Review

20:21 Vision and The Mystery of Capital

20:21 Vision- the Lessons of the 20th Century for the 21st, Bill Emmott, Allen
Lane/Penguin, 2003, ISBN 0 713 99519 X, 327 pp

The Mystery of Capital - why capitalism triumphs in the west and fails everywhere
else, Hernando de Soto, Black Swan/Random House, UK, 2001, ISBN 0 552 99923 7,
276 pp.

Bill Emmott is Editor of The Economist, from which vantage point he provides a
history lesson and political commentary. The book is in two parts: Peace Challenged,
around the US role in world affairs post 1945 and prospectively, and Capitalism
Questioned, on the varied attitudes to the predominant economic paradigm.

Hernando de Soto is a Peruvian economist and much more, who has studied
empirically why capitalism has never thrived in third world and ex-communist
economies. He explores how it is that up to 80% of people in these economies are
effectively shut out of legal enterprise and what might be done about this. From a
Christian point of view, his book fills a gaping hole in the big picture treatment of
Emmott (though neither author writes as a Christian).

Emmott provides a very credible and informative account of how capitalism has
displaced more ideologically-based economic arrangements which simply did not work.
He also presents a comprehensive commentary on the variety of attitudes to
capitalism, summarised in the chapter titles: Unpopular, Unstable, Unequal (within
societies), Unequal (between nations) and Unclean!

Much food for thought here, but in relation to the most glaring failure of capitalism in
the third world, Emmott suggests that "the countries that fail to grow and to improve
their people's living standards beyond even a basic level can be divided into two
groups. In one, the problem is that there is no real or sustained government, thanks
to anarchy, civil war or broader war. In the other, the problem is that government
stands in the way, either because it steals money or because it fails to provide the
necessary freedoms and opportunities." While he elaborates this to some extent, he
does not unpack that last point.

Turning then to de Soto's (earlier) book I found a different perspective, focusing on the
large proportion of citizens effectively excluded from the formal economy in most third
world and ex-communist countries. His history lesson comes from longer ago than the
20th century (apart from Japan) and attempts to analyse how property rights and
legal structures became established on a universal basis in developed countries. He
sees the third world characterised by a privileged few within a kind of bell jar, while
most cannot get the fruits of their labour properly capitalised, though they have
substantial assets in the informal sector. He estimates these assets amount to US$
9.3 trillion in total but they cannot be used as collateral or in trade beyond the
immediate informal network. In each of these countries "the bell jar makes capitalism
a private club, open only to the privileged few, and enrages the billions standing
outside looking in. This capitalist apartheid will inevitably continue until we come to
terms with the critical flaw in many countries' legal and political systems that
prevents the majority from entering the formal property system."

Emmott's book is a very well-informed and worthwhile perspective on the world today
and is hard to fault, save for the deficiency mentioned. Capitalism's "Unpopular" tag
he suggests is contradicted by experience of many millions in the 20th century. But it
was "a pretty dismal failure" in the decades to 1945 and the reasons for this are
explored against the backdrop of Marxist influence. "Capitalism is still widely
considered, at least among some intellectuals, to be immoral: too devoted to a vulgar
worship of money, too dependent on self-interest and greed, too deeply founded on
adversarial individualism. It probably always will be." De Soto echoes this:
"capitalism is viewed outside the West with increasing hostility, as an apartheid
regime most cannot enter."

Emmott acknowledges the proper attractiveness of collaboration but notes that the
"successful collective is called the private, capitalist company. It alone has found a
way to blend direct financial incentives (aka exploitation) with the natural
hierarchical instinct of the human tribe, and to ally both of those with the desire to
work with other people and to derive self-esteem and confidence from the resultant
sense of belonging." Nevertheless, the paradox for him is that it is viewed with
suspicion and hostility. The canard about some multinationals being bigger and more
powerful than many countries is discussed and buried, though third world worries
about them are acknowledged. Issues of competition, technological innovation, and
liberalisation of markets are explored lucidly. "Anti-trust laws are a crucial part of
liberal capitalism," to ensure access and equity. He suggests that suspicion of
capitalism has been a prime cause of the growth of government in Western
democracies, the results of which have often been stultifying and worse.

De Soto has undertaken a lot of research in several third world countries including his
native Peru, and comes up with some realistic prescriptions for overcoming the chronic
and deep-seated deficiencies in third world and formerly communist countries. "With
its victory over communism, capitalism's old agenda for economic progress is
exhausted and requires a new set of commitments." Macroeconomic reforms are not
enough, as globalistation proceeds and trade barriers fall. The most basic deficiencies
in many countries are ignored - "most people cannot participate in an expanded
market because they do not have access to a legal property rights system that
represents their assets in a manner which makes them widely transferable and
fungible, that allows them to be encumbered and permits their owners to be held
accountable. So long as the assets of the majority are not properly documented and
tracked ... they are invisible and sterile in the market place." Thus any market
economy is very limited and capitalism is stillborn.

I found de Soto both persuasive and helpful. Though he doesn't address the matter
specifically, he explains why microenterprise schemes such as brokered by
Opportunity International and World Vision and promoted by OCMS are achieving so
much in the context of the informal economies of third world countries. This success
reinforces de Soto's analysis and confirms his view of the way forward.

Emmott has a good bibliography, web site list, and an index. De Soto has index and
endnotes with references.
Ian Hore-Lacy
April 2003