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Inspiration for global poverty solutions in De Soto's 'Mysteries of Capitalism'

An important book for anyone concerned about how to fashion a better world, and about the issues of poverty, third world development and social equity.

'The Mystery of Capital: Why Capitalism triumphs in the West and fails everywhere else', By Hernando de Soto

Surrounding the cities of all developing world countries are shanty towns, or favellas, filled with millions and millions of people who have moved from the country in search of a better life. The shanty towns are desperately poor, lacking in even the most basic services, and breeding grounds for crime and disease. But they are also home to extraordinary ingenuity, entrepreneurialism -- and resilience. De Soto's book is about how to address the problems of developing countries by incorporating that energy into mainstream economies and society.

Make no mistake about it - this is an important book for anyone concerned about how to fashion a better world, and about the issues of poverty, third world development and social equity.

De Soto is lucid, easy to read, and fascinating. His historical anecdotes inform and illuminate.

I once made the mistake with a friend, on the basis of reading an excerpt not the full book, of raising concerns about de Soto's arguments and their implications. A mistake because, in the light of reading the full text, I feel commentaries need to be made with a caveat of admiration for the nature of de Soto's thesis and a tip of the cap to his wonderful construction of a deeply compelling argument.

De Soto's genius is that he has taken a string of idea such as the role of trade-able property in building material wealth, a populist view of the need to listen to "people's law" over the inertia of , and an understanding of the extent to which legal decision-making cannot in the end avoid being political (take note black letter law advocates).

His most important achievement is to draw the link between broad social wealth and fully integrating rather than excluding - come what may - the poor, the black economies, the people marginalized in so many developing countries. In this sense what he has to say is closer to Fidel Castro than Milton Friedman (whom he praises). He technocratically proposes a prescription for developing countries that, at least in his recounting, works.

One thinks, at first, that de Soto is proposing an entrenchment of property rights. Then you realize that, yes he is - but on the back of a one-off recognition of occupation and utilization rather than prior ownership. "Legitimize the squatters" is what he prescribes. This is revolution! Yet he gets the right to support it in supremely rationalist grounds. Genius!

However, despite my enthusiasm for his arguments, I'm not convinced that his optimism about the potential ease of change is warranted. In his recounting of just how and marginalized property owners were integrated into the US economic system he focuses to little on the pre-requisite of a fluid if ribald democracy. The ability of doubtfully legal, if populist, groups to gain legislative control of American States was essential to fuelling the robust politics of 19th century America. If Kentucky had not been able to pass laws that were in opposition to the otherwise dominant and excluding elites of the Eastern States, so many things may not have happened.

He also alludes to but does not explore the importance of a rapidly expanding economy in the integration of marginalized people; 18th and 19th century European economic and social expansion in America was so rapid because people were moving in to what was almost a void created by the massive de-populating epidemics that swept the Americas in the 100 years after Columbus. In continental US an estimated 95% of the population had perished from European disease , and a large agricultural civilisation in Arkansas, Texas, Georgia and other areas had virtually disappeared, leaving untended acres ready for take-over by newcomers. (Of course the remaining 5% were then also killed off or pushed out).

Are the conditions in Peru, or Egypt, or India similarly conducive to the legal revolution de Soto suggests? The threat to entrenched interests in the US in de Soto's 19th century retelling was mitigated by the internet boom-like, continually expanding economic horizon. Entrenched wealth in less economically expansive countries like El Salvador, Peru, Egypt or the Philippines have always seemed less convinced of the benefits of bringing new players into their games of power. The political battles in these countries are arguably more acute as a result, and the importance of a political system that allows some sort of expression of the populist demands of otherwise marginalized peoples becomes even more vital.

I also have some niggling concerns about the potential dangers in applying "property recognition" concepts to rural and more communitarian environments, like villages; in so many countries carpetbaggers have used and imposition of ideas of individual property to defraud and rob communities of shared assets. This is still going on with logging in Melanesia. But I think these concerns are largely addressable within de Soto's vision.

And that vision is absolutely worthy of support; may he win converts the world over. Or perhaps I should say may he continue to win those converts. But I suspect there is another project that must succeed for his ideas to take root; and that is the support for democracy across developing nations. It seems extraordinarily unlikely (as de Soto seems to accept) that Egypt will see the changes he prescribes while social and legal control is so tightly and repressively held by a ruling oligarchy. Mexico, with a partial thawing of the PRI's control, has more chance.

Here lies the oblique (and perhaps unconscious) revolutionary suggestion of de Soto; that populist democracy (warts and all) is a far better alternative than the "guided" democracies so beloved of authoritarians, the US right and - ironically - of de Soto's hero, Milton Friedman. It was to Milton Friedman that the Pinochet Government looked to in the 1980s as it set about remaking Chilean society, including entrenching the marginalization of its poor.

I loved this book. It made me think hard about the invisible social structures that form our civilization. It made me freshly value and cherish them and want to celebrate them; not just democracy, but also those vital systems of democratic organization, like de Soto's universal systems of property management, like the common technical and commercial standards that allow us to 'interoperate', even our amazing western sewer systems.

Maintenance of civilization requires an understanding of what makes it; de Soto's book reminds us of how unconscious we are of so many underpinnings of our world, and by implication how vulnerable we could be to losing those underpinnings without realizing it.

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The Mystery of Capital: Why Capitalism triumphs in the West and fails everywhere else', By Hernando de Soto. Black Swan 2001. ISBN 0-552-99923-7

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