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The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (平装)
by Hernando de Sato
| Category:
Non-fiction |
| Market price: ¥ 198.00
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¥ 168.00
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MSL rating:
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| MSL Pointer Review:
Getting back to the roots of capitalism covering markets, property rights, and fighting poverty, this eye-opening book is one of the essential readings on the future of developing countries. |
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AllReviews |
1 2   | Total 2 pages 16 items |
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Washington Post (MSL quote), USA
<2006-12-25 00:00>
The Mystery of Capital makes a powerful case... An important book. |
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The Economist (MSL quote), USA
<2006-12-25 00:00>
The most intelligent book yet written about the current challenge of establishing capitalism in the developing world. |
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Roberto Helgera (MSL quote), USA
<2006-12-25 00:00>
Like Economics in One Lesson, by Hazlitt, The Mystery of Capital is one of those books that opens your eyes with one single lesson: the importance of strong private property ownership rights and its consequences. De Soto argues, not theoretically, but with proven experience that this is the key to unleashing the potential of capital and its benefits. Suffice it to say that De Soto's advice got rid of the guerrilla in Peru by giving their farmers title to their property and therefore desincentivating them from the growth of drug crops. He also has been hired as a consultant to Egypt, the fastest growing economy in the Middle East, since the reforms proposed have been implemented.
This is a must read to all those wishing, wanting, willing to do away with poverty and to protect property, and it does not have to apply to the third world only: the US and Europe could use a good dose of deregulation and less State intervention in property rights in order to combat poverty, inequality and all the evils modern politicians like to talk about but do little to solve. Were I president of a nation one day I would immediately hire De Soto and his team. Can all evils be resolved with property rights? No, but by aligning the incentives correctly most economies would benefit greatly and much corruption would disappear, eliminating a lot of poverty with it. This book should be a required reading on any economics university program, and De Soto's researched should be further expanded and discussed. |
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M. Strong (MSL quote), USA
<2006-12-25 00:00>
De Soto and his team deserve a lot of credit for this book and the research underpinning it. De Soto asked the question of why capitalism, a system that works so well in parts of the world, fails miserably in other parts of the world. Rather than sitting in an office somewhere and coming up with a theory, he and his team headed into the third world and literally attempt to buy homes and start businesses; their findings are enlightening.
The premise of the book is that basic property rights, and the set of laws that guarantee them, are prerequisites to effective capitalism. In the parts of the world that do not have these rights and laws, capitalism cannot take root. De Soto finds that the ability to take material holdings (like a house) and leverage them (through something like a mortgage) into capital is absolutely critical. In many parts of the world, however, it can take between two and ten years to get legal title to a home. Even then, your rights to continued legal ownership of the property are far less than perfect. The effects of this legal quagmire on capitalism are crippling.
One of the most interesting points that De Soto makes is that the West, in its efforts to spread capitalism, never recognizes the need for property rights as an underpinning of its own economic system. He argues that we take our system of property rights so for granted that we can't even recognize them as essential to capitalism.
The book would be five stars except for a tendency of De Soto to get a bit preachy and the fact that he actually seems to blame capitalism for not having its own mechanism to create the property rights upon which it depends. It's a little like blaming the rain for not coming with the concrete that would make it into a pool in my backyard - it just isn't the rain's responsibility.
That said, there are amazing ideas in this book that hold real power to improve the lot of billions of people if they can be recognized and effectively implemented. Highly recommended. |
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W. Durkey (MSL quote), USA
<2006-12-25 00:00>
The first 20 or so pages are actually the hardest hitting.
De Soto's team has compiled, by going thru them, a list of the administrative steps that someone wanting to legally register a small business would have to go through in a half dozen developing countries. Haiti, as an example, has about 150 steps, jumping from ministry to ministry, and visiting many several times, before you can be legally registered. Unbelievable stuff!
His point? Nobody bothers, and nobody bothers to register land or building ownership either. This results in ample scope for graft by corrupt officials. But, mostly, this makes business relationships outside your immediate circle very difficult: how can you sell or insure something which you can't prove you own? How can you buy land without formal land ownership information? How can you get a bank loan without collateral? So the vast majority of citizens are forced to eke out a living, with none of the opportunities for entrepreneurship which we take for granted in our societies. According to De Soto, those people are just as capable, and certainly have more reasons to be motivated, as many of us. They just have no opportunity, due to systemic legal failures.
Only the rich can afford the time to play by all these well-meaning rules, or the money to bribe themselves out of them. The poor just end up in extra-legal shantytowns. See Zimbabwe's recent little ghetto cleanups for one possible result.
There is also a comparison of these issues with the slow establishment of formal property rights in America, in the 17th thru 19th century. The point being that these problems are not new and are not impossible to solve either. In fact, the book is almost worth reading just for its look at that particular facet of European and American history. |
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Martin Schell (MSL quote), USA
<2006-12-25 00:00>
The primary focus of this book is on the historical, legal, and political processes for converting the "dead" capital of the extralegal sector into liquidity. The author presents his main idea as a revolutionary way to make capitalism more universal, and his single-mindedness occasionally results in repetitious writing.
As an American, I found the chapter on the history of US land rights a real eye-opener, particularly the transformation of "squatter" into "pioneer" in the public mind during the first half of the 19th century. As a resident of Indonesia, I found the book helpful for understanding why 80-90% of the economy remains extralegal.
Aside from transcending both the left (land reform) and right (property rights), this book is valuable because it reminds us that value is an abstraction. The author leads the reader on a kind of intellectual adventure that shows how philosophical ideas relate to very down-to-earth matters.
He also makes a convincing argument that laws only work when they reflect the customs and behavior of the people. Title registration succeeds when it embraces existing extralegal ownership relationships and when the cost of legality is cheaper than the cost of extra legality (which includes not only bribery of officials and local Mafiosi but also the lack of economy of scale and public services).
An important point related to converting the extralegal sector to legality is the task of integrating local legal and economic arrangements into larger units in order to increase a nation's capital. Often, one of the obstacles is a country's own elite, trained in western universities to promote policies regardless of whether they benefit their countrymen. Quoting Fernand Braudel, de Soto frequently uses the image of a bell jar to describe the clueless attitude of the elite and the consequent restriction of capitalism to a small segment of society. Elites in various third world countries may think they're working together to further globalization when in fact they're only linking up their individual bell jars.
Although de Soto draws on huge amounts of data and some actual successes in the third world, this book strikes me as the kind of "grand explanation" that makes a lot of sense when you read it, but pales when you read the next person's "grand explanation." As several reviewers pointed out, it's hard to believe that real estate is the key factor in capitalization, though registering titles may well be the most effective next step that can be taken in developing countries. I disagree with the analysis of the reader who calculated the average per capita dead capital in the third world and asserted that $2,000 to 3,000 is not enough to start a business - this figure is well above what many small entrepreneurs begin with, being several times the per capita income in their respective countries. |
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B. Shenoy (MSL quote), USA
<2006-12-25 00:00>
Imagine a large lake on top of a hilly terrain. This water body has potential energy that can be tapped if we can make the water turn turbines at a power plant located at a lower elevation. This energy lies waste if we fail to recognize the potential or are unable to build the technology that converts it into electricity. The same analogy is applicable to the vast amounts of dead capital in developing and former communist countries. These countries together have about $ 10 trillion of such untapped capital due to the inability of the legal and political system to integrate it into the national system of legitimized existence. In the absence of clear titles and legal safe guards, large amounts of assets continue in their extralegal domain.
In contrast, in the developed west, every piece of land or building is meticulously recorded in a central database with accurate details of ownership. Here the word property needs to be distinguished from its physical form to that of the legal aspect of ownership and title that can be accounted for and converted into fungible capital.
Once capitalized, the asset can be developed, mortgaged and traded, leading to a large stream of economic activities which in turn generates income and accumulates more capital. If this is so simple, then why doesn't the developing world recognize this vital aspect that is key to prosperity ?. That is precisely the mystery that the book attempts to solve.
The book excels on the following counts:
- The hypothesis on dead capital
- Listing of and discussion of the mysteries of capital
- An in-depth analysis of the issue of extralegal assets in developing countries from a legal, social and historical perspective
- A chapter devoted to the US experience over the last 300 years
- Suggestions for changes in legal and political systems to align with the ground reality of social systems and to kick start the capitalization process.
In a certain developing country where the government had no records on land ownership in its remote villages, the dogs that roamed freely in the country side knew precisely the boundaries of their owners' lands and would start barking immediately if a stranger crossed the line into their territory. Governments struggling with outdated records and impractical laws on public property better consult their dogs when in doubt. |
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Andrew Szabo (MSL quote), USA
<2006-12-25 00:00>
In The Mystery of Capital, Hernando De Soto, President of Peruvian think tank "Institute for Liberty and Democracy," seeks to explain (as stated in his ambitious subtitle) "why capitalism triumphs in the West and fails everywhere else." His answer is that Western countries have developed flexible legal systems that recognize emerging property interests, especially in land.
De Soto notes that the United States from the start faced the issue of illegal squatters. George Washington experienced squatting on his land in Virginia. He called squatters "banditti." The United States was dragged into recognizing squatting and "homesteading" rights, not as a matter of liberal enlightenment, but rather as the result of social upheaval often mixed with bloodshed. The expansion of the Western frontier, and particularly the California Gold Rush, exposed tensions over uses of federally owned land that still continue. What was so propitious to capitalist development in the United States, De Soto asserts, is that the traditional view of property rights caved in and masses of people became independent property owners.
In contrast, De Soto points to many Third World countries, including Peru, where the masses have developed much potential property, both in the countryside and in squatters' cities, but no solid legal foundation to back up their claims. Without uniformly recognized property rights, they cannot borrow against (mortgage) their property to make other investments. Their capital is not fungible or tradable. It doesn't enter into the spiral of accelerating benefits that De Soto attributes to a fully integrated capitalist system. De Soto and his researchers have labored admirably to detail the hundreds of steps it typically takes in such pre-capitalist legal systems to develop a clear title to land.
De Soto's thesis: those countries that develop a flexible system to recognize property rights develop capitalistically; those that fail to develop such a system don't. However, De Soto fails to explain adequately why it is that some countries are able to cross this legal threshold and others haven't. He makes many generalizations about the West "and Japan." What allowed Japan to become an exceptionally developed society? Are countries such as Singapore and Taiwan on the same (sustainable) path?
De Soto's book is potentially valuable to emerging markets investors. We are now seeing many Latin American countries, after an era of reform, reverting to anti-capitalist sentiment and statistic policies. Consider Venezuela and Bolivia, for example. The implication of De Soto's these is that the State can make many good reforms, but if it fails to recognize property rights in the disenfranchised masses, economic development will fall short, and the political constituency to support it may also fail. De Soto's thus book provides an echo in economic theory of English Prime Minister's Margaret Thatcher's famous doctrine of an "ownership society." The implication for investors is to go where the masses are developing clear property rights. |
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M. Helie (MSL quote), USA
<2006-12-25 00:00>
Since the Keynesian revolution the economics profession has been busy writing up mathematical models of incentives that show how IMF and World Bank loans, free trade deals, "fiscal policy" or "game theory" can be used by governments to generate economic growth. Hernando de Soto's Mystery of Capital is a slap in the face for every economist that has ever had a high-paid position in the countless agencies built to promote growth. It turns out that the classical economists (and their Austrian school heirs) have been right all along, that the source of economic growth is individual businessmen. And what can these individuals do when it takes a year of full-time work and years of savings paid out in bribes to get a legitimate business license? Nothing. The only people that can do business in these countries are the already-wealthy and well-connected.
For all the talk about international free trade, contemporary economists have never really paid attention to internal free trade, free trade between individuals. There is no mystery of capital. The men who built the West knew it well. The real mystery is how a class of government-protected elite academics could have forgotten the basic lessons of economics. It took a non-academic, De Soto, to remind them. It remains to be seen if they will admit their failures. |
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Geoff (MSL quote), USA
<2006-12-25 00:00>
De Soto presents an elegant model for the creation of capital in a society. His examples focus on the infrastructure needed for capital formation, and they are clearly presented and explained in a historical context when applicable. In a field (economics) that is riddled with disconnected academics, De Soto pleases the reader by presenting a model based on primary research. The reader also will enjoy De Soto's clever phrasings and sentence structure. Thorough citations will aid a learner in the advanced study of the argument, while clarity and elegance in support work will please a reader considering for the first time why capitalism seems to thrive only in the West. |
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