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Summary: Must Read for World Leaders
Review: I would say this book brought me into the study of economics. For that reason it should be a sign to casual readers that it is worth reading; and a sign to economists and others that I do not have the proper knowledge to best review this book for all it is worth. However, I found it to be concise and easy reading. The arguments for why the economic infrastrusture needs to be reshaped in developing countries so to open the benefits of being plugged in to the mainstream of money-making are convincing. For books on economics, this is easy to understand and makes it feel more like reading a well written newspaper article than a book about economic infrastructure and government mishaps in developing countries.
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Summary: Finally, a hypothesis that can be tested
Review: There are not many social science hypotheses that can be tested. This is especially true with the perennial debate of geography versus culture and their effects on wealth. Everything I have read about this subject heretofore is 99% speculation and unconvincing, and therefore not of much value to actually elevate the living standards of the poor.By contrast, I found this book a welcome relief from the other books I have read on the subject because it provides a fairly specific mechanism for improving the lot of the poor and provides testable hypotheses, which de Soto and his associates are using. Are de Soto's hypotheses logically necessary? We shall see from the data of his work in Peru and other poor countries. Are de Soto's hypotheses logically sufficient? My guess is that the positive effects of de Soto's experiments will not result in a rich and powerful Peru, Egypt, or Haiti. The effects of various social institutions that comprise "culture" are a lot more complex than the limited hypotheses of this book. Also, the influence of geography, which cannot be isolated from culture, may mitigate success. Nevertheless, the work of de Soto and his team can only be lauded. They are actually improving the living standards of the poor, at least to a limited extent, instead of just writing about it. That sets de Soto and this book apart from sterile authors who weave abstract theories that can never be proved. I can only wish de Soto and his colleagues well and ultimate success in helping the poor. The other problem of making the poor countries rich is a far more complex problem that no one has really figured out.
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Summary: De Soto strikes at the root of economic problems
Review: There are thousands hacking at the branches of evil to one who is striking at the root. -- Henry David Thoreau. In his book, De Soto strikes at the root of the developing world's economic problems. For all the books, debate and talk shows dedicated to whether capitalism is good or evil, government regulation necessary or not, people are naturally greedy or generous (for examples see other reviews), few set aside their dogma long enough to address a simple question: why is the standard of living higher in the west than in the rest of the world? De Soto's book provides one explanation. Although obviously a 'capitalist,' De Soto doesn't preach morality issues but instead focuses his book on the mechanics of capitalism. Using the USA as an example, he examines how capital is created through borrowing, and how the squatter's rights laws in the turn of the century USA reclaimed vast amounts of unused capital in a 'use it or lose it' proposition - land owners who did not develop their land risked losing it to squatters who did. When the squatters obtained clear title to their developed land, it freed up the capital locked up by the previous, dormant owner. Such capital is the basis for investment, which improves the standard of living of the owner (you can live in your house and borrow against it at the same time). Surprised to hear that such socialistic laws were at the heart of what made the capitalistic USA so powerful? So was I. De Soto also addresses how the laws of developing countries need to be reformed to allow this process to happen once again. He addresses the concerns of the current legal landowners, and provides a plan in which the squatters and landowners both benefit, knowing full well that any plan that only benefited squatters at the expense of landowners would not be politically viable. I've heard all the philosophical arguments about capitalism I need to hear, from Ayn Rand to Karl Marx, and one would have to be as blind as Kim Jong Il to deny that capitalism works better in the US and Europe than in South America, Africa and Eastern Europe. De Soto's book is a refreshing glimpse as to why.
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Summary: So near, but yet so far
Review: Mr de Soto writes very well. The "Mystery" is original, refreshing and stimulating. It is rare to find any advocate of freedom and capitalism with influence in government circles, and de Soto has influenced several and Peru's a good deal. For all that and more he deserves congratulation, and the book is well worth reading even if only for the mental exercise of figuring out why and where it falls short. But fall short it does; it's sad that de Soto came so close, yet remains so far "inside the box." Apparently, he just can't understand what a savagely destructive and distortive organization every government always is. The first error is in the subtitle, "Why capitalism triumphs in the West, and fails everywhere else." Wrong in both halves: capitalism has NOT triumphed in the West (we'd all be many times better off yet, if it had) and capitalism has not even been tried anywhere else, let alone tried and found wanting. Instead, money stolen through taxation has been thrown at third-world governments who have parcelled it out to projects they (politicians who never took a business risk in their lives) thought worthy. That de Soto can confuse government with capitalism stongly suggests he understands neither. Second error: his key thesis is that the world's poor (about 5 billion people) possess a "huge" amount of "dead capital" which, were it resurrected, end poverty. He gives the total of $9.3 trillion, but doesn't point out that that's only $8,000 per family of four. Large, in the context of abject poverty, but hardly "huge". Yet de Soto places his whole faith in this modest sum; he says that if only it were reliably cataloged, with ownership rights undisputed, banks could loan money on it and it would become live, working capital to lift 5 billion up by their bootstraps in a capitalist triumph. Third error: that $9.3T is not only modest for the task at hand, that process is only one aspect of capitalism, one way in which it can work; and probably not the major way. That other way gets not a mention in de Soto's book, and it is that any poor person
sells his labor, saves a little of his wages, then invests those savings in a primitive business: a barrow, say, from which to sell merchandise on the street. Merchandise he may charm out of wholesalers on sale-or-return, or which he may buy with his nestegg. He then repeats the cycle, plowing back profits and expanding every cycle. Many fortunes have been made this way, in a single lifetime. That is the essence of capitalism; it works fine, but only if government does not prevent it. Governments usually do. Fourth error: de Soto's eloquent case for creating reliable records of who owns what is certainly valid, and would certainly help; but whoever said that governments must do it? - de Soto did. But he never showed why. Clearly, the maintenance of a title
database is something well suited to free-enterprise competing companies, obviously with agreements to share data. And any true capitalist knows that that would produce a far more efficient, low-cost service. De Soto comes so close; in one of the best parts of his book he says such a database needs to be built on the basis of "informal law"; that is, existing extra-legal arrangements should not be scrapped, but incorporated. What a shame he did not take the extra step. Fifth error: de Soto acknowledges that those 5 billion poor people are very often very capable traders, with plenty of "street smarts", yet wants to make a government-run property database so attractive that they would willingly leave the black market (the usual term for his "extra-legal sector") and enter the "bell jar" of government regulation and taxes. He says it would be cheaper than bribing police and paying mobsters for protection. Well, he can't have it both ways; if they are that street-smart, and I suspect they are, they can be trusted to compute that sum for themselves. And so far almost everywhere, they don't trust government. I don't blame them. They may even have intuited that were they to enter that bell-jar, within a few years government would destroy the very concept of private property, as it has done throughout the "West". You think I exaggerate? - then try retaining title to your home, without paying a large annual tribute to your local government. Sixth error, confirming the fifth: his impressive list of endorsements on the dust jacket includes four from distinguished politicians and one from a distinguished banker (yes, bankers would profit nicely from an implementation of de Soto's solution; lending $9.3 trillion out at interest with rock-solid security is nice work if you can get it.) But while it also includes nice words from Milton Friedman, whom I do admire, it has none from his son David, whose "Mechanics of Freedom" is the definitive work on how society would work and prosper without government. Surprise, surprise. In summary: government is not the solution to world poverty, not in any degree; it is its primary cause. All it needs do is to get out of the way, set capitalism free, and let it work. Sadly, that's the one thing none of them will ever volunteer to do.
The single most important task facing lovers of freedom and prosperity is, how best to make them do it anyway.
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Summary: Ranks with "The Wealth of Nations" and "Das Kapital" in
Review: terms of importance. A brilliant intellectual/politcal breakthrough. Transforming "dead capital" in the form of real estate into productive capital has the potential to lift many of the world's poor out of poverty. Think about "It's a Wonderful Life" and how important - and taken for granted - home ownership and all that it means has been to the US economy. I just wish he would have given more specifics about how to do it but that's probably what his organization does. Slightly repetitive at the end. One mistake. It's the "Uniform Commercial Code" (UCC)not the "Unified Commercial Code." The part about "claims clubs" in Iowa and other states was fascinating.
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Summary: "Asset Management...OH, PLEASE!"
Review: "The Mystery of Capital:Why Capitalism Trumphs in the West and Fails Everywhere Else," by Hernando De Soto. is a crock of... [he]argues the point, "The missing ingredient for success with capitalism is ASSET MANAGEMENT. Get real...asset mamagement is only one of the many needed ingredients to trumph like the West! Hello!!!
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Summary: Legalized Private Property
Review: Following the collapse of the Soviet empire there was great anticipation that capitalism would sweep the planet and transform the lives of the world's poor into something resembling life as we know it in the West. Instead of this rosy view of the future what has actually happened is that capitalism has failed to take hold in all but a few places around the world. This failure of capitalism to take hold has caused great consternation amongst the Western political establishment who fear that this failure may be seen by the Third World's poor as a deficiency of capitalism, or worse, as a purposeful effort by the West to keep them down. Make no mistake about it though, the economic system that an overwhelming majority of the world's people currently operate under is NOT capitalism. "The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else" is Peruvian economist Hernando de Soto's explanation of why capitalism has failed to take root in most of the world's countries. What de Soto believes that developing countries lack is an integrated property system that would allow the people of these countries to turn their homes into engines of growth. He starts by stating that he has collected data from all over the world and he concludes that the world's poor 'own' real estate assets in excess of trillions of dollars. He then states that the poor are unable to realize the capital potential of these assets because they do not belong to the formal property sector. Instead the world's poor often hold their assets in an informal, extralegal sector. They do this not because they seek to avoid taxes or because they are engaged in illicit activities but because their governments have made it too difficult and too expensive to get legal. De Soto says that, in Peru, the city of Lima alone requires any person wishing to formalize their title to property to navigate over 200 steps that take years-worth of time. Given the difficulties and expenses involved with this bureaucratic nightmare, the poor often give up and form their own property associations to protect their rights. De Soto then goes on to say that this is not much different from how things were in the United States up until about the mid-1800s. Modern Americans don't realize the difficulties our ancestors went through in establishing title to their property because there is no clear history of the effort to legalize American property holdings. De Soto believes this legalization of property holdings is vitally important to the success of capitalism because most start-up enterprises are begun with money raised from someone's home. Without the access to a wider credit market that legalization provides, the developing world's poor are locked into a system that prevents them from expanding their businesses and from gaining economies of scale that would allow them to generate real wealth and jobs. While all of this seems intuitive, de Soto falls short of adequately backing up his thesis. I am already a believer in the rights to private property so I don't need convincing. However, a majority of the world's people are not believers in private property rights. I assume that it is to them that de Soto is directing his effort. If it is, he needs to include more support for his argument than just assuming the Western concept of private property rights is accepted everywhere in the world. These failings aside, "The Mystery of Capital" is an important work in that it gets us focusing on what needs to be done to improve the lot of the world's poor. Capitalism, free trade, and private property are the means to improve those lots. However, these concepts will only triumph if most of a country's people are plugged into the system. If they are left out, no matter how successful those concepts may be for the ones on the inside, they will fail to achieve their ultimate goal, which is the improvement of the quality of life for a majority of the world's people.
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Summary: Excellent book
Review: This book is one of the best books on economics I have read. The title of the book proposes an excellent question, and it is eventually answered in this book. Highly recommended.
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Summary: Argument not complete
Review: Found this to be a refreshing book , particularly after that silly and amazingly boring "Open Society Endangered" by George Soros. Even this book becomes repetitive at times , but on the whole the style is breezy. However de Soto did not make an intellectually watertight case to support his thesis. The book basically tries to make one case - The poor people in less developed countries and former communist countries own a huge amount of assets. But all of it is in the informal sector - there is no official record to back up these possessions. Therefore , these are what de Soto calls "dead capital" - they cannot be used as collateral for a loan or for any of the "representational" purposes that assets are used in the West or in Japan. De Soto claims that if only these countries showed enough flexibility to adapt their laws to these informal social contracts that are already in place, rather than try to impose ivory-tower laws from above, then poverty can be easily eradicated. How? Because the poor people have enough innovative drive that they will now use their "legalized" assets to raise capital for a whole range of business. This innovative zeal is currently stiffled because any attempt to transition from the extralegal to the legal sector is a bureaucratic nightmare. The laws must be simplified to reflect the intelligent social contracts already in place.... de Soto also takes great pains to quantify the value of these informal sectors, focussing primarily on Lima, Manila, Cairo and Port-au-Prince , and makes the convincing case that these informal assets constitute not a small fringe economy, but a rather large chunk. While de Soto does a good quantification of the size of these informal sectors , he fails to make any projection about how big an effect deSoto's medicine will actually have on the economy. In other words, if Phillipines successfully legalized its extralegal sector, how much of extra growth will it see owing to the fact that the poor people now have access to "live capital" as opposed to "dead capital"? de Soto merely asserts that the effect will be large. Even granting that making projections based on an intangible thing like enterpreneurial zeal of the poor is a difficult task, surely some reasonable ballpark estimates can be made? No such estimate appears in the book. We are left with the bald assertion that the effect will be large. As even a small acquaintance with economic calculations shows, sometimes what may appear to be a qualitatively important effect , can actually turn out to be trivial when one actually starts fitting the numbers to make a rough estimate. Second, deSoto's assertion that extralegality of their assets is the major stumbling block for the poor doesn't sound so convincing when one actually scans even the most rudimentary literature regarding development. Surely, unless India can raise the literacy and educational levels of her poor masses, simply legalizing their assets may not be able to release their entrepreneurial energy? In other words, the usual development concerns like basic education, basic health care may actually play a larger role than deSoto's "right to property rights" medicine? deSoto doesn't make a direct comparison with these immensely important impediments to prosperity, but implicitly assumes that extralegality of assets is the strongest causal factor behind continued poverty. Other readers have pointed out the difficulties of the process itself. deSoto points to similar programs in Peru as success stories. Ultimately, the book is based on an important insight, but is marred by the fact that deSoto trumpets this insight as the one exclusive magic lamp.
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Summary: De Soto's ideas could change the world
Review: This book is practically an instruction manual on how to turn the Third World into the First World. Brilliantly written with in-depth, detailed research, Hernando de Soto may have stumbled upon an idea that could literally change the world once it catches on. This is certainly a must read if you've ever watched the news, seen the poor people in third world countries starving and thought to yourself, "I'm sure glad I live in the First World."
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