Hernando de Soto and the Arab Spring
I mentioned yesterday that on Monday Istanbul hosted the Fourth United Nations Least Developed Countries summit. Erdoğan took the occasion, as is his wont, to criticize rich countries: “We observe," he said, "with deep sorrow that developed and wealthy countries don't pay sufficient attention to this significant summit."
And you know, I agree with him. It is ridiculous that developed and wealthy countries allowed Ahmadinejad to dominate this forum. His crackpot thinking needs to be countered. His crackpot economic thinking is as dangerous as every other crackpot thought that comes out of his mouth.
Where was Hernando de Soto? Why isn't the case being made--vocally, prominently, in Arabic, Persian, Turkish, all the major languages of this region--that prosperity depends upon property rights, contract law, and a functional legal system? That it is the absence of these institutions, not the legacy of colonialism, that is immiserating the world's least developed countries?
What would it take, I wonder, to translate this lecture into all the languages of this region and broadcast it into every household in the Middle East?
Markets and capitalism are about trading property rights. It's about building capital or loans on property rights. What we've forgotten, because we've never examined the poor, we've sort of thought that the poor were a cultural problem, is that the poor don't have property rights. They have things, but not the rights.
And when you don't have the rights, you don't have a piece of paper with which to go to market. You don't have a legal system that undergirds that piece of paper and allows it to circulate in the market. The question now is whether we're going to follow the Western route -- let's say that capitalism started 500 years ago -- and go through one revolution after another, tremendous wars, social wars and then finally, four centuries, five centuries later the system comes together, or we're going to be able to learn from you and get it over with in the next five, 10 years.
But that requires for capitalism to understand that looking at the poor is not the task of the First Lady of the republic. It's the task of the president. It's not a question of just doing macroeconomic stability, getting your accounts right, stabilizing money. It's about finding out why the poor can't use the legal system and revamping it. It's major surgery. That's why we're at a time where capitalism is going to be tested. Will it be able to cater to the poor, or will it continually be seen in places like Latin America as something that essentially relates to libertarian clubs and to people who are wealthy, in many cases who don't necessarily believe in capitalism. They just believe in helping their own wealth. Or are we going to make it inclusive and start breaking the monopoly of the left on the poor and showing that the system can be geared to them as well?
The other day, Erdoğan noted almost offhandedly that nearly half of Turkey's economy is informal. This remark received almost no attention. I wish it were in my power to make everyone in Turkey read that lecture and consider that statistic.
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Jan '11
Re: Hernando de Soto and the Arab Spring
Getting Turks and the LDCs to read that would be a good idea, but can we start with, say, Congress and the Courts here in the U.S.?
Jul '10
Re: Hernando de Soto and the Arab Spring
Excellent point... Really, why isn't the case being made when it is most needed?
Feb '11
Re: Hernando de Soto and the Arab Spring
Sadly, there are many *Americans* who fail to understand that prosperity depends upon "property rights, contract law, and a functional legal system." If they did, there would be more outrage about things like the abuses of eminent-domain power on behalf of favored people and entities, and the recent NLRB attack on Boeing.
Speaking of which, Boeing CEO Jim McNerney has a pretty good piece in today's WSJ:
The NLRB is wrong and has far overreached its authority. Its action is a fundamental assault on the capitalist principles that have sustained America's competitiveness since it became the world's largest economy nearly 140 years ago.
Re: Hernando de Soto and the Arab Spring
Indeed.
Jan '11
Re: Hernando de Soto and the Arab Spring
I love the point de Soto made when he said: "We drew up a whole flow chart, a critical path of all the steps that people would have to take to get a property title, and it came out to something like 207 bureaucratic steps. In other words, you had to sign something like 207 documents before you got the title. And the amount of time it would take you to pass these documents from one desk to another, working eight hours a day, was approximately 21 years."
Capitalism is about competition, of course. The moment one competitor succeeds, it prompts competitors to offer a better product, or an equivalent product at a better price. That competition is why the system benefits everyone. The products get better, and just because one company succeeds doesn't mean all competitors go out of business.
But that whole system depends on response and speed. When one product appears, competitors have to get into the game quickly, the sooner the better. There's no way capitalism can work when it takes 207 bureaucratic steps and 21 years to mount a competitive product.
That's why Capitalism needs limited government.
Edited on May 11, 2011 at 7:34amOct '10
Re: Hernando de Soto and the Arab Spring
The American international community has no understanding or appreciation of the property rights foundation of capitalism. You make the mistake of believing that our State Department would send anything other than the usual IMF and World Bank flak that are at the root of this very problem. They would come alongside Erdogan and A-jad to harangue capitalism as the evil empire.
Re: Hernando de Soto and the Arab Spring
They generally understand it better after their first Turkish contract law dispute.