|
“The Mystery of Capital: Why Capitalism
Triumphs in the West and Fails Everywhere Else” Situation – Capitalism stands alone as the only feasible way to organize a modern economy Problem – Capitalism seems to fail in the third world (high unemployment, higher food prices, domestic instability) Why ?? Cultural?? Japan, California, and Switzerland are doing well Lack of entrepreneurs? There is a huge underground economy in all of the 3rd world Technology ?? You need the latest movie DVD? They’ll be on the streets of Bejing before your neighborhood Blockbuster So the reason is: inability to formalize capital The poor have savings and assets – 40x the amount of foreign aid given since 1945 But these savings are not legally documented (a house built on land whose ownership is unclear, a business that the government has never heard of, industries that investors cannot see) “They have houses but not titles, crops but not deeds, businesses but not statutes of incorporation.” In the West – ownership is carefully documented Those assets thus become collateral for loans, a link to credit history, a basis for the creation of reliable utilities, and the foundation of securities. Why is this not clear to all?? The Five Mysteries The Mystery of Missing Information The poor have assets but they are dead capital (assets that cannot be fully utilized) After the 1950s millions in the 3rd world moved from the countryside (with large landowners that dominated economic opportunities) to cities where there were higher wages, better living conditions, and greater educational opportunities. The poor would move into the cities looking for a place to live – often building homes in extralegal shantytowns and starting extralegal businesses. Why extralegal ?? – Because the existing legal structure contained formidable barriers to entry Peru – 289 days to register a business and $1,231 in costs 6 years, 11 months to build a house on state-owned land (207 admin. steps) It takes a mere 728 steps to take legal title Mystery of Capital Formally preserving ownership through a legal system unleashes an asset’s potential economic value Egs/ Without these formal systems goods are extremely difficult to sell In the US I can buy/sell thousands of pigs at a time without ever seeing them by simply exchanging and/or signing documents In the 3rd world I needs to take my pig directly to market (one or two at a time) I have to sell them for cash and can only sell them locally Formally observing ownership also makes people more accountable If I have a permanent address (that can be foreclosed and where I can be found) I can get legal and reliable utility hookups, mortgages, credit reports, insurance, have a vested interest in legal stability, etc . . . Formally observing ownership protects transactions and assets and expands business networks Contracts can now be enforced by gov. instead of relying on only neighbors and family for business deals – enforcement by law instead of informal arrangements (at best) or organized crime (at worst) But if formally organizing capital is so great how come we didn’t do it long ago? Because the US and Europe actually went through the same process of squatting, extra-legal arrangements and lawlessness that the 3rd world is currently experiencing – we just haven’t recognized those similarities Consider the US Even before independence squatters were considered a major problem and source of lawlessness – overlapping claims on land meant that ownership was rarely clear in the established colonies and frontier areas— So a pattern soon emerged of squatting soon emerged: 1) Squatters would move to an area and find an area they were interested in 2) They would enquire with neighbors and community leaders (legal or not) who “owned” that land (legal or not) 3) If “owned” it would be “purchased” or if unoccupied the land would be occupied -- the land would then be improved (fields cleared and plowed, pastures fenced, streams dammed, homes and barns built) 4) The limitations of this informal ownership would be understood as part of a local social contract that governs ownership, property transfers, inheritance, etc . . . (note that these agreements would often be written down, boundaries recorded, and conditions agreed upon locally, but not actually be part of governmental law) Enforcement would be informal, but certain Many of the founding fathers (including Washington and Jefferson) bemoaned what they saw as lawlessness and thievery and supported governmental action to uproot them -- Eventually (in 150 years or so) the state and federal government would recognize that ownership went to those who improved the land and who was locally recognized as the real owners – eventually the federal gov will actually get in front if the problem with the the 1862 Homestead Act which gives settlers (who used to be called squatters) the right to 160 acres of free land if they lived on the land and improved it for five years. This land would then be theirs with full legal title This slow process of recognizing these squatter rights that took the US 150+ years needs to be emulated in the 3rd world and former 2nd world How? Creating a simple process for registering ownership that takes into account the locally-established rules and boundaries while creating a unified, legal system. Local people really do know who owns what, no matter what the governmental documents say – the “barking dog” process of determining ownership Why the poor would want to do it? No longer have to fear the government shutting down your business or tearing down your home (no more bribing local officials) Can advertise businesses without fear Transactions can now be enforced by the courts Businesses can be centralized and expanded to take into account economies of scale Customer base goes from acquaintances to the whole world Why the elite would want to do it? Economy invigorated by millions of entrepreneurs who now want loans, insurance, legal advice, building supplies. These entrepreneurs are now paying taxes on wages and homes that had previously been untaxed. Lawlessness decreases as people begin living within the legal system instead of outside of it. Why he may be wrong Criticism from John Gravois, a staff reporter at the Chronicle of Higher Education, who writes on Slate.com that: Of the 200,313 Lima households awarded land titles (in 1998-1999) only 24 percent have gotten any kind of financing and almost all of that came from the government – Similar trends are reported in Turkey, Mexico, South Africa, and Columbia (Reason: Private banks see little desire to repossessing shanties in slums largely because the housing markets in those neighborhoods are stagnant.) · In Phnom Penh, Cambodia, the World Bank started a project to give titles to poor squatters in the center of the city – but before the titles could be awarded a series of slum fires and forced evictions ejected the squatters and the burned-out land passed immediately to rich land developers In the Philippines, speculators went out before titling programs went into affect and bought land from squatters for slightly higher than the informal prices and then waited for the lands value to leap when the titling programs went into affect – the squatters then move on, assuming that they will be able to just squat somewhere else, except that titling programs are making such squatting more difficult________________________________________ Other wrinkles in anti-poverty thought: Micro loans -- starting with the Grameen Bank in Bangladesh -- small loans (average is about $50 per person) are made to groups of entrepreneurs (usually women) who lack the credit rating or collateral that would allow them to get normal loans -- the money is then repaid with the promise of potentially larger loans as well as peer pressure from the group _______ New York Times columnist Nicholas Kristoff in his May 22, 2010 column "Moonshine or the Kids" argues that: There’s an ugly secret of global poverty, one rarely acknowledged by aid groups or U.N. reports. It’s a blunt truth that is politically incorrect, heartbreaking, frustrating and ubiquitous: It’s that if the poorest families spent as much money educating their children as they do on wine, cigarettes and prostitutes, their children’s prospects would be transformed. Much suffering is caused not only by low incomes, but also by shortsighted private spending decisions by heads of households. . . . . Two M.I.T. economists, Abhijit Banerjee and Esther Duflo, found that the world’s poor typically spend about 2 percent of their income educating their children, and often larger percentages on alcohol and tobacco: 4 percent in rural Papua New Guinea, 6 percent in Indonesia, 8 percent in Mexico. The indigent also spend significant sums on soft drinks, prostitution and extravagant festivals." Kristoff's solution? give aid money to women who are more likely to spend the money on children and the family ______ Other traditional culprits for global poverty Colonialism -- left behind broken countries with economies built on extraction of natural resources Protectionism -- the developed worlds protectionist trade practices (especially in agriculture) keep the poor poor Corruption -- corrupt third world governments squander aid and crush local entrepreneurs Capitalism -- A Marxist-Leninist critique is that capitalism survives by improving the life styles of Western workers by exploiting the third world
|
|
|