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New York Times. December 24, 2000 The Wealth of (Some) Nations The poor have no legal title to the land they work, and that, the author says, is retarding enterprise in the third world. By ROBERT SKIDELSKY To some, capitalism is always in crisis. Karl Marx predicted that it would drive an exploited proletariat to revolt against it. Today it has become a more or less uncontested world system. But it is still in danger. ''The hour of capitalism's greatest triumph is its hour of crisis,'' the Peruvian economist Hernando de Soto proclaims. The problem with capitalism is not, as Marx believed, that it strips workers of all their assets except their labor power. The poor in third world countries are rich in assets -- according to de Soto, they own $9.3 trillion worth of real estate. But their countries remain poor in capital. How is this puzzle to be explained? De Soto's answer is the poor do not really ''own'' the property they work, because they are not registered as owning it, and because of this, they cannot turn it into capital. It is legal title to property, de Soto claims, that transforms labor into capital. Without title, there can be no contracts with strangers. So the market is restricted and the growth of wealth retarded. His solution is simple: give the poor title to the property they own de facto, and their countries will become capital rich. What alerted de Soto to his ''discovery'' was the mass migrations of the poor from the countryside to the towns over the last 30 years or so, transforming sleepy colonial ports and market towns, dominated by mercantile and administrative elites, into megacities. By 2015, more than 50 cities in developing countries will have populations of over five million, most of them living and working extralegally. The old elites live in ''bell jars'' of heavily protected property, residential and commercial; outside flock millions of rural migrants in shanty towns, virtually invisible to the law. De Soto and his researchers discovered in these sprawling illegal cities a vibrant entrepreneurial culture. ''You need only,'' he writes, ''take a taxi from the airport to your hotel to see city perimeters crowded with homes, armies of vendors hawking wares in the streets, glimpses of bustling workshops behind garage doors and battered buses crisscrossing the grimy streets.'' Nor are they lawless: their activities are regulated by their own informal social contracts. But without legal title, de Soto explains, economic enterprise cannot progress much beyond kiosk capitalism: ''What the poor lack is easy access to the property mechanisms that could legally fix the economic potential of their assets so that they could be used to produce, secure or guarantee greater value in the expanded market.'' De Soto asserts that we have been here before. It was by converting informal property systems into formal ones that the West moved from the third world into the first world in the 19th and early 20th centuries. The challenge facing third world countries is to replicate this history. If they fail, then capitalism is doomed as a world system. The builders of globalization, ''still arrogant on their victory over Communism,'' will, after all, suffer the fate predicted by Marx. De Soto's argument is set out in lucid, if somewhat relentless, prose. The most original parts can be summed up in two propositions. First, it is not culture or religion that holds back enterprise in the third world, but law. This is worth saying, though it poses the issue of what it is that has inhibited the development of enterprise-friendly property systems. Second, capital is a potential to realize ''surplus value'' rather than a stock of stored-up labor or money. ''Capital,'' de Soto writes, ''is born by representing in writing -- in the title, a security, a contract and in other such records -- the most economically and socially useful qualities about the asset as opposed to the visually more striking aspects of the asset.'' This is a fancy way of saying that capital is born when a market in assets is established. People with no property to ''lose'' are ''trapped in the grubby basement of the precapitalist world.'' Legal title is the magic wand that brings ''dead'' stocks -- of land, factories, businesses, machines -- to life. This too is worth saying. We are so used to making money out of ownership that we cannot easily visualize a situation in which most people cannot turn their property to collateral or equity. But de Soto overestimates the novelty and importance of these insights. In his account, they are the master key that unlocks the secrets of poverty and wealth the world over, not just today but during the whole period of the growth of capitalism. The result is a book whose coherence is achieved only at the expense of a good deal of omission, obfuscation and bad history. First of all, de Soto concentrates entirely on the teething problems of urbanization. He has nothing to say about rural poverty, surely the main cause of global poverty today. Rural poverty is not primarily a problem of legality, but of low productivity, whose solution requires an interconnected complex of changes, including both technology and education. Second, it is just untrue to say that the extralegal sector cannot generate capital. Fortunes are continually being made in the ''black'' or ''gray'' economy that can then be sufficiently ''cleaned up'' to enable their owners to establish legitimate businesses. For example, the value of land in Lima's informal sector can be 15 times as high as in the formal sector. Someone is paying someone else for this land, whoever owns it legally. De Soto also ignores the fact that profits in the extralegal sector are often much higher than in the legal sector precisely because there are no legal barriers to the exploitation of workers. It is odd that he nowhere attempts to balance the costs of extralegality with its benefits. Third, he is vague about the causes of extralegality. Most of his examples have to do with bureaucratic obstacles to acquiring and maintaining legal businesses. It took 289 days, 6 hours a day, to get through the legal paperwork required to open a small garment business in Lima. A taxi driver faced 26 months of red tape to get legal permission for his route. With such impediments, it is hardly surprising that most migrants opt out of the legal system. But this is hardly the whole story, or even the major part of it. De Soto notices that ''a strategy to capitalize the poor has to integrate two apparently contradictory property systems within the same body of law'' but slides cavalierly over the problem that incompatible social contracts present to attempts to unify them. And he hardly considers the greatest obstacle of all: the land on which the poor squat and work is usually owned by someone else -- whether government or private landlords. By what mechanisms of divestment or dispossession is this land to become the legal property of its occupiers? Fourth, he ignores the fact that the connections between extralegality and poverty are very different in emerging and in post-Communist economies. It is not the lack of cheap access to existing private property rights that keeps Russia poor, but the absence of any secure private property rights at all -- a result of 80 years of Communism. This constitutes a huge deterrent to investment: all business activity is forced to shade off into illegality. But this is a completely different problem from that of ''legalizing'' the presence of the millions who throng the favelas of Latin American cities. Finally, de Soto's historical analogies are faulty. He has a long chapter on the United States' success in providing waves of immigrants with legal title to rural property, notably in the Homestead Act of 1862. But he seems not to have grasped that incorporating shanty towns into a legal urban economy is much more daunting than accommodating immigrants on virgin land in North America. The British experience, in which aristocratic landlords sold long (99- or occasionally 999-year) leases on their urban properties for low rentals, could be more relevant. In short, de Soto, despite some brave generalizations, has failed to throw much light on the riddle of why some countries grow rich while others remain poor. For that, one needs a broader analytical framework and a deeper knowledge of history. Robert Skidelsky is the professor of political economy at Warwick University in England. См. также другие рецензии: http://www.urbanonramps.com/rc/mystery_of_capital.html http://www.demographia.com/bk-desoto.htm Le Quebequious Lible. November 22, 2003. No 133 (by Frantz L. Alcindor) Review by David Binns, Foundation for Enterprise Development См. также перевод книги на русский язык:
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