The Middle East is enduring yet another wave of terror and political change, spurring countlessWestern analysts and elites to offer their preferredstrategies and solutions, most of which involve military force, foreign aid, or some mixture of the two.

In last weekend’s Wall Street Journal, Peruvian economist Hernando De Soto sets forth a less predictable path, arguing for “an aggressive agenda for economic empowerment,” similar to that which was promoted in Peru during the 1990s.

I know something about this. A generation ago, much of Latin America was in turmoil. By 1990, a Marxist-Leninist terrorist organization calledSendero Luminoso,or Shining Path, had seized control of most of my home country, Peru, where I served as the president’s principal adviser. Fashionable opinion held that the people rebelling were the impoverished or underemployed wage slaves of Latin America, that capitalism couldn’t work outside the West and that Latin cultures didn’t really understand market economics.

The conventional wisdom proved to be wrong, however. Reforms in Peru gave indigenous entrepreneurs and farmers control over their assets and a new, more accessible legal framework in which to run businesses, make contracts and borrow—spurring an unprecedented rise in living standards… Over the next two decades, Peru’s gross national product per capita grew twice as fast as the average in the rest of Latin America, with its middle class growing four times faster.

After providing an in-depth look of how such reforms led to the downfall of terrorism, de Soto returns to the context at hand:

To make this agenda a reality, the only requirements are a little imagination, a hefty dose of capital (injected from the bottom up) and government leadership to build, streamline and fortify the laws and structures that let capitalism flourish. As anyone who’s walked the streets of Lima, Tunis and Cairo knows, capital isn’t the problem—it is the solution…

…The people of the “Arab street” want to find a place in the modern capitalist economy. But hundreds of millions of them have been unable to do so because of legal constraints to which both local leaders and Western elites are often blind. They have ended up as economic refugees in their own countries.

To survive, they have cobbled together hundreds of discrete, anarchic arrangements, often called the “informal economy.” Unfortunately, that sector is viewed with contempt by many Arabs and by Western development experts, who prefer well-intended charity projects like providing mosquito nets and nutritional supplements.

But policy makers are missing the real stakes: If ordinary people in the Middle East and North Africa cannot play the game legally—despite their heroic sacrifices—they will be far less able to resist a terrorist offensive, and the most desperate among them may even be recruited to the jihadist cause.

For more on the economic history and de Soto’s suggested solutions, read the full article.

Also, de Soto explores these same themes and more in the PovertyCure series, a small sample of which is provided below. For more of de Soto’s contributions to PovertyCure, see here.