NOTE: This review is a blast from the past that I post here because it remains timely. It originally appeared in the January-February 2002 issue of PRISM Magazine.
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.