Book Review
The Mystery of Capital: Why Capitalism Triumphs in the West and Fails
Everywhere Else by Hernando de Soto (Basic Books)
by Rodolpho Carrasco
January-February 2002
in PRISM
Magazine
Rodolpho Carrasco is associate director of Harambee Christian Family Center in Pasadena, Calif.
I was raised and educated in environments that
viewed moneymaking as unrighteous and free markets as exploitative. For me,
being poor and Mexican in Southern California meant that I had a hard heart
toward rich, white capitalists who I perceived valued money over justice. As
time passed, however, I changed my view of our economic system. My life was
transformed by the educational and economic opportunities afforded me by our
free market system. I learned I was blessed to attend high school for free when
I discovered that my counterparts in Mexico had to pay for the same privilege.
That blessing was connected to the robust U.S. economic system, and toward this
system I felt gratitude.
My experience as an urban youth minister has
cemented my understanding of the magnificent potential of free markets to lift
people out of poverty. I know Mexican immigrants who have spent years living
several families to one house while saving money to purchase that house. That
family not only bought that house, they later bought another property in my
neighborhood and then a third in Chicago. I know young African Americans who
delay gratification and humble themselves by taking multiple low paying jobs.
They are building legitimate and sizable savings accounts. They decided that
they would live by the sayings and metaphors of a free system – “If
you don't work, you don't eat” and the
story of the ant and the grasshopper - and now they reap the benefits.
Even so, I remain concerned about the pain free
market capitalism causes around the world as well as at home. There is
something wrong when one episode in the hospital can create a hole from which a
poor person will spend years digging out. We can lament this fact even as we
understand that our free market system has produced incredible blessings, such
as the wide spread of health insurance and life-extending advances in medicine.
Also regarding the pain of capitalism, there is the ever-present question of
why a small percentage of the world's population is as rich as Croesus while a
great number remain as poor as Stone Agers.
Peruvian economist Hernando de Soto’s latest book echoes my conflicting feelings with an admiration for the
free market alongside concerns about its inequities. "The Mystery of Capital: Why Capitalism Triumphs in the
West and Fails Everywhere Else" addresses the conflict by directing
attention to the importance of property law in making capitalism work for poor
people around the world.
"Capitalism working for poor people around
the world..." - I know some readers, who believe capitalism is up to no
good nowhere, are tweaking incredulous eyebrows at this point. But stick with
me.
De
Soto, who runs a
think tank in Peru that The Economist magazine regards as the second most
important in the world, delivers a compelling set of arguments that
good property law makes all the difference. Consider:
• Capitalism is a tool that has improved the
lives of millions and has the potential to improve living standards in every
nation on earth. However, it has lost its way in developing and former
communist nations.
• Capitalism’s failure in the two-thirds world is
not an issue of culture. WASP culture is not the magic ingredient that makes
capitalism work. The traditions of indigenous peoples are not inextricably at
odds with capitalist tenets. De Soto puts it like this: "Is illegal
squatting on real estate in Egypt and Peru the result of ancient ineradicable
nomadic traditions among the Arabs and the Quechuas’ back and forth custom of
cultivating crops at different vertical levels of the Andes? Or does it happen
because in both Egypt and Peru it takes more than fifteen years to obtain legal
property rights to desert land?"
• The Rosetta Stone for understanding the source
of the seemingly inexhaustible wealth of the United States is property law.
Effective property law secures an asset, such as a house, in a way that allows
it to be used for another purpose, such as getting a loan against that
property. This is what we call leveraging an asset to create working capital.
Americans take for granted that we can obtain a loan against the value of our
home and thus acquire this precious working capital. But such a means of
acquiring startup money — the number-one method of funding a new business
— is unavailable in most parts of the world.
• The United States was in the exact same mess 150
years ago -- lacking a uniform property law that could title property in a way
that a bank would consider the arrangement secure enough to make a loan against
said property -- as most countries on earth are in today. The lack of uniform
property law was a major headache for the U.S. government and the Supreme Court
as they contended with illegal squatter settlements throughout the Western
territories. De Soto’s chapter, "The Missing Lessons of U.S. history,"
details the transformation of competing land claims and hundreds of legal
jurisdictions into a singular, coherent set of property statutes.
• Uniform property law is the difference between
capitalism as a system accessible by the masses, as we have in the United
States today, and capitalism as a tool only for a clubby elite, as prevails in
most of the world.
De Soto’s ability to pinpoint capitalism’s shortcomings while glorying
in its potential is rare. If your book club is populated with both free market
mavens and storm-the-gates anti-capitalist protesters, start with Mystery. Of course, I don't know where one
would find such a book club, given the radical divide that often exists between
the two groups. Nevertheless, I do not doubt that poverty fighters on both
sides of the divide will turn to De Soto's theses for years to come.
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OTHER ARTICLES BY RODOLPHO CARRASCO
