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9 of 10 people found the following review helpful
5.0 out of 5 stars 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...
Published on Jan. 31 2004 by A. Ross

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1 of 1 people found the following review helpful
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. The former clamour for more capitalism and less regulation while the latter favour retrenchment from the economic world system and greater state intervention domestically. Into this impasse, enter Hernando de Soto...
Published on March 20 2008 by Justin M. Williams


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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 (Washington, DC) - See all my reviews
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.
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1 of 1 people found the following review helpful
3.0 out of 5 stars De Soto: Savant or Charlatan?, March 20 2008
By 
Justin M. Williams (Toronto, Canada) - See all my reviews
(REAL NAME)   
Ever since the onset of the Cold-War, development theory has been mired in ideological trench warfare between neo-liberals and Dependency Theory advocates. The former clamour for more capitalism and less regulation while the latter favour retrenchment from the economic world system and greater state intervention domestically. Into this impasse, enter Hernando de Soto. In the "Mystery of Capital" this Peruvian writer delicately straddles this partisan divide and delivers a refreshing new look at effective development theory.

De Soto's main arguement is that Third World countries already possess sufficient capital for development. The problem is that these resources are trapped in the static, informal economy and can therefore not be productively harnessed because the legal system and property rights are underdeveloped. Without the stability engenered by proper record-keeping and bereft of the concomitant social attitudes that make capitalism work, therefore, underdeveloped countries are perpetually consigned to poverty.

While de Soto is certainly correct in underscoring how property rights and legal infrastructure are formative in development, however, he fails to adaquately demonstrate how these imperatives can be established in countries where they are lacking. His prescriptions for addressing these legal and attitudinal deficits are cursory and, at times, quixotic. Legal rights in the West were painstakingly established through the crucbile of feudal power dispersion and can not simply be exported to developing countries -- a point belied by de Doto's rather simplisitc diagnosis.

Nevertheless, de Soto delivers an important and timely arguement which moves beyond the shrill and vociferous capitalism-bashing expounded by the conventional left. He advocates more capitalism, not less, though he is correctly nuanced in identifying that it must be managed. Though there are some peccadilloes in his arguement, de Soto should be comended for changing the dynamic of the debate.
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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
By 
"tagreacca" (Modesto, CA USA) - See all my reviews
This review is from: The Mystery Of Capital Why Capitalism Succeeds In The West And Fails Everywhere Else (Hardcover)
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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5.0 out of 5 stars Thoughts that come on doves' feet guide the world..., June 1 2004
By 
Dieter (Toronto, Canada) - See all my reviews
This review is from: The Mystery Of Capital Why Capitalism Succeeds In The West And Fails Everywhere Else (Hardcover)
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).
De Soto also tries to situate his thought within diverse traditions of Western thought, combining Continental philosophy with American analytics (it is rare to see someone who is capable of synthesizing Derrida with Wittgenstein, to say nothing of Searle!). He seems to be trying to say the same thing in many different ways - yet it is very difficult to understand what that thing (capital) is. De Soto helps the reader by offering many different pathways to the thing (capital) itself.
I feel that De Soto might have engaged more deeply with Plato's thoughts on representation and his analysis of the cave parable is somewhat superficial. A more in-depth engagement might provide the basis for a rethinking of some of the precepts behind private property and capital, which De Soto simply accepts as given. This is a personal quibble only, however, as such speculation would reduce the clarity of the book, and thereby reduce its tremendous practical value for concrete action, obviously the author's main intent.
De Soto has written a masterpiece around a a simple kernal of truth. It seems so obvious in hindsight! Yet, it is the very stillness of those words in which it is expressed which will bring on a storm.
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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. In essence creating dead capital; in such a system nobody can identify who owns what; addresses cannot be verified; people cannot get credit or debits; resources (land assets) cannot be converted into money or securities, description of assets are not standardized and cannot be easily compared; and rules of property law changes from neighborhood to neighborhood. By streamlining the registration of dead property lying outside the legal system eliminates all the issues above; and benefits the people by making credit/debit easily accessible to them, by taking loans with property as a security.
Facts:
Desoto from his years of research of underground economies taken from a very varied group of countries (Haiti, Egypt, Philippines, Peru) has found some very startling facts about dead capital.
In Egypt the Dead capital is 241,2 Billion, which is 55X foreign direct investment (FDI) up to 1996, 30X market value of Cairo Stock Exchange; 13X accumulated foreign reserves; 6X total savings in commercial banks in Egypt.
In Philippines the Dead capital is 132,9 Billion ; which is 14X total FDI; 7X total savings in commercial banks; 4X market value of Philippines Stock Exchange.
In Peru the Dead capital is 74,2 Billion; which is 14X FDI up to 1995; 11X capital of the largest public enterprises in Peru; 8X total savings in commercial banks in Peru.
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5.0 out of 5 stars optimistic eyeopener, Dec 1 2003
By 
J. head (littlteton, nh USA) - See all my reviews
(REAL NAME)   
This review is from: The Mystery Of Capital Why Capitalism Succeeds In The West And Fails Everywhere Else (Hardcover)
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 the developed countries of the world have become so good at producing capital and the majority of countries are unable to emulate them. The optimistic point of view of this book is that the amount of unutilized capital in even in the poorest of countries still dwarfs the amount of annual foreign aid they receive. The author contends that when the riddle of how to release this untapped resource is solved the market dynamics will take over and the benefits will be reaped. The major economic power for most of the poorer countries of the world is in the underground economy. Keeping the underground economy outside the legal system and the protection it provides stifles the country's growth. The populace of every country has already maximized their competitive advantage within the rules of their local marketplace. What remains to be done is to legalize the marketplace laws over that particular nation as a whole. A national system that incorporates this underground market and legalizes it will obtain the market dynamics that the developed countries enjoy. The author is a noted economist from a third world country, the fact that he is from a third world country may have helped him question the idea of capital production. The author feels that economists from developed countries have forgotten their own economic history and gloss over the importance of a legalized marketplace. This was a very well written book, with the ideas well thought out and many examples of what happened in the USA as it progressed from a former colony, a third world country, to take a position among the developed industrialized countries of the world.
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5.0 out of 5 stars An Unsexy, Yet Compelling Solution, Nov. 4 2003
By 
Derrick Peterman (San Jose, CA United States) - See all my reviews
(REAL NAME)   
This review is from: The Mystery Of Capital Why Capitalism Succeeds In The West And Fails Everywhere Else (Hardcover)
So often we hear the solution to poverty and inequality in the developing world can be solved by fancy trade agreements, or glitzy technical solutions such as providing high speed internet connections. Then Hernando De Soto comes along with the most unsexy solution imaginable: reform the system of property rights.
You (or at least I) would not expect a argument on local codes and regulations on property rights with respect to economic development to be easy reading, and I wouldn't recommend taking this to the beach. But it is surprisingly easy to read and De Soto provides a delicate and readable touch. De Soto gains a lot of credibility because he clearly has gotten his hands dirty in the very countries and issues he writes about.
To summarize his findings, in the developing world, property and business ownership is difficult for the middle and lower classes to achieve, and they live outside the "bell jar" of the privileged in the developing world, who do not face these difficulties. Failure to achieve legal property rights and ownership, these classes are greatly restricted in acquiring capital to improve their properties or grow their business.
This is not to say the poor and middle class are lawless in these countries. On the contrary, De Soto demonstrates that informal and customary systems of property rights exist outside the legal framework of the country. In fact, such conditions existed in the United States and Europe, and over time, laws in these countries were adapted to reflect and integrate these extralegal agreements. De Soto argues that this must also take place in the developing world for capitalism to truly thrive.
So it is not oppressive "First World" countries exploiting the "Third World", nor the lack of free market principles, that is holding the developing world back. De Soto is arguing for a strong central government to serve the will of all the people, if these countries are to be successful.
This unique, but very compelling argument by a top notch economist and good writer is highly recommended and really essential reading for anyone interested in economic development.
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5.0 out of 5 stars Profound but De Soto's Insights Miss the Mark, Sept. 21 2003
By 
Daniel Greene (New York, NY United States) - See all my reviews
Insightful and written in a captivating style, Hernando De Soto in 'The Mystery of Capital' explains that poverty lingers in the third-world because of its failure to create a system of recognizing and organizing each citizen's property that will allow for it to be converted into dynamic capital that can produce wealth. For instance, in much of the third-world, if you don't have a legal address than you can't use your house as collateral for a loan to open a business. However, despite his accurate analysis of the third world's problems, he misses the mark in fully explaining why most western nations, particularly the United States, have been so successful in converting property into capital that produces wealth. As a result, this unfortunately weakens the effectiveness of his solutions he offers to developing-nations.
He references the history of western nations and indicates that they once had conditions and problems similar to the third world. He states that over time, especially during the last 200 years, through an unconscious endeavor, these nations were able to weave together a system of laws and social contracts that allowed for property to be accounted for, and for people to be held accountable to their obligations. However, De Soto fails to explain why the framework for how this 'unconscious endeavor' was able to exist within the 'bell jar' of western nations. De Soto explains how western nations were able integrate their extralegal world, but he doesn't explain why this happened. He fails to identify what happened 200 years ago in western nations that allowed for a revolution in capital management.
De Soto suggests that if governments only paid attention to the 'barking dogs' (a term he uses meaning that dogs know the extralegal boundaries of their owner's property), then they will be on their way to converting their nation's dead capital, which exists in the vast extralegal or non-legal realm of a nation, into vibrant, dynamic capital.
His solution is essentially that a nation needs a strong central government that responds to the needs of the people and can responsibly orchestrate individual property rights. An entrepreneurial government, if you will, that both responds to the market demands of its citizens (expressed through the extralegal realm) and is 'conscious' about converting its dead capital.
Here's where De Soto falls short. How does a government become centralized enough so that it can properly coordinate individual property rights and obligations, yet it not become so centralized so that it falls back into the tyranny it is resisting that will eventually impede on individual property rights and create an extralegal world that will produce more dead capital?
Part of the answer is in the U.S. model of government (three branches and a federal system of states, counties, etc.), where the very infrastructure of government is localized, decentralized and organized. However, the main answer lies in what took place approximately 200 years ago within the United States that never happened before in human history and explains why this 'unconscious endeavor' to harness property into capital that produces wealth took place.
The founders created a nation that recognized that individual rights were endowed by a higher power, a creator. This concept prohibits the government from assuming that it has a monopoly on property rights. The government recognizes that property rights are inalienable and that they come from a higher power, which is not the government itself. Accordingly, the government is a humble servant, not the ultimate master, which serves to protect individual property rights. Laws are created to insure that government or other individuals do not abrogate an individual's property rights. This explains the 'unconscious endeavor' that took place within the U.S. and in western nations to account for all property because ultimately it was about creating a system that secured individual rights in deference to a higher power.
This is the critical piece missing in De Soto's analysis. The drive for converting dead capital into liquid capital isn't necessarily about converting all illegal property into legal property; it should first be about securing individual rights. Once this is established, it will be easier for all of the mechanisms to fall into place within a nation and systemically transform property into capital.
The reason De Soto missed this is because he wanted to show that there are few differences between developing nations and the first world. For example, he discusses how most nations are entrepreneurial and that the histories of western nations are similar to the current conditions of the third world. Unfortunately in the process he overlooked what made the U.S. method of governing so radically revolutionary which was its recognition that individual rights need to be secured because they come, not from the government, but from a higher source.
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5.0 out of 5 stars One of those rare seminal books, Sept. 2 2003
By 
Fish 7 "rfisc7" (STILLWATER, OK United States) - See all my reviews
DeSoto has uncovered the taken-for-granted truths about our (The West's)economic system in conjunction with the enormous difficulties faced by Third World countries. His starting point is that Capitalism requires its participants to have an address--an address where potential lenders can find the participant (1) to assess what they own and (2) to be able to sue and repossess for repayment. That sounds simple until you consider the millions of people living around Mexico City, Rio, and the like who are not registered with any "address" system. Those people have been living there for generations and have accumulated various forms of property--property that cannot be readily turned into capital, i.e., by getting a loan and mortgage, because they do not have a legal address. De Soto explores these issues as well as the solutions. He faces the fact that all legal systems are put into place to protect those who are putting them in place, not because they are venal prople but because that is the way of the world. Even the essential Uniform Commercial Code. He reminds us that the USA did not square away its property rights system until late in the 19th century. This book is an absolute classic. It also opens the eyes of capitalists to the ingredients of capitalism. What is capital, how can we be sure what our money is worth--these kind of unthought of concepts. It is "Wealth of Nations" type of break-through book.
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4.0 out of 5 stars interesting - though a bit dry, Aug. 25 2003
This review is from: The Mystery Of Capital Why Capitalism Succeeds In The West And Fails Everywhere Else (Hardcover)
in this book hernando de soto goes againts the conventional view of the socalled vicious circle of poverty which has been at the center of development economics for decades. in this he echoes the great economist peter bauer.
de sotos argument is mainly that capital exists every where but that it is dead due to the lack of proper social institutions (private property). he shows empirically how people living in large parts of the world (the socalled third world) are not able to raise large bulks of capital and also that they are kept from being industrous due to goverment regulations. the bureucratic obstacles as well as the neccessary political connections makes it almost impossible for ordinary people to act as entrepreneurs on any large and visible scale (i.e. to the government).
in his arguments de soto also ecchoes adam smith who always saw economic liberal policy (the end of privileges and the security of persons and property) as benefeting the poor rather than the rich. the influential economic elites are always politically connected and are not the ones most in need of legal protection of property (as the marxists always seem to think).
i strongly reccomend reading p.t.bauers 'from subsistence to exchange' which is much more enjoyable and which contains a world of wisdom in a field of study that often is dictated by political correct social theories rather than sound arguments.
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