Indonesian dogs have the answer to the mystery of capitalism

As a cheerful postscript to the doomed Earth Summit, let's return to The Mystery of Capital ("Thrillingly subversive" – Donald Macintyre, The Independent). This astonishing book asks and convincingly answers the question: "Why does capitalism triumph in the West but fail everywhere else?"

It's a marvellously reassuring book for wealthy Westerners because it tells us that poverty in the Third World isn't our fault. For that reason, perhaps, its message hasn't been taken as seriously as it might have been.

The author, Hernando de Soto, is a poverty researcher from Peru. The key word is researcher. As he suggests, if economists wanted to study horses they wouldn't go and look at horses; they'd sit in a study and say to themselves, "What would I do if I were a horse?"

De Soto says he has collected facts and figures "block by block and farm by farm in Asia, Africa, the Middle East and Latin America" and his conclusions entirely undermine the assumptions underlying all fatuous targets set by the international community – as it is oxymoronically called – to abolish world poverty.

"Most of the poor already possess the assets they need to make a success of capitalism," De Soto says. Even in poor countries the poor save and their collective savings are immense. "In Egypt, the wealth that the poor have accumulated is worth 55 times as much as the sum of all direct foreign investment ever recorded there – including the Suez canal and the Aswan dam."

Same in Haiti: the total assets of the poor are 150 times greater than all the foreign investment received since its 1804 independence. If the richest country in the world (the US) were to give the UN-recommended level of foreign aid, it would take 150 years to transfer to the world's poor resources equal to those they already possess.

The problem? The assets owned by the poor aren't legally held. Ownership rights aren't documented. Titles aren't registered. Property can't be traded or used as security for a loan, or as a share for investment.

The informal property rights that exist don't connect with the legal system. And whose fault is that? The legislators'. Scratch the surface of an endemic problem – famine, illness, poverty – and you invariably find a politician at the source.

"I told ministers that Indonesian dogs had the basic information they needed to set up a formal property system," Mr de Soto says. "By travelling their city streets and countryside and listening to the barking dogs, they could gradually work upwards, through the vine of extra-legal representations dispersed through their country, until they made contact with the ruling social contract. 'Ah,' responded one of the ministers, 'jukum adat – the people's law!'"

And here we come to a problem that we all experience in our different ways, the "Bugger the People" tendency in modern life. Our upper class is drifting away from the rest of us, it's that powerful combination of commercial, political and administrative mandarins which runs the countries we live in.

In the West the symptom of this disconnection is voter apathy; in the Third World it is poverty, starvation and intergovernmental conferences that miss the fundamental point: they are the problem.

The law is something that has to be discovered rather than invented, De Soto quotes various philosophers and economists to this effect. It's an idea that's been around for thousands of years, but it's still wonderfully refreshing. In it, we see the difference between the Greek cosmos (the way living things naturally order themselves) and taxis (the military or academic way of organising things). Communities develop working relationships which the law is supposed to codify; it's not supposed to happen the other way round.

Wherever you travel in the economic fringes of the world, this sort of cosmic order is apparent. De Soto writes: "In the course of issuing formal title to hundreds and thousands of home and business owners in Peru my organisation never found an extra-legal group that did not comply with well-defined consensual rules." The idea that government is not the source of order should appeal to anarchists everywhere.

But how quickly the political class withdraws from the society that created it. As soon as it's elected it moves out of the squalor of its democratic origins and establishes itself in government offices suited to its dignity. And how quickly these absent officials start making a horlicks of their democratic inheritance. "My research team and I opened a small garment workshop on the outskirts of Lima. Our goal was to create a new and perfectly legal business. The team then began filling out the forms, standing in the queues and making the bus trips into central Lima to get all the certifications required to operate, according to the letter of the law, a small business in Peru. They spent six hours a day at it and finally registered the business 289 days later. Although the garment workshop was geared to operating with only one worker, the cost of legal registration was $1,231 – 31 times the monthly minimum wage.

"To obtain legal authorisation to build a house on state-owned land took six years and 11 months, requiring 207 administrative steps in 52 government offices. To obtain a legal title for that piece of land, it took 728 steps. We also found that a private bus, jitney or taxi driver who wanted to obtain official recognition of his route faced 26 months of red tape."

Any greater impediment to joining the legal, formal economy can hardly be imagined. Each of these regulations and formalities will be defended by the government, probably on the basis of restraining "the law of the jungle". Their own law remains no less impenetrable and no more humane.

"Governments must find out how and why local conventions work and how strong they are. The failure to do so explains why past attempts at legal change in developing and former communist countries have not worked," De Soto writes.

The social contract, then, is not some holy abstraction that springs from some social visionary but it is the expression of the way in which people actually get on with the business of living.

A couple of advertising characters have come up with a plan to make money which deserves hoots of laughter, let alone the small fortune they must be hoping for.

They're pitching a novel-writing service to government departments. The core messages and ideas that these hapless organisations want to get across will be packaged into novels and then distributed to waste disposal centres all over Britain, pausing only briefly for display in bookshops.

The Independent on Sunday revealed this shameful trade in sponsored novels. It is wholly characteristic that the idea should have originated in the advertising industry, the vulgarity of which knows no limits. There was a creative director I knew who believed that he and his colleagues were artists, quite in the same way Leonardo da Vinci was. "We operate almost identically," he explained. "We have patrons, just like Leonardo had. We work for rich people whom we have to please, or lose the commission. We work in collaboration, just as Leonardo did. He had specialists to do the hands, or the hair or the drapery. We have specialists of our own to do the sound, or the concept board, or the music. We both sell products: his were paintings; ours, in this case, is butter. There is one difference. More people see my butter ad on a Saturday night than see the Mona Lisa in a year."

Of course I should have killed him. Perhaps I did; memories of the latter parts of the evening are blurred.

But advertising can't aspire to the condition of art. Art is there to reveal something of the mystery of life; advertising is there to put a brand name into your mind.

But good luck to Narration Ltd (though I can't help thinking Writers Inc. would have been a better name). Government departments are so stupid they may have made their fortune before they're found out.

"All systems either of preference or of restrainst, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men." - Adam Smith, The Wealth of Nations, 1776.

I'm so pleased that you knew the source of the phrase "Cosmos and Taxis": For those who don't, it was the title of the second chapter of F.A. Hayek's book Law, Legislation, and Liberty, Vol. I. (As the author of the article stated, Cosmos means "spontaneous order" and Taxis means "Imposed order".)

The chapter starts off with a quote from Adam Smith:

The man of system . . . seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chessboard. He does not consider that the pieces upon the chessboard have no other principle of motion besides that which the hand impresses upon them; but that, in the great chessboard of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it. If those two principles coincide and act in the same direction the game of human society will go on easily and harmoniously, and is very likely to be happy and successful, If they are opposite or different, the game will go on miserably and the society must be at all times in the highest degree of disorder.
--Adam Smith, , 1759

1759!!!

Yes, there are plenty of good ideas at the corner store, but joanie-f has it right: Trouble is, good ideas aren’t worth a damn in their playbook.

Everything the enemies of freedom do has one goal: To destroy the human mind, the ultimate source of our standard of living.

The primary method they use is convincing people that no matter how well they produce, they will not be rewarded, but in fact punished.

I enjoyed your no. 16!

The Henry Ford story is an interesting one, for he was hated by labor organizers and adored by labor (except for some of the ones who worked for him...). He became a popular hero for taking on Wall Street using the most brutal methods of the "worst" capitalist (tried to squeeze out his partners by refusing to pay dividends). The famed $5-a-day thing came up as a way to better retain workers. He later said it was the best cost-saving strategy ever.

Whatever his good, bad, or ugly, the point here is that by serving himself and himself alone he helped mankind. Enormously.

I think we need to revive the word "populist." That's all these people are. They try to dodge the "socialism" label by calling themselves "progressives," and they may actually have a point inso far as they are more concerned with business regulation than ownership. But with these mindless rants against the rich, calls for "justice" and "human rights," they're nothing but low-down, low-hitting populist of the worst kind (which is what the progressives became, anyway).

The article resonates with issues from Hayek, as does all sensible study of economic systems and they comingled path with political systems. Besides the chapter you have cited, the 4th chapter of The Constitution of Liberty comes to mind when I read:

The law is something that has to be discovered rather than invented, De Soto quotes various philosophers and economists to this effect. It's an idea that's been around for thousands of years, but it's still wonderfully refreshing. In it, we see the difference between the Greek cosmos (the way living things naturally order themselves) and taxis (the military or academic way of organising things). Communities develop working relationships which the law is supposed to codify; it's not supposed to happen the other way round.

Hayek was no friend to Totalitarian Rationalist Democracry and all its mistakes and we on our side of the political spectrum need to understand how that reservation applies to some on our side as well.

... the "rich" nations of the world have the social and legal infrastructure required for the creation and protection of wealth.

Yes. Very good point.

This is what is lacking in Russia, today. When they first formed the CIS, I downloaded and read their constitution. It was apparent that the thugs would eventually take over after reading the preamble.

We, the multinational people of the Russian Federation, united by a common fate in our land, affirming human rights and liberties, civil peace and accord, preserving the historical unity of our State, based on generally recognized principles of the equality and self-determination of peoples, honoring the memory of our ancestors, who have given us our love and respect for the Fatherland, our belief in good and fairness, reinstating the sovereign statehood of Russia and affirming the firmness of its democratic foundation, striving to secure the well-being and prosperity of Russia, based on our responsibility for our Homeland to the generations of today and tomorrow, recognizing ourselves as a part of the world community, hereby adopt this CONSTITUTION OF THE RUSSIAN FEDERATION

The concept of "limited government" is foreign to Russia.

nicollo, my good friend. I finally had a chance to read your post. I especially enjoyed the paragraph which begins "When will our college adolescents...smoke a genuinely radical thought?".

You back from the road? I just got back from a weekend getaway in Vermont. I'm still here in Jersey, looking to make it through yet another round of job cuts. There should be a few people in my area getting whacked pretty soon. It's still rough "out there", or, at least that is the impression I have gotten from the street level.

9-11 coming up. Hard to believe it's been a year. I remember where I was that day, and I remember where I was 6 months to the day, in Battery Park, at 8:46 AM when the church bell rang for one minute, in rememberance of the people who died that day. I stopped and took my cap off right there on the sidewalk, closed my eyes and prayed.

When I got back from Vermont on Monday night, it hit me just how nice the time in Vermont had really been. For those few days, life was really simple and beautiful. But it didn't really sink in until I got home. Since 9-11, I have come to appreciate how safe and peaceful times had become since 1990 or so, after the Cold War ended. I didn't really appreciate it until after 9-11. But I also realize I have no right to complain, because the peaceful years we experienced are the exception, not the rule. You look back over history and it's pretty clear.

Great to hear from you! Glad you enjoyed VT. My parents just returned from Bennington where they were looking up some family history. They learned how an ancestor tasted it in 1775. Seems my great-great-great-whatever, "Remember Baker" (ain't that a great name!) took it in the head from an Indian. He was fighting under Gen. Schuyler in the Champlain region. Baker pulled the trigger first, but his gun misfired. Oops.

So I called up a buddy in NJ who is a Schuyler descendant and told him I'm filing suit. He replied that I ought to take a bullet for him, instead. This I agreed to, if he's ever attacked by Indians.

Good luck dodging the corporate guillotine...

Oh, thanks for sharing on the 9-11 anniversary. Chatting on the phone this morning, I walked outside and remarked how beautiful a day it was. Then I stopped silent, for it reminded me of taking just those same steps and thinking the same thing at about 8:30 am on a certain day in early September last year. The person on the line said, "You there? You ok?" I didn't explain.

Yes, prayers.

Instead... - There's Chavez, sucking dollars through a syphen hooked up to American gasoline tanks, bad-mouthing his lifeline...
- There's Jiang showing off China's first Supercomputer, INTEL INSIDE, worshipping the virtues of his broken nation, whose only salvation he knows is to turn to the American example of property rights, guarantee of contract, etc. (none of which will ever be secure without a free press and an armed citizenry...)...
- There's Chirac demanding a tax on American superiority in order to cover his national sense of guilt and inferiority...
- There's Kofi, hiding his ass behind UN floor votes to cover up his joined and upright palms...

- There's Saddam, pissing on his foot, counting grains of sand in fear of that one that marks the cruise missile aimed at his head, wondering exactly why he thought he could turn on his masters...

Thanks, Nicollo! Damn good rant! I feel better now too, thanks!

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