Not long ago I attended a breakfast with Jim Wolfensohn, President of the World Bank. There were many others present to hear the great man say the things the great man has been saying for six years. One breakfaster asked whether the property laws in almost every country outside the West did not prevent people in those countries from borrowing for growth. The great man’s answer was good but not exactly on target. I suspect he had not read de Soto’s book.
Hailed by left-wing think-tanks in the UK as ground-breaking (pun intended), its thesis is so simple as to be mind-blowing, ranking it alongside Schumacher’s ‘Small is Beautiful’ in terms of its future influence.
The thesis is this: if you either don’t or can’t prove you own your house or land, you can’t borrow money. This is the case in many countries, particularly in Africa. If you can’t borrow, you can’t become a capitalist. The result is stagnation of individual effort.
In England the Enclosures Acts transferred ownership from the Crown to the people and led to the Industrial Revolution. In the United States and Australia land that was grabbed could be registered and owned. But in Russia to this day you can own a building but not the land on which it stands. Hence weak collateral. And who owns what in Soweto? Even in a successful economy like Ghana, the ownership of land is not entirely clear.
The assets of developing countries, which exceed by many times all aid since 1945, thus remain dormant. What an opportunity for Western lawyers or CitiCorp or global insurance companies!
Obviously a book of 250 pages has other things to say about information systems, accountability, transactions and the like, all of which add to the central thesis. But it’s this central thesis which is important. Unequivocally I urge you to buy it, read it and act on it.
Michael Brophy is Chief Executive of Charities Aid Foundation.
The Mystery of Capital: Why capitalism triumphs in the West and fails everywhere else
Hernando de Soto
Bantam Press £15