Hernando de Soto is the latest economist who claims to unlock the secret of wealth and poverty. He says there is a magic solution to convert poor into rich. He’s the Harry Potter of economics.

But he’s a lot better than most wizards. His heart is in the right place. But what is the relevance for Thailand? Thaksin believes he can abolish poverty by turning the poor into entrepreneurs like himself. In de Soto’s name, Thaksin’s people are planning to create documents so more people can borrow from banks and set out to become telecommunications billionaires. But is this really what de Soto is on about?

In western countries, de Soto notes, almost everybody participates in capitalism and the country becomes rich. Elsewhere only a few participate and the country does much less well. This is because the rules – especially rules about property – are set up to favour the few.

The big change came in the west when the rules were changed to match the local practices of the mass of the people. In de Soto’s language, the trick was “to find the real social contracts on property, and integrate them into the official law”. This was not easy. It took decades. It was a big fight. But once it happened, there was a common set of rules and everybody could participate.

De Soto focuses on land. But the argument applies to other assets. Take the example of local liquor in Thailand. For decades the rules allowed only a few people to manufacture liquor, and they made enormous profits. Local people had the skill and knowledge but could not turn this skill into capital. Instead they had to fight gun battles with excisemen.

This is not a new idea. De Soto has taken one of the central propositions of institutional economics and turned it into the answer to the world’s problems. But it is a good idea and de Soto is a great advocate. But giving titles to vendors will not boost Thailand to OECD status. And why are the proposals to convert conditional land deeds (like SPK 4-01) into full title proving so controversial?

To look at the real meaning of property rights in the Thai context, let’s go back about ten years and compare two groups of people.

The first are fishermen on the Mool River. They had lots of assets – a naturally abundant river, knowledge accumulated over generations, specialised fishing equipment. They could mobilise this capital to make a good living. They had a local system of property rights which allowed many communities to share the river.

Then the electricity generating authority (EGAT) built a dam across the river. The fishermen’s property rights and livelihood disappeared.

The second group are a handful of mobile phone vendors. Government gave them property rights over telecommunication frequencies. They used these exclusive rights as capital to make lots of money.

What are the differences between these two groups?

The first is legal documents. The mobile phone vendors got concession contracts. The fishermen had nothing. There was no institution handing out title deeds to guarantee property rights over the river.

The second is about power. The mobile phone vendors had lots of powerful friends. One was nephew of a former communications minister. Another had long connections with generals in the armed forces. All of them cosied up to big bureaucrats, big politicians, and big dictators.

The fishermen had no such network. No MP took any interest in their case. Local bureaucrats looked upon them as trouble-makers. The provincial governor joked that their protest demo was a “picnic”. Thugs destroyed their camp.

The third is about hegemony – the power which is embedded deeply in the society and culture. We are not very surprised about what has happened to the fishermen, are we? Few were shocked when their property rights were destroyed. Few got angry when their capital was marked down to zero. But suppose today EGAT discovers it can generate electricity by building a dam across the airwaves. Government revokes all frequency concessions and says the mobile phone vendors must “make sacrifices for the national interest”. We would be very surprised. We would expect the mobile phone vendors to fight back, and to win.

De Soto’s point about property rights is a good one. The government deserves a lot of credit for taking up the idea and looking into applications in Thailand. But if the idea is to have the magical effect that de Soto promises, government needs to go a lot farther. And it won’t be easy.

Property rights are much more than documents. They are about power – legal power, political power, and social power. De Soto argues very strongly that technical changes like documents are the easiest and least important part of the magic. The tough and important parts are “changes in political attitudes and broad legal trends”. In his native Peru, there were 22 attempts at issuing new documents and they all came to nothing.

Its easy to see why. A recent study found the Land Department accounts for a third of all bureaucratic corruption in Thailand. One man suspected of amassing huge landholdings by juggling documents is an MP and executive of the ruling party. No wonder proposals to issue more land documents excite such controversy. People fear this is expanding a system which is always manipulated by the few.

The trick, de Soto argues, is to discover the “people’s laws” already in use inside communities, and turn them into official law. But this is difficult. It would mean recognising the fishermen’s rights over the Mool river, the rights of Chana residents to protect their local environment, and so on. Often it is the government itself, which is the biggest threat to these rights.

The Thaksin government deserves praise for adopting de Soto’s ideas. But if the magic is to work, it needs to discover the “people’s laws” and make sure the legal system and bureaucratic practice validate them. This might really need Harry Potter’s help.