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Title: The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else by Hernando De Soto ISBN: 0465016146 Publisher: Basic Books Pub. Date: 05 September, 2000 Format: Hardcover Volumes: 1 List Price(USD): $27.50 |
Average Customer Rating: 4.15
Rating: 3
Summary: Legalized Private Property
Comment: Following the collapse of the Soviet empire there was great anticipation that capitalism would sweep the planet and transform the lives of the world's poor into something resembling life as we know it in the West. Instead of this rosy view of the future what has actually happened is that capitalism has failed to take hold in all but a few places around the world. This failure of capitalism to take hold has caused great consternation amongst the Western political establishment who fear that this failure may be seen by the Third World's poor as a deficiency of capitalism, or worse, as a purposeful effort by the West to keep them down.
Make no mistake about it though, the economic system that an overwhelming majority of the world's people currently operate under is NOT capitalism. "The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else" is Peruvian economist Hernando de Soto's explanation of why capitalism has failed to take root in most of the world's countries.
What de Soto believes that developing countries lack is an integrated property system that would allow the people of these countries to turn their homes into engines of growth. He starts by stating that he has collected data from all over the world and he concludes that the world's poor 'own' real estate assets in excess of trillions of dollars. He then states that the poor are unable to realize the capital potential of these assets because they do not belong to the formal property sector. Instead the world's poor often hold their assets in an informal, extralegal sector.
They do this not because they seek to avoid taxes or because they are engaged in illicit activities but because their governments have made it too difficult and too expensive to get legal. De Soto says that, in Peru, the city of Lima alone requires any person wishing to formalize their title to property to navigate over 200 steps that take years-worth of time. Given the difficulties and expenses involved with this bureaucratic nightmare, the poor often give up and form their own property associations to protect their rights.
De Soto then goes on to say that this is not much different from how things were in the United States up until about the mid-1800s. Modern Americans don't realize the difficulties our ancestors went through in establishing title to their property because there is no clear history of the effort to legalize American property holdings.
De Soto believes this legalization of property holdings is vitally important to the success of capitalism because most start-up enterprises are begun with money raised from someone's home. Without the access to a wider credit market that legalization provides, the developing world's poor are locked into a system that prevents them from expanding their businesses and from gaining economies of scale that would allow them to generate real wealth and jobs.
While all of this seems intuitive, de Soto falls short of adequately backing up his thesis. I am already a believer in the rights to private property so I don't need convincing. However, a majority of the world's people are not believers in private property rights. I assume that it is to them that de Soto is directing his effort. If it is, he needs to include more support for his argument than just assuming the Western concept of private property rights is accepted everywhere in the world.
These failings aside, "The Mystery of Capital" is an important work in that it gets us focusing on what needs to be done to improve the lot of the world's poor. Capitalism, free trade, and private property are the means to improve those lots. However, these concepts will only triumph if most of a country's people are plugged into the system. If they are left out, no matter how successful those concepts may be for the ones on the inside, they will fail to achieve their ultimate goal, which is the improvement of the quality of life for a majority of the world's people.
Rating: 5
Summary: A great read on socio-economic policy development
Comment: In this book Mr. De Soto seeks an answer to why capitalism is succeeding in the West and not in many former communist nations. In general I learned quite a bit from the book and found the sections on law development/social contracts and American property history to be a HUGE learning experience full of insight. If you read this book you can truly learn a lot but you have to read it with an open mind.
At times Mr. De Soto is VERY REPETITIVE. Chapters 1-4 keep on repeating his conclusion in different manners and I found that reading those chapters was like him trying to beat his conclusion into my head.
His conclusion: Such countries have yet to establish and normalize the invisible network of laws that turns assets from "dead" into "liquid" capital, specifically as it pertains to property and ownership of land. In the West, standardized laws allow us to mortgage a house to raise money for a new venture, permit the worth of a company to be broken up into so many publicly tradable stocks, and make it possible to govern and appraise property with agreed-upon rules that hold across neighborhoods, towns, or regions.
Mr De Soto backs up his claims with some profound numbers too. For example, in Egypt, the wealth the poor have accumulated via real estate/property is worth 55 times as much as the sum of all direct foreign investment ever recorded there. He also provides data in the countries of Haiti and Peru.
Mr. De Soto provides insights as to how these countries are currently organized/operate via an "extra legal" sector. Rather than operating under a formal code of law local cooperatives enforce and provide dispute resolution and he argues that, since law evolves out of social contract that property laws/organizations could be made a part of the law to help unleash capital through the economy.
If you want to read a good book on socio-economics I highly recommend the book.
Rating: 5
Summary: Simple but Revolutionary
Comment: The implications of De Soto's book are simple but revolutionary: economic and social development will not be achieved by throwing money at the problem but by dramatically changing the legal systems to allow and encourage the efficient and legal exchange of capital.
De Soto thoroughly documents his arguments estimating that "the total value of real estate held but not legally owned by the poor of the Third World and former communist nations is at least $9.3 trillion." $9.3 million is a staggering number -- especially in the context that it is forty-six times all the World Bank loans in the past 3 decades.
De Soto follows the processes and legal barriers to gaining title on property: to gain property rights and construction permits in Egypt can take up to 14 years and that it can take up to 4112 days to gain a five year lease in Haiti! With the amount of time and money required, people have skipped the process of legalizing their property resulting in their lack of liquidity.
De Soto speaks with the authority of a practitioner having put in place the groundwork of formalization in Peru with significant results. Is this truly the panacea to world poverty as De Soto comes very close to arguing? Given the results and the dead capital that exist in the world, it may very well be.
With the increasing number of violent protesters who will stop at nothing but the complete annhilation of capitalism, De Soto stands firm in his arguments that the problems are not with the concept of capitalism but the legal systems to allow for the creation of capital. For this reason, De Soto's The Mystery of Capital will be always be unpopular and attacked by those who cannot look beyond their own ideologies to see his greater message.
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Title: The Other Path: The Economic Answer to Terrorism by Hernando De Soto, June Abbott ISBN: 0465016103 Publisher: Basic Books Pub. Date: 03 September, 2002 List Price(USD): $15.00 |
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Title: Globalization and Its Discontents by Joseph E. Stiglitz ISBN: 0393051242 Publisher: W.W. Norton & Company Pub. Date: June, 2002 List Price(USD): $24.95 |
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Title: The Commanding Heights: The Battle for the World Economy by Daniel Yergin, Joseph Stanislaw ISBN: 068483569X Publisher: Touchstone Books Pub. Date: April, 2002 List Price(USD): $16.00 |
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Title: The Elusive Quest for Growth : Economists' Adventures and Misadventures in the Tropics by William Easterly ISBN: 026205065X Publisher: MIT Press Pub. Date: 01 July, 2001 List Price(USD): $29.95 |
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Title: Culture Matters: How Values Shape Human Progress by Lawrence E. Harrison, Samuel P. Huntington ISBN: 0465031765 Publisher: Basic Books Pub. Date: 03 April, 2001 List Price(USD): $19.00 |
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