be stolen by powerful interests, hurting individuals and broader economic development, de Soto said.

Legally protected property rights are the key source of the developed world's prosperity, and the lack thereof is the reason why many nations remain mired in poverty, de Soto argued.

Providing the world's poor with titles for their land, homes and unregistered businesses would unlock $9.3 trillion in assets, de Soto estimates, an unprecedented sum to reduce poverty.

Property titles would allow the poor to use their small homes or land in order to borrow money and start businesses, he said, unlocking the entrepreneurial potential of billions of people.

"There is no such thing as an investment without property rights that are negotiable and transferable," de Soto told the Thomson Reuters Foundation in a phone interview.

"The question is: do people own things in such a way that they can be brought into the global market and make us wealthier?"

Political leaders preparing a new 20-year development plan for urban areas, to be agreed at a U.N. conference in October, will be addressing the challenge of unequal property rights as they face demands for better living standards from a growing global urban population.

HIDDEN CONNECTIONS

In the United States, the world's largest economy, the most important source of funds for new businesses is a mortgage on the entrepreneur's house, de Soto wrote in his book "The Mystery of Capital".

Small business people in Haiti, the poorest country in the Americas, in contrast, normally cannot leverage the value of their homes or land to create businesses because they lack secure property rights.

An adviser to more than 30 heads of state from South Africa to the Philippines, the 75-year-old economist said there is no clear data on whether property rights are improving or receding globally.

But a lack of these rights underpins seemingly disparate international events from the rise of religious extremism in the Middle East, to rural land rights protests in China and conflicts over "blood diamonds" in central Africa, de Soto said.

The spark which ignited the "Arab Spring" uprisings was the expropriation of a Tunisian vendor's unregistered fruit cart, underlying the broader lack of property rights across the Middle East.

The region has the world's worst record when it comes to empowering ordinary people with property rights, he said, in a trend which stokes desperation.

In Asia, an estimated 150,000 rural protests happening each year in China are "all about property rights - things being taken away from the poor and given to industry or wealthy people."

ELITE IDEAS

To his critics, de Soto's ideas do not threaten the world's elite who have amassed an ever greater share of the planet's wealth and resources.

Others contend that property rights, while important, are not the key starting point for improving the lives of the poor.

"Formal titles are more important for financial expansion than for the rights of people," Raquel Rolnik, a former United Nations Special Rapporteur on the Right to Housing, told the Thomson Reuters Foundation.

Rolnik supports the idea of getting title deeds to the poor, but says de Soto's policy prescriptions met mixed success in his native Peru.

Slum dwellers who received formal titles to their unregistered homes did not head straight for the bank in large numbers to take out loans against their properties to build new businesses, she says.

"A good housing policy is diversified and can mobilize different tenure arrangements, not only private property," Rolnik said.

(Reporting By Chris Arsenault; Editing by Astrid Zweynert. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers humanitarian news, women's rights, trafficking and climate change. Visit news.trust.org)