Now, not quite a century after Marx's magnum opus, Das Kapital, along comes The Other Path, a high-impact bombshell of a book by a young, soft-spoken, Swiss-educated banker-economist, Hernando de Soto. De Soto, unlike Marx, is scientific in his approach. Through a largely empirical study of the actual dynamics of the economy of one country, he vindicates the insights of Adam Smith's The Wealth of Nations in a strikingly original way. His starting point is a healthy skepticism toward the standard explanations, supplied by the political Left and Right, of why so many Latin American nations are poor economic performers.
Taking his native Peru as a test case, he used it as a kind of laboratory, basing his thesis not on armchair speculation or a turgid reworking of Hegelian categories, but on painstaking fact-gathering. In this effort, de Soto received a great deal of help--which he graciously acknowledges--from a remarkable organization he helped to found, Instituto Libertad y Democracia (ILD).
ILD's field work even included some ingeniously devised "economic experiments" that proved how formidable were the legal and regulatory obstacles the establishment had put in the way of setting up a new small business. To register a small-scale sewing shop, for example, the ILD learned it took ten months of calling on eleven different municipal and ministerial agencies and paying two bribes. The carefully documented accounts of efforts to start and maintain value-producing activities in the teeth of a system hostile to such activities is one of the more fascinating features of de Soto's book.
It was, of course, the hostility of Peru's government to new enterprise and its favoring of a small established circle of clients that prompted so many Peruvians to simply strike out on their own in the uncharted world of "informality."
When de Soto's thesis was first published in Spanish, it quickly became a best-seller in Latin America, where is shattered the comfortable assumptions of both the Left and the Right--exposing them as brothers under the skin: both statist; both dirigiste; both deeply mistrustful of the people; both preoccupied with the allocation of economic privilege and the redistribution of wealth; and both blind to the true causes and dynamics of wealth creation.
Creating wealth
Although de Soto's study focuses on Peru, its findings are applicable not only to many other countries of Latin America, but also to most of those other counties of the Third World whose economics continue to stagger along between stagnation and total collapse, while economically illiterate "leaders" divide their time between panhandling in the West and denouncing the nations that keep filling their bottomless beggar bowls with loans and grants.
Several years ago, Lord P.T. Bauer, one of Britain's greatest economists, anticipated many of de Soto's conclusions when he challenged the axioms of the "mainstream development community." The backwardness of the undeveloped world, Bauer argued, is not due to exploitation by industrialized nations, nor to psychic traumas inflicted upon them by former colonial powers, not to some inherent lack of aptitude or ambition, nor to mysterious cultural factors.
...
Read Full Article
|
