We all know that free markets, which deliver the latest Harry Potter novel within three days to any location in the world, only work in the West. What's more, popular culture tells us that the reason why the free market does not work in benighted places like Uganda is due to a number of simplistic explanations: Culture - the people are lazy, while we in the West have a Christian ethic of hard work; Religion - Third Worlders are still stuck with mysterious religions right out of Conrad's heart of darkness and finally; Third Worlders are `content' with their lot in life. Thankfully, Hernando de Soto's Mystery of Capital presents a more plausible reason for the failure of capitalism outside the West: the lack of property rights in the Third World.
De Soto's premise is that widely accessible legal property systems are the foundation of the West's prosperity and that the absence of such systems in Third World countries is the principal reason why all attempts at macroeconomic reform in the Third World- however good-intentioned - are doomed to failure. By presenting results of original grass-roots research that he conducted in five countries (Haiti, Peru, Brazil, Egypt and The Philippines), De Soto demonstrates that the poor are anything but poor. For example, he showed that the poor in Peru owned about $72 billion worth of property, (an amount that was eight times the amount of savings deposits in Peru at the time). The problem, though, is that all of that $72 billion worth of asset is `dead capital', as it is in the extra-legal sector of the economy. Since there are no legal titles or deeds, this `dead capital' could not be put up as collateral to start businesses, or to generate wealth independent of its status as real estate.
De Soto devotes considerable space to examine the history of property rights development in the United States. He shows clearly that the process of developing property rights in the US was not a straight forward. Indeed, it took the better part of a century to develop an integrated, property system that was accessible to the entire U.S. population. Therein, according to De Soto, lie the lessons for today's developing countries.
He finally outlines a strategy for integrating the extra legal population into the economic mainstream: taking the perspective of the poor; co-opting the elites and dealing with the technocrats, who have a vested interest in maintaining outmoded, unrepresentative property systems.
The book's concluding chapter is a gem - albeit a `short' one. De Soto eloquently challenges the `cultural argument' to wit: Is succeeding at capitalism a cultural thing? How much of Bill Gates success, for example, is due to his cultural background and `Protestant Work Ethic' and how much is due to the existence of legal property systems in the United States? His conclusion: "Much behaviour that is attributed to cultural heritage is not the inevitable result of people's ethnic or idiosyncratic traits but of their rational evaluation of the relative costs and benefits of entering the legal property system". De Soto's conclusion is one that I, as a Nigerian, agree with. The poor in my native country are not just an unruly, pre-industrial lot waiting for hand outs from the West. Instead, they are entrepreneurs, who survive - and even thrive - in spite of a hostile economic and political situation. It's time to harness their entrepreneurial energy to produce `live capital'. De Soto's message is timely and well-argued. Therefore, The Mystery of Capital deserves my 4 stars.
- Buy this item and get 90 days Free Amazon Music Unlimited. After purchase you will receive an email with further information. Offer valid for a limited time only. Terms and Conditions apply.” Learn more here.