The Moscow Times has a story highlighting one more quiet battlefield victory in Russia’s uncelebrated war for civil society. The battle over bureaucracy. Economist Hernando de Soto, in his most recent book, The Mystery of Capital, which I reviewed in the Industry Standard back in December 2000, makes a compelling case that a) legitimizing the assets of the poor and b) limiting bureaucracy to small businesses are crucial steps to elevating the tired, huddled masses from the bottom rung of the world economy.
Thus, I couldn't be happier about this line from the MT article:
"Competition became a bigger problem than bureaucracy for the first time," said Andrei Dvorkovich, deputy economic development and trade minister.
Reanimator
By Alexander Blakely
Issue Date: Dec 04 2000
By Alexander Blakely
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Communism surrenders. Capitalism triumphs. And yet the Third World persists. In fact, as former communist countries atrophy into destitution, the Third World is actually growing in membership and hardship. For those who believe in the power of a market system, why capitalism hasn't panned out for the world's poorest nations remains a mystery.
Peruvian economist Hernando de Soto has spent a great deal of time trying to solve that mystery, and has garnered acclaim for his market-friendly theories in the process. Time magazine called him a "leader for the new millennium" and Fortune selected him as one of the 50 most stimulating thinkers of the 1990s. He is also the founder of the Institute for Liberty and Democracy - a think tank dedicated to helping developing countries actually develop.
And now, in his pioneering book The Mystery of Capital, de Soto sheds light not only on the Third World's inability to embrace prosperity but also on the West's remarkable ability to perpetuate it.
De Soto's guiding principle is the idea of "animating" capital. In his first book, The Other Path, de Soto found that the poor have unexpected amounts of assets. According to de Soto's calculations, real estate holdings in the Third World are worth $9.3 trillion. That's $2,325 per person. The catch is, the world's poor cannot leverage these assets to raise their standard of living. They have capital, but they can't unlock its real value. The reason for this, de Soto concludes, is that although the poor may physically hold assets, they don't legally own them.
The Mystery of Capital takes this idea and runs with it. Unless an asset is legally owned, it is "dead capital." Without a title, a house is just a temporary shelter. Without a deed, land is only as valuable as what can be stripped from it today. To animate capital, ownership must be fixed on paper and enforced by law. A legal homeowner can borrow money against the value of his home. A legal landowner can confidently invest in the land, and not recklessly extract from it.
But most poor nations have byzantine legal systems that isolate people from legitimate property. De Soto describes how it took his researchers 32 months to get legal approval from 11 agencies to open a manufacturing facility in Peru. The same task took three hours in Tampa, Fla. Then there are the 168 steps (and 13 to 25 years) necessary to legally own property in the Philippines.
In an example closer to home, de Soto examines the United States Homestead Act of 1862 to reveal how developing, agrarian nations can propel themselves toward prosperity. The Homestead Act, it turns out, didn't open the floodgates for mass migration into the Western frontier; the people were already there, illegally. What it did was turn millions of rebellious squatters into legitimate landowners overnight. In effect, it created vast amounts of capital.
De Soto's ideas are particularly significant as we explore yet another frontier in the form of cyberspace. Indeed, for a book about global poverty, it is a remarkably inspiring read. The Mystery of Capital supports Adam Smith's assertion that capital is the bedrock of the wealth of nations. But it also bolsters Marx's claims that the estrangement of people from das kapital is what keeps the poor down.
>Anybody who can make a case that both Smith and Marx were right should either be ignored categorically or listened to very, very carefully.
Let's see how many sayings can we attribute to this newly found (??) theory ...
#1) He who has the gold, makes the gold.
#2) If you don't own it, it ain't yours.
#3) The King "Owns" the land, the serfs work (rent/hold/live) the land. (Refer to #1 !)
Let's face it, only capitol that is "owned" is viable, anything else is simply a temporary condition - didn't we get that lesson back in 1929?
Posted by: Gale on February 25, 2003 11:09 PM