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The Mystery Of Capital Why Capitalism Succeeds In The West And Fails Everywhere Else [Hardcover]

Hernando De Soto
4.3 out of 5 stars  See all reviews (91 customer reviews)

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Book Description

Sept. 6 2000
"The hour of capitalism's greatest triumph," writes Hernando de Soto, "is, in the eyes of four-fifths of humanity, its hour of crisis." In The Mystery of Capital, the world-famous Peruvian economist takes up the question that, more than any other, is central to one of the most crucial problems the world faces today: Why do some countries succeed at capitalism while others fail?In strong opposition to the popular view that success is determined by cultural differences, de Soto finds that it actually has to do with the legal structure of property and property rights. Every developed nation in the world at one time went through the transformation from predominantly informal, extralegal ownership to a formal, unified legal property system, but in the West we've forgotten that creating this system is also what allowed people everywhere to leverage property into wealth. This persuasive book will revolutionize our understanding of capital and point the way to a major transformation of the world economy.

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It's become clear by now the fall of the Berlin Wall and the collapse of communism in most places around the globe hasn't ushered in an unequivocal flowering of capitalism in the developing and postcommunist world. Western thinkers have blamed this on everything from these countries' lack of sellable assets to their inherently non-entrepreneurial "mindset." In this book, the renowned Peruvian economist and adviser to presidents and prime ministers Hernando de Soto proposes and argues another reason: it's not that poor, postcommunist countries don't have the assets to make capitalism flourish. As de Soto points out by way of example, in Egypt, the wealth the poor have accumulated is worth 55 times as much as the sum of all direct foreign investment ever recorded there, including that spent on building the Suez Canal and the Aswan Dam.

No, the real problem is that such countries have yet to establish and normalize the invisible network of laws that turns assets from "dead" into "liquid" capital. In the West, standardized laws allow us to mortgage a house to raise money for a new venture, permit the worth of a company to be broken up into so many publicly tradable stocks, and make it possible to govern and appraise property with agreed-upon rules that hold across neighborhoods, towns, or regions. This invisible infrastructure of "asset management"--so taken for granted in the West, even though it has only fully existed in the United States for the past 100 years--is the missing ingredient to success with capitalism, insists de Soto. But even though that link is primarily a legal one, he argues that the process of making it a normalized component of a society is more a political--or attitude-changing--challenge than anything else.

With a fleet of researchers, de Soto has sought out detailed evidence from struggling economies around the world to back up his claims. The result is a fascinating and solidly supported look at the one component that's holding much of the world back from developing healthy free markets. --Timothy Murphy

From Booklist

The author, president of an influential Peruvian think tank and a prominent Third World economist, sets out to solve the mystery of why some people in the world can create capital and others cannot. Outside the West, in countries as different as Russia and Peru, it is not religion, culture, or race issues that are blocking the spread of capitalism but the lack of a legal process for making property systems work. Implementing major legal change so as to establish a capitalist order involves changing peoples' beliefs, and de Soto contends this is a political rather than a^B legal responsibility. He believes such a change can be achieved if governments seriously focus upon the needs of their poor citizens for a legally integrated property system that can convert their work and savings into capital. Political action is necessary to ensure that government officials seriously accept the real disparity of living conditions among their people, adopt a social contract, and then overhaul their legal system. Mary Whaley
Copyright © American Library Association. All rights reserved

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Customer Reviews

Most helpful customer reviews
9 of 10 people found the following review helpful
5.0 out of 5 stars This Ain't Your Father's Economics! Jan. 31 2004
By A. Ross
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.... Read more ›
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1 of 1 people found the following review helpful
5.0 out of 5 stars Food For Thought June 9 2002
The last book I read by an economist was over thirty years ago. The book, Das Kapital by Karl Marx, pretty much did me in at wanting to read writings by an economist, so I wasn't sure what to expect when I began this text by Hernando De Soto. I was pleasantly surprised at both how readable it was and the simple power of what is being said. Having earned a Masters in Management with a specialty in International Development, I have to admit at being surprised that I could have missed something so basic as the need to legitimize underground economies, the value of property ownership, and the ability to leverage property ownership, thus creating capital and capital in turn being the life blood of capitalism.
My hat is off to Hernando De Soto and I recommend this book to anyone who cares about the problems of the other two thirds of the world. I especially want to recommend it to people involved in International Development. I have already contacted some of my grad school professors to alert them to this work. I believe that it has serious value in the academic world as a means to create talking points and challenge long held views. If you are looking for answers to one of our planet's more lingering problems (why well meaning International Development efforts continue to fail despite the billions of dollars we pour into them), read this book!
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By Dieter
Other reviewers have commented on De Soto's originality in relation to prevailing economic tradition. They have also praised his style - very clear prose, interspersed by passages of honest elegance. Yet, for me, at least, what stands out most about De Soto is his interest in discovery, in reawakening a long forgotten question.
Who asks oneself seriously what capital is today? Is one even generally capable of understanding the question of what capital is? I doubt it - the first reaction is ridicule. Of course one knows what capital is, for one lives in a capitalistic society. One can hardly take such a question seriously.
Yet, this provocative question moves this book. De Soto has carried out first-hand research among the boiling global centres of 'marginal' economic activity. He has not looked for the 'right' theoretical answer to the question of capital, rather, he has tried to discover a way to pose, and answer, the question meaningfully. Meaningfully for whom? To those who have forgotten - those in the West - and to those who wish to learn in the developing world and the former communist nations. What is capital?
Other reviewers have criticised De Soto for redundancy, repetition. These criticisms are off the mark. De Soto has discovered the conceptual solution to the question of the potential of capital: a legitimate system of representation of property. Yet, he can not simply elaborate it in a few words, for one does not still understand the question he is answering. Because it is disturbing and fleeting, it is very difficult to grasp. Thus it requires constant reformulation. Shakespeare used parallel structure, De Soto uses masterful analogies (I particularly like his profound observation on something so seemingly apparent as barking dogs).
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5.0 out of 5 stars A Pragmatic approach to the socio-economic issues April 2 2004
Outside the Western borders; capitalism is in crisis not because international globalization is failing but because developing nations have been unable to channel capitalism in their countries. Most people in these nations view capitalism with skepticism. To them it is a private apartheid system that benefits only the West and the elites of the developing countries. The fact that more people throughout the world wear Nike shoes; flash Casio watches; drive Ford cars and dine at Mc Donalds; is not an indicator of capitalism.
The Issue:
Latin Americans do not have to be reminded. On at least four occasions since their independence from Spain in the 1820's, they have tried to become part of global capitalism and failed. They restructured their debts; stabilized their economies by controlling inflation; liberalized trade; privatized government assets; undertook debt equity swaps and overhauled their tax systems. At the consumer level they imported all sorts of American and European goods. But their lack of success is in their misplaced directive. Fact lifeblood of capitalism is placed in nothing but Capital.
The Resolution:
Desoto has taken a very pragmatic approach to the problem; by taking both a historical approach as to how the West traveled the path of Capitalism and undertaking a detailed research in the extent of dead capital stagnant in the developing world. He professes that just like the west in the early days; in the developing world there was a migration of people to cities during the industrialization. This migration created squatter colonies; and around them developed supporting economy. Bureaucracy and painful property registration system (taking 14-17 years); prevents registration of property.
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Most recent customer reviews
3.0 out of 5 stars Product in good condition but there is a lot of writing in it
Came in good time, book is in good condition but there is a lot of writing in it that was not specified when I bought it. Should be clearer next time.
Thanks for the purchase
Published 9 months ago by Sandra Younan
5.0 out of 5 stars The Formula For Growth
This book will explain, why Western economic growth has been so strong. The book also sorts out, the reason why so many non-developed countries have economically lagged the West. Read more
Published 15 months ago by Patrick Sullivan
5.0 out of 5 stars Le chemin de Damas
Cet exposé de réalités et de magouilles économiques m'a ouvert les yeux sur les véritables principes qui condamnent une si grande proportion de... Read more
Published on Feb. 12 2012 by Jean-Marc Leclerc
4.0 out of 5 stars DeSoto's theories may also be a forecast for the West
First of all, the used copy of The Mystery of Capital that I bought was in great shape, although a previous reader had underlined passages. Read more
Published on Sept. 18 2009 by Janet D. Gray
3.0 out of 5 stars De Soto: Savant or Charlatan?
Ever since the onset of the Cold-War, development theory has been mired in ideological trench warfare between neo-liberals and Dependency Theory advocates. Read more
Published on March 20 2008 by Justin M. Williams
4.0 out of 5 stars very interesting but one-sided
Great topic and interesting to read. But his argument is somewhat one sided. Indeed, according to his concept, there is way to explain the current surge in China and India. Read more
Published on June 9 2006 by Expat-biz-Hong Kong
5.0 out of 5 stars One of the single best books on Economics I've read
Many of the other reviewers have given excellent in depth summaries of DeSoto's book, and I will not regurgitate what others have already done a good job of saying. Read more
Published on June 23 2004 by J A W
5.0 out of 5 stars Packed With Knowledge!
Hernando de Soto's ideas cannot and should not be ignored. This book will open many eyes to the nature of capital. Read more
Published on June 7 2004 by Rolf Dobelli
5.0 out of 5 stars optimistic eyeopener
You can not read this book without thinking this author just might be on to something big. The central question or "mystery" of the book as the title suggests is why... Read more
Published on Dec 1 2003 by J. head
3.0 out of 5 stars Good points, but *extremely* repetitive.
A lot of other reviewers have commented on this book based upon the propositions and assertions made in this book, so I won't comment here, except to say DeSoto's book is... Read more
Published on Nov. 22 2003
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