Before I get to the meat of this review, I have a small confession to make: I was supposed to read this book ten years ago for my Intro to the Politics of Developing Areas class. Needless to say, I didn't- the fall of 2002 was my one, regrettably insane semester- as most days this class met the Professor (Professor Moreno, whom I also took Latin American Politics with- she was pretty good) had this lamentable habit of going over by about 5 minutes each and every time. And as I had to haul my ass to North Hall from the EPB to get to my next class, I didn't appreciate it much so if there was one class I had a tendency to blow off that semester, it was the class where I was supposed to read The Mystery of Capital.
(For the record=- and Iowa Citians/Iowa Grads will get this: I started at 8 AM at Schaffer, went to the EPB, North Hall, Phillips and then back over to Schaffer. Wednesdays were not fun days that semester.)
But, to the task at hand: The Mystery of Capital! Written by Peruvian Economist Hernando De Soto, this book attempts to answer the question of why Capitalism triumphs in the West and fails everywhere else. De Soto's argument is an interesting and compelling one- basically, he argues that advanced, developed nations achieved their level of prosperity only after construction a system of property law that included the majority of the populace in these countries. The developing world struggles, he says, because of the vast, extralegal sector which operates under it's own rules and regulations yet is excluded from accessing the legal mechanisms of capitalism itself.
How then, are we supposed to bridge the gap? Well De Soto's solution revolves around property rights. Once the poor/extralegal sector have titles to their houses/property then they can use that title to purchase capital or gain access to loans and credit to start a business. Once they have something to offer as capital, they can access the market and build prosperity as they see fit from there.
De Soto looks at the barriers to property rights- ranging from conservative legal establishments that want to defend the existing rule of law rather than reform it to benefit the extralegal sector to something as simple as the massive bureaucracy it takes to get a business license in some of these countries, not to mention title to your house. (De Soto and his team opened up a small garment workshop in Lima, Peru- working 6 hours a day, it took them a whopping 289 days to get the business legally registered under Peruvian law.)
De Soto also delves deep into US History itself, looking at how the issue of property rights was actually a fairly frought and controversial topic for many decades in the early years of our Republic. Settlers would stake claims and prove the land having little to no legal basis to do so. Laws against squatting were frequent and it wasn't until the then frontier states such as Kentucky essentially started going around outdated property laws that had no bearing in the reality of a new country where people were spreading out and forming settlements all the time, that attention turned to how to reform the system to make it work for everyone. And even that process took several decades- but De Soto argues that the blueprint is all there for how it should be done.
De Soto makes a compelling argument that capitalism needs to address those on the outside look in or risk being seen as the enclave of rich technocrats and businessmen more than a potential path to prosperity and development for the underdeveloped countries of the world. He belives that capitalism is the 'only game in town' but makes a compelling and urgent case to reform the existing globalized structures to make at least the prospect of accessing the global market more equitable across class and national boundaries.
Overall: A compelling and intriguing book- that makes me want to read more economics/political philosophy that way I can understand this even better than I already do. There is no denying that De Soto's argument is a compelling one, whether it is effective is something that's worth looking into a little more and there's no doubt that his think-tank, the Institute of Liberty and Democracy played a key part in Peruvian economic reforms of the late 80s and early 90s and his first book, The Other Path is seen as a direct intellectual critique of Peru's Sendero Luminoso, the Shining Path Terrorist organization that placed De Soto on their assassination list in response. There is no denying this guy is serious about his defense of economic freedom and his desire to give the poor and dispossessed a real path to prosperity- and whether you agree with his critique or not, the idea that capitalism needs to reform itself to continue to be effective and, in fact, to be more effective for more people is something that's worthy of vigorous intellectual debate.
There- I did it. I read The Mystery of Capital. Only took me 10 years, too.
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