A Review of "The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else"
Abby Olin
Issue date: 4/23/09 Section: News and Opinion
More than a decade after the fall of Marxism, the expected capitalist revolution has not occurred. Capitalism has been successful only in the developed nations and has made little progress in the third world or in the former communist states. "The Mystery of Capital" by Hernando de Soto tackles one of the largest issues in development and comparative economics: non-convergence. Why is it that living standards do not converge?
Western thinkers have blamed this on everything from these countries' lack of sellable assets to their inherently non-entrepreneurial mindset. In this book, the renowned Peruvian economist and adviser to presidents and prime ministers, Hernando de Soto proposes another reason: it isn't religion, culture, or race issues that are blocking the spread of capitalism but the lack of a legal process for making property systems work. He believes such a change can be achieved if governments seriously accept the real disparity of living conditions among their people, adopt a social contract, and then overhaul their legal system.
In the West, a web of financial and legal networks enable people to use their assets to create further wealth, through such tools as mortgages, publicly traded stocks, and the like. Outside the West, most people live and work outside the kind of invisible asset management infrastructure that we take for granted, and thus are unable to use their assets for the "representational purposes" we are able to.
Thus the full set of capitalist tools is not available to them and it becomes difficult to realize upward mobility. The lack of economic growth is due to accelerated urbanization and population growth, coupled with the inability of legal systems to adapt to the reality of how people live.
De Soto does not believe poverty is due to the evil intentions of capitalists or capitalist countries. Nor is it because of culture or any inherent faults in the poor, or in poor countries. The real problem lies in the blindness that has kept everyone from seeing what the real source of wealth is: real property, or more exactly well-defined and socially accepted property rights.
Once a society has this, it has the secret of capital, since these assets can then be used to generate loans, credit, insurance, liabilities and the whole apparatus of capitalism. This invisible infrastructure of "asset management"-- taken for granted in the West-- is the missing ingredient to success with capitalism. The ultimate challenge is raising the social awareness and political backing necessary to implement major legal change in the face of resistance from an entrenched bureaucracy and elites who benefit from the status quo.
De Soto's writing is remarkably clear (especially for an economist), and no background in economics or law is needed to follow his argument. In the end, whether you agree with his thesis or not, I guarantee it'll challenge your preconceived notions about global capitalism.
Western thinkers have blamed this on everything from these countries' lack of sellable assets to their inherently non-entrepreneurial mindset. In this book, the renowned Peruvian economist and adviser to presidents and prime ministers, Hernando de Soto proposes another reason: it isn't religion, culture, or race issues that are blocking the spread of capitalism but the lack of a legal process for making property systems work. He believes such a change can be achieved if governments seriously accept the real disparity of living conditions among their people, adopt a social contract, and then overhaul their legal system.
In the West, a web of financial and legal networks enable people to use their assets to create further wealth, through such tools as mortgages, publicly traded stocks, and the like. Outside the West, most people live and work outside the kind of invisible asset management infrastructure that we take for granted, and thus are unable to use their assets for the "representational purposes" we are able to.
Thus the full set of capitalist tools is not available to them and it becomes difficult to realize upward mobility. The lack of economic growth is due to accelerated urbanization and population growth, coupled with the inability of legal systems to adapt to the reality of how people live.
De Soto does not believe poverty is due to the evil intentions of capitalists or capitalist countries. Nor is it because of culture or any inherent faults in the poor, or in poor countries. The real problem lies in the blindness that has kept everyone from seeing what the real source of wealth is: real property, or more exactly well-defined and socially accepted property rights.
Once a society has this, it has the secret of capital, since these assets can then be used to generate loans, credit, insurance, liabilities and the whole apparatus of capitalism. This invisible infrastructure of "asset management"-- taken for granted in the West-- is the missing ingredient to success with capitalism. The ultimate challenge is raising the social awareness and political backing necessary to implement major legal change in the face of resistance from an entrenched bureaucracy and elites who benefit from the status quo.
De Soto's writing is remarkably clear (especially for an economist), and no background in economics or law is needed to follow his argument. In the end, whether you agree with his thesis or not, I guarantee it'll challenge your preconceived notions about global capitalism.
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