Keith Hart on Fri, 4 Feb 2011 20:08:22 +0100 (CET)

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Re: <nettime> Hernando de Soto: Egypt's Economic Apartheid (WSJ)

I sure hope Felix is right ('the end of the end'), but I want to talk about
this first.

Hernando de Soto is an interesting figure who attracts a lot of hate mail
from "progressives". This is not hard to explain since he sticks to one line
that places him in competition with defenders of the poor, promotes himself
shamelessly, made his name as a freedom fighter against Shining Path (see
the name of his institute) and makes sure that he stays onside with powers
that be. Perhaps his greatest crime is that he is a populist fond of lacing
his lectures with punchy lines like "There are 1 bn people in rich
countries, I bn rich people in poor countries and 4bn poor people. Ehat
matters is address the neeeds of the 4bn, but the others get in the way."

His two books are *The Other Path* (1989) and *The Mystery of
Capital*(2000). In the first, he argued that Peru was a mercantilist
state whose
over-regulated and impenetrable national bureaucracy served the economic
interests of a narrow clique and excluded the vast majority from effective
participation in development. The latter was an entrepreneurial peasantry
flocking in ever-larger numbers to the main cities. They were forced to
operate informally, that is outside the law, in sectors such as housing,
trade and transport. Peru?s tradition was inherited from the Spanish empire
period and the term ?mercantilism? has been used to describe European
political economy from the 16th to 18th centuries. It was succeeded,
principally thanks to Britain, by a free-trade regime more conducive to
industrial capitalism. Peru?s development in the 20th century was parallel
to the West?s earlier. A massive migration to the towns led to legal
exclusion of the poor by mercantilist bureaucracy; but the ?informals? won
in the end by cheapening production, making the regulations irrelevant and
from time to time erupting in violence. Peru was thus headed for a
revolution along French or Russian lines unless the national bureaucracy
simplified, decentralized and deregulated itself.

In *The Mystery of Capital*, Peru and other poor countries at the millennium
are seen to be trapped in a world economy dominated by the first industrial
nations. Red tape is mainly an effect of a global regime that forces
marginal states to adopt inappropriate institutional practices. The result
is the same: migrants pile up in cities and are forced to work outside the
law. De Soto claims that there is no shortage of wealth in the non-western
world. What is missing is a property regime that would enable the masses to
realize their wealth as investment capital. The banking sector is dominated
by foreign corporations and it runs along lines now standard in the rich
countries. Informal property rights cannot be converted into collateral for
loans. This is particularly unfair since countries like the USA, which
dominates this global financial bureaucracy and the institutions that
supervise world trade and investment, made the transition to modern
capitalism by giving flexible informal practices full rein in their own
development. It follows that similar flexibility has to be shown today if
the poor urban masses are to have a chance of joining global development on
less unequal terms. The alternative is more recruits to terrorist networks
and large social explosions before long.

Brian is right to argue that this interpetation and political recipe is too
one-sided. Obviously we need a new mix of states, markets and voluntary
associations capable of taking on corporate monopolies at every level from
the global to the national. States are good for redistribution, guaranteeing
social rights and organizing public bureaucries serving the people in ways
they can't serve themselves. But where is the state these days? By which I
mean the political units capable of giving the people what they want and in
some way coordinating all the other ways they pursue their economic ends? I
wish I knew, but I agree that this is the level we need to discuss the

In solidarity,


On Fri, Feb 4, 2011 at 4:07 PM, Brian Holmes

> Thanks for this, Patrice.
> De Soto's analysis is striking and the problems he reveals are part of what
> needs to be addressed.

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