The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else

Rating:
Summary: Very Educational and Easy to Read
Review: This is a wonderful book. It explores both the history of capital, and how to apply historical models to third-world countries.

This book is easy to read, is constantly fascinating, and goes very fast. However, when I was done, I had a solid understanding of de Soto's view of the subject.

Highly recommended to anyone studying economics in general, or capitalism specifically.

Rating:
Summary: more economists need to do research like de soto's
Review: This book is one of the most important economic treatises of
all time. It shows--through real field research undertaken by
hundreds of colleagues over decades--that capitalism flourishes
where property rights are secure, well defined, and tradable.
When capital can be traded, it is freed up from being "dead"
and becomes liquid, and can be used to support more productive
ventures. The researchers show that everywhere in the world,
people are entrepeneurial, know how to make money, and have
ingenuity. They also have created massive amounts of private
wealth that's untradable. They need to be able to trade it, and
to secure loans based on this tradability.
Laissez-faire economists have yet to grasp the fullness of this
message. The typical laissez-faire economist--even the most
devout libertarian--notes, almost in passing, that "of course
we need well defined property rights, and the government needs
to get involved here." This assumption then underlies all that

economists do, concerning exchange, investment, etc. It also
underlies all the evaluative work economists do, such as the
conclusions regarding the superior qualities of free market
systems.
Economists need to take seriously the message that capitalism--
the system that allows investment, capital formation, and the
consequent increases in labor productivity and material well-
being--hinges on property rights. They also need to go into the
field, as have De Soto and colleagues, to find out whether
policy reforms do what they are meant to do.
Everyone in the development community--from the western institutions such as the World Bank, IMF, IADB, USAID, to the
governments in less developed countries--needs to read this book
and act on it as urgently as possible.

Rating:
Summary: The Mystery of Capital
Review: Hernando De Soto's basic theme is that outside the Western developed countries, none of the countries has a unified system for fixing property rights in a form that gives poor people the ability to effectively establish ownership of property and to use the value of that property to develop capital to build a business, etc. The property systems in the undeveloped and former communist countries are very fragmented and, apparently, designed to protect the elite, making it virtually impossible for poor people, even though, collectively, they have an enormous amount of extralegal property, to obtain sufficiently clear title to their home to get a loan from a bank to enable them to start or develop a business. In the west, the most common way entrepeneurs start a business is to obtain a loan on their home. Poor people in undeveloped and formerly communist countries are deprived of this alternative who must take literally hundreds of steps over months and even years to obtain questionable title to their homes which are on land they don't own. This effectively prevents the poor from becoming a part of the middle class and fosters a Marxian analysis leading to potentially revolutionary consequences, e.g., the developing anti-globalization movement.
The author analogizes this situation with the westward development of the U.S. 200 years ago. Squatters took over government and private lands by simply establishing a home and growing crops. They developed localized extralegal systems of property ownership which were necessarily fluid in nature because they depended on the good will of the extralegal property owner's neighbors. Eventually, the settlers gained sufficient power to force the incorporation of their extralegal institutions of property ownership into the formal legal system and the reconciling the interests of all those who had interests in property through a unified system that fixed the ownership in property. A fascinating point for me was that developing such a unified, easily accessible system of property ownership will not only greatly expand capital, but will also open wide the ability to accumulate capital, helping to offset one of the great "evils" of capitalism, the concentration of capital. This would undermine the Marxian analysis and many of the objections to globalization. It took me a while to get into the book, but it got better and better as I progressed through the book. I recommend it.

Rating:
Summary: Point of view of a non-economist
Review: The book offers concepts regarding the difficulty in tracing and carrying on of commercial transactions in the non-developed countries that had not occurred to me, but seems extremely repetitive.
If fails to prove that the Western World is successful, because the transactions are easier to make.

Rating:
Summary: Don't get deceived by the title
Review: De Soto tries to prove that the cause of under development in Latin America and other regions is due to the fact that they have failed to get the "extra legal" sector into the formal economy. He points out that there is a lot of dead capital in these countries that could be easily used to produce wealth. To achieve that, he says, property must be registred and legalized in order to allow capital to flow. The idea is at first sight interesting, but De Soto couldn't prove his theory in his book. He repeats the same ideas several times throughout the chapters as trying to convince himself of his beliefs. He tries to minimize the role of culture, for example, which undoubtedly plays a key factor in a society's progress, and especially in Latin America where we inherited the culture of the Spaniards who only wanted to get rich without working. From my point of view, the extra legal sector is not the cause of underdevelopment, but rather a consequence of it. As a country's economy grows, so does the need for property rights to be assured. You can't start by the end of the process, or De Soto really thinks that by giving each Peruvian (or any other citizen of Latin America) a legal title for his property he will turn Peru into an economic success? But that is not all, he also blames lawyers for the economic failure of countries!! My final words are: don't buy this book. If you read the beginning of my review then you got De Soto's theory, further reading, for me, is not necessary.

Rating:
Summary: Mystery of Capital
Review: Very interesting book, however I felt it could have been written in less number of pages - author tends to repeat the same theme throughout the book. This does help to understand it better, but becomes too repetitive after awhile.

Rating:
Summary: Important Message Clearly and Excitingly Told
Review: This is a truly outstanding book. Very rarely does one encounter a socio-economic book that has outstanding narration, solid historical perspectives, and clear, relevant data. Mr. de Soto's thesis is beautifully simple, "Extra legal activities, those activities that exist outside of (not necessarily against, such as illegal) the law, are a fundamental aspect of society. Those societies that have flourished (Europe, the US and developed Asia) are those that have broadened their legal sectors to incorporate and legalize those extra-legal activities." The author then goes on to demonstrate his point by focusing on property laws throughout the third world, documenting in fascinating detail the steps required to own a house in Egypt or the Philippines.

Despite these difficulties, ownership still occurs. It does so, however, through extra-legal activities. Local cooperatives that enforce and provide dispute resolution are key aspects of this society. Mr. de Soto argues that these local cooperatives and organizations must be made part of the law; otherwise these countries will eternally lag the developed West. To stop here would have been quite a book, and one which would illicit much debate, but here the author shows himself to be a researcher of particular talent, by providing us with several extremely relevant historical examples. These examples, from the early US, show how extra-legal organizations, such as early mining organizations and land cooperatives in the frontier, came together to dictate how deeds were to be approved, provide safety to those who had settled and resolve disputes. The many acts of the US government that would dictate how these items were to be "officially" handled were more often than not several years lagging in their development, and were merely the 'officialization' of pre-existing extra-legal institutions.

The author takes us through his argument using wonderful prose, a clear argument and poignant tables. Even those who might disagree with his point would appreciate this book. He does a magnificent job of referencing relevant modern economic works, particularly those of Ronald Coase. This book not only educates the reader about the argument the author puts forward, but also provides the reader with the education necessary to critically evaluate the method and supporting data of that argument. Such books as this are rare, and this is why I highly recommend this book.

Points of Interest:

Metcalfe's Law (also commonly known as the network effect) described in detail according to its official definition. "The value of a network - defined as its utility to a population - is roughly proportional to the number of users squared. An example is the telephone network. One telephone is useless: whom do you call? Two telephones are better, but not much. It is only when most of the population has a telephone that the power of the network reaches its full potential to change society." (Page 72)

The book contains the story of a slump in the Peruvian economy, with one of the indicators being a decrease in construction. Further inspection revealed that sales of bags of cement were actually increasing. The extra-legal economy was booming, but uncounted. (Page 76)

"Mandatory law is not enough. As Andrzeg Rapaczynski has pointed out:... 'This is the old Hobbesian problem: when most people obey the law, the government can enforce it effectively and [relatively] cheaply against the few individuals who break it. But when obedience breaks down on a large enough scale, no authority is strong enough to police everyone....'" (Page 170)

"In the absence of legal protection from the state in most developing nations, it is extralegal law that regulates the assets of most citizens." (Page 175)

"One large [extra-legal] squatter settlement I visited recently was initiated by the city council itself to provide homes for some 7,000 families of government employees." (Page 177)

"Using economic data from fifty-two countries from 1960 to 1980, Samar K. Datta and Jefferey B. Nugent have shown that for every percentage point increase in the number of lawyers in the labor force (from say 0.5 to 1.5%), economic growth is reduced by 4.76 to 3.68 percent - thus showing that economic growth is inversely related to the prudence of lawyers." (Page 198)

Rating:
Summary: Acres of diamonds and they were here all the time
Review: De Soto recounts a familiar theme to advocates of free market capitalism, that poor countries don't develop due to lack of property rights and enforceable contracts that can be adjudicated through a rule of law in a reasonably fair court system.

The lynchpin of Western thinking is critical analysis and through using this it doesn't take a critical thinker long to determine that private property rights and protection of same, are central to societal accumulation of wealth. De Soto realizes this and conveys the message. He notes that external defense, internal order, a stable currency, limited government and individual liberty are also crucial to maximizing a society's potential.

De Soto recognizes that the problem with most countries is that they are ruled by, in a metaphorical sense, competing Mafia families, political - religious - or otherwise, that seek to make law something the "tribal chief" decides it should be depending upon his whim of the moment. In this way he shows how individual's assets can seldom be financially utilized to better their lives.

The Mafia chief-Alpha Chimp- theory of history is what impedes all societies to one extent or another. Our founding fathers recognized this and that is the genius of our constitution and its Bill of Rights. "Mafia families", in disguise or otherwise, continue to assault this arrangement daily and it's a tribute to our system that we're still together as a successful representational democracy after 200 plus years.

Out of a little more than 200 countries on earth, only 25 or so export capital. This inability to create wealth is what de Soto is getting at, the difficulty the average man encounters in bettering himself due to the local dictator standing in his path. "The Guide to the Perfect Latin American Idiot" by Vargas Llosa, Mendoza and Montaner is a book that also treads this familiar ground with similar real life examples.

We need NPR, and Nightline to join with the History & the Learning Channel's to bring this message home to people all over the world. At some point the information revolution is going to create a shift the magnitude of which will free men everywhere in a way Marx could never have imagined. A great book and a terrific contribution to the intellectual ferment of mankind.

Readers should peruse "How the West Grew Rich" by Rosenberg and Birdzell for another real life story in how wealth was, in fact, created. Also, Balint Vazsonyi's, "America's 30 Years War" is a book that should be read as a contrast in political systems that destroy wealth or build wealth for their societies.

Rating:
Summary: Simple but Revolutionary
Review: The implications of De Soto's book are simple but revolutionary: economic and social development will not be achieved by throwing money at the problem but by dramatically changing the legal systems to allow and encourage the efficient and legal exchange of capital.

De Soto thoroughly documents his arguments estimating that "the total value of real estate held but not legally owned by the poor of the Third World and former communist nations is at least $9.3 trillion." $9.3 million is a staggering number -- especially in the context that it is forty-six times all the World Bank loans in the past 3 decades.

De Soto follows the processes and legal barriers to gaining title on property: to gain property rights and construction permits in Egypt can take up to 14 years and that it can take up to 4112 days to gain a five year lease in Haiti! With the amount of time and money required, people have skipped the process of legalizing their property resulting in their lack of liquidity.

De Soto speaks with the authority of a practitioner having put in place the groundwork of formalization in Peru with significant results. Is this truly the panacea to world poverty as De Soto comes very close to arguing? Given the results and the dead capital that exist in the world, it may very well be.

With the increasing number of violent protesters who will stop at nothing but the complete annhilation of capitalism, De Soto stands firm in his arguments that the problems are not with the concept of capitalism but the legal systems to allow for the creation of capital. For this reason, De Soto's The Mystery of Capital will be always be unpopular and attacked by those who cannot look beyond their own ideologies to see his greater message.

Rating:
Summary: Profound!!!
Review: De Soto and Tom Friedman (The Lexus and the Olive Tree) are the two authors that make economics accessible. I have just graduated high school, and after basic economics, I understand what de Soto is saying. De Soto is one of the rare economists that has ditched the books and "gotten his hands dirty." He doesn't only forumlates theories, but also applies them in the real world. His research team is spread across the world - in nations such as Egypt, Haiti, Peru, and the Phillipines.

After reading this book, I have become cinvinced that the major problem in the developing and former communist world is the lack of property rights- de Soto's theory. He not only defends his theory, but explains how these thrid world countries can tap into the 9.3 trillion dollars worth of dead capital in their slums, shantys and "suburbs." The proposal is to adopt the society informal property laws into the national formal law in order to allow the poor to claim legal rights to their assets, and therefore allowing them to use their assets as collatoral for loans from banks. He is not idealistic -- he recognizes the problems and the obstacles that have to be met.

This book is fantastic. I read it in four days, and I am not a fast reader, especially econ books I HIGHLY recommend it.

-Joe