Product Description

Why does capitalism triumph in the West but fail almost everywhere else? Elegantly and with clarity de Soto revolutionises our understanding of what capital is and why it does not benefit five- sixths of mankind. He also proposes a solution: enabling the poor to turn the vast assets they possess into wealth.

Product Details

• Amazon Sales Rank: #86466 in Books
• Published on: 2001-11-01
• Original language: English
• Binding: Paperback
• 288 pages

Amazon.co.uk Review
"People with nothing to lose are trapped in the grubby basement of the pre-capitalist world." This is the nub of The Mystery of Capital. Read just that one sentence and you catch a glimpse of the reason why, as the author puts it, four-fifths of humanity lack the ability to turn dead assets into live capital.

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

Review
"A revolutionary book..." Independent. "A very great book...powerful and completely convincing." Ronald Coase, Nobel Laureate in Economics; "Remarkable...no less than the blueprint for the new industrial revolution" The Times. "A hugely persuasive and important book, the more so because of the moving simplicity of it's central idea" Telegraph. "One of the few new and genuinely promising approaches to overcoming poverty to come along in a long time" Francis Fukuyama, author of The End of History. "A crucial contribution. A new proposal for change that is valid for the whole world." Javier Perez de Cuellar, former secretary-general of The United Nations.

Mark Leonard, New Statesman
'Has already led the cognoscenti to put him in the pantheon of great progressive intellectuals of our age.'

Customer Reviews

This Ain't Your Father's Economics!
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.

A simple idea with revolutionary potential
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.

Valuable if you're interested in 3rd world countries
Why Capitalism failed everywhere but succeeded in the West? This is a question that haunts many politicians and economists in 3rd world countries and in the West as well. Eventually the mystery became a quarrel between the two worlds, having the third claiming that Capitalism is just a hoax for the West to tap into their trifling fortunes, and the first claiming that 3rd world countries are failing to implement Capitalism efficiently.

The author of this book, Hernando De Soto, is siding with the second team in this dispute. And for that purpose he extends a very strong argument, which is that 3rd world countries failed to utilize the most basic element of Capitalism. And that would be Capital itself!

De Soto defines what he calls "Dead Capital" as property and real estate that is not fungible and can serve only in its most basic usage. Capital goes dead when the government fails to establish a real estate system that is accessible to the common public and is appropriate to the people and their property. What De Soto found after years of research and study is that in most developing and ex-communist countries the real estate systems are troublesome, drastically complicated, and out of touch with the real world. These systems nurtured a burgeoning extralegal style of living, where capital and businesses are not adherent to the legal systems of those countries. Instead, they work based on laws and regulations the people developed themselves among their social circles.

De Soto extends many shocking statistical information proving that 3rd world countries posses vast amounts of dead capital in their extralegal sectors. The author describes this capital as dead because property in extralegal sectors cannot serve as collateral for loans, are not fungible, and their transactions are not protected by the law. De Soto believes that the poor people living in extralegal sectors of 3rd world countries are the real entrepreneurs of their countries. They are very innovative in creating jobs and forming their own systems of protecting assets and their transactions. The author says that the biggest mistake of their governments is that they are trying to enforce the legal system on them when they should adopt their systems instead.

But how come the West never encountered this problem, you wonder. Wrong, the author tells you. The West did go through this and had to sort out many extralegal property and real estate into the legal system. But the West didn't enforce the law on extralegal property, instead they adopted the various extralegal systems and integrated them into the law. The author extends a thorough research in the U.S. history to explain in detail what created the problem of extralegal property and how the Americans overcame it.

One thing you'll notice if you read the book to that point is that the book is too long for its topic. And even though it's little less than 300 pages, but by page 150 I felt that the author had said everything he wanted to say. I believe that once an author begins to say "like I said in chapter x" numerous times he should stop immediately.

However this is a valuable book indeed and I learned a lot of lessons from it. De Soto is a man who will not make a claim without being able to back it with intensive and thorough research and study. His arguments are sound and make a great deal of sense.

If you're interested in the economies of 3rd world and ex-communist countries then I recommend buying this book. This book might fail to appeal you otherwise.