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A great deal of the power of legal property comes from the accountability it creates, argues Hernando de Soto, from the constraints it imposes, the rules it spawns and the sanctions it can apply. The lack of legal property thus explains why citizens in developed and former communist nations cannot make profitable contracts with strangers, cannot obtain credit, insurance or utilities services. Because they have no property to lose, they are only taken seriously as contracting parties by their immediate family and neighbours. To put it another way, while most western homeowners dream about paying off their mortgage, their counterparts in the less developed countries could transform their existence if they could only access such sums.
It's rare to come across a book about such an arcane subject that is simultaneously interesting and illuminating, entertaining and thought-provoking. The Mystery of Capital is all these and more. De Soto paints a procession of vivid pictures, from Cairo to the Wild West, from the Andes to the Urals. "The cities of the Third World and the former communist countries are teeming with entrepreneurs," he says, dismissing the notion that entrepreneurialism is the exclusive preserve of the west. "You cannot walk through a Middle Eastern market, hike up to a Latin American village or climb into a taxi in Moscow without someone trying to make a deal with you. The inhabitants of these countries possess talent, enthusiasm and an astonishing ability to wring a profit out of practically nothing."
In The Mystery of Capital, de Soto believes he points to a way in which capitalism can be used to help developing nations. In his vision, the poor are not the problem. They are the solution. --Brian Bollen --This text refers to an out of print or unavailable edition of this title.
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Most Helpful Customer Reviews
45 of 48 people found the following review helpful:
5.0 out of 5 stars
This Ain't Your Father's Economics!,
By
This review is from: The Mystery Of Capital (Paperback)
In the past five years I've read a shade under a thousand books, and this is easily the most important of them. In it, Peruvian economist de Soto sets out to do nothing less than explain why capitalism has worked in the West and been more or less a total disaster in the Third World and former Communist states. This has long been a pivotal question for anyone interested in the world beyond their own back yard, and there have been plenty of attempts to explain it before (often in terms of history, geography, culture, race, etc.). However, de Soto's is the most compelling and logically argued answer I've come across. But it's not just me. I don't generally quote other reviews, but my general reaction echoes the most respected policy journals, newspapers, and magazines, who tend to repeat the same words in their reviews:"revolutionary", "provocative", "extraordinary", "convincing", "stunning", "powerful", "thoughtful". Perhaps my favorite line comes from the Toronto Globe and Mail: "De Soto demolishes the entire edifice of postwar development economics, and replaces it with the answers bright young people everywhere have been demanding." Of course readers (especially those on the left) will have to swallow a few basic premises from the very beginning, such as "Capitalism stands alone as the only feasible way to rationally organize a modern economy" and "As all plausible alternatives to capitalism have now evaporated, we are finally in a position to study capital dispassionately and carefully." And most importantly, "Capital is the force that raises the productivity of labor and creates the wealth of nations.... it is the one thing that the poor countries of the world cannot seem to produce for themselves no matter how eagerly their people engage in all the other activities that characterize a capitalist economy." No matter how badly some of us may want to hold on to cherished ideals of collectivist economies, the reality is that at present these are only viable on a micro scale. For the moment, capitalism has won, and the only question is how to make it work to improve the lives of the bulk of the world. De Soto writes: "I do not view capitalism as a credo. Much more important to me are freedom, compassion for the poor, respect for the social contract, and equal opportunity. But for the moment, to achieve those goals, capitalism is the only game in town. It is the only system we know that provides us with the tools required to create massive surplus value."According to De Soto, the problem outside the West is that while the poor have plenty of assets (land, homes, businesses), these assets lie overwhelmingly in the extralegal, informal realm. De Soto's on the ground research reveals that this is the result of an accelerated process of urbanization and population growth, coupled with the inability of legal systems to adapt to the reality of how people live. What has happened is that throughout the Third World, the costs of making assets legal (obtaining proper title to a house, registering a business, etc.), are so prohibitive both in terms of time and money, that the assets end up being what de Soto calls"dead capital." In the West, a web of financial and legal networks enable people to use their assets to create further wealth, through such tools as mortgages, publicly traded stocks, and the like. Outside the West, most people live and work outside the kind of invisible asset management infrastructure that we take for granted, and thus are unable to use their assets for the "representational purposes" we are able to. Thus the full set of capitalist tools are not available to them and it becomes incredibly hard to realize any kind of upward mobility. One of the key sections of the book is "The Missing Lessons of U.S. History", in which de Soto demonstrates how the US faced the exact same challenge several hundred years ago. The difference is that the legal system was flexible enough over a century and a half to realign itself with the reality being created on the ground by an energetic citizenry. However, it occurred over the long-term and long ago, and has thus been forgotten by history. What de Soto says needs to be understood is that the less developed nations of today are trying to accomplish the same thing over a much shorter time and with much greater populations, and without a clear understanding of how the West managed to do it. The ultimate challenge is raising the social awareness and political backing necessary to implement major legal change in the face of resistance from an entrenched bureaucracy and elites who benefit from the status quo. This is a daunting and provocative challenge—but not impossible. Of course, all of the above is greatly simplified, so anyone interested in the state of the world should read it for themselves. De Soto's writing is remarkably clear (especially for an economist), and no background in economics or law is needed to follow his argument. There is a little repetition here and there, but always in the service of making sure the reader doesn't miss the big picture. In the end, whether you agree with his thesis or not, I guarantee it'll challenge your preconceived notions about global capitalism.
37 of 41 people found the following review helpful:
5.0 out of 5 stars
A simple idea with revolutionary potential,
By A Customer
This review is from: The Mystery Of Capital (Paperback)
This is a book of enormous insight and significance. The revolutionary potential of its central idea is so great that it could transform the world by bringing wealth to many people who are today considered poor. In spite of the fact that enthusiastic entrepreneurs all over the world are able to wring profits out of practically nothing, the wealth and fruits of capitalism continue to be primarily enjoyed by the West. Hernando de Soto argues that many of the poor work as hard as anyone else and already possess significant assets - both in savings, businesses, industries and houses - to make a success of capitalism. So why have they remained poor? What's lacking in many Third World and former communist countries is easy access to documentation - in particular the title deeds to property - as a visible sign that connects all these assets to the rest of the economy. In the West ownership is comparatively easily documented while in many other countries it can take years to obtain. "Thanks to this representational process, assets can lead an invisible, parallel life alongside their material existence. They can be used as collateral for credit." By this relatively simple means wealth is released - as it has been in the West but fails to be in the Third World and former communist countries. This is the essence of de Soto's insight which he deepens in chapter after chapter, drawing on the histories of a number of countries and the work of his team of researchers who had to go out amongst the poor before they could fully understand why capitalism is failing in so many countries. One small drawback of the book - if one can call it that - is that its thesis is developed somewhat exhaustively. But having said that, the conclusions in the final chapter were of such lucidity as to bring joy to this particular reader. Implementing de Soto's insight will bring enormous benefit to many people everywhere. Not implementing it will put us all in peril.
3 of 3 people found the following review helpful:
3.0 out of 5 stars
Too one dimensional,
By Alan Lenton (London) - See all my reviews
This review is from: The Mystery Of Capital (Paperback)
I had high hopes of this book, since I'd come across mention of it in a number of different books read previously. In the event I was somewhat disappointed. It wasn't that I massively disagreed with the book. It was more that I fell asleep while reading it! The problem is that Mr de Soto seems to have been told that you only teach one thing at a time and repeat it in at least three different ways. This may be true talking in a classroom, but in a book it leads rapidly to terminal boredom.
The central theme of the book is simple - the reason while capitalism has not taken off outside the west is not that people are somehow lazy (quite to the contrary) but that legal and property systems do not allow them to use their property to obtain liquid capital. I don't disagree, but I think this is a one-dimensional view. I'm always dubious about single cause explanations for economic and social phenomena, and this idea is no exception. Yes, lack of legal property is an important part of the problem, but it's not the only one, and a more rounded view of the problems involved is needed to resolve them.
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