Advertisement
YOU ARE HERE: LAT HomeCollections

The Rules of the Game

THE MYSTERY OF CAPITAL Why Capitalism Triumphs in the West and Fails Everywhere Else By Hernando de Soto; Basic Books: 276 pp., $27.50

GLOBAL CAPITALISM Edited by Will Hutton and Anthony Giddens; The New Press: 256 pp., $24.95

November 19, 2000|JOHN GRAY | John Gray is the author of "Two Faces of Liberalism" and professor of European thought at the London School of Economics

Only in the last two or three years has doubt about the future of global capitalism become respectable. Until 1998, the experts and pundits who advise governments and shape public opinion on the state of the world economy were uniformly ragingly bullish. There might be some turmoil in Asian currency markets, but it was nothing much to worry about. In Russia, lawlessness might be endemic, public services in ruins, life expectancy and the birthrate in free fall and the majority of the population immured in destitution, but none of this affected the consensus that the country was well on its way to making a successful transition to a Western-style market economy.

It was only when the Russian government defaulted on its foreign debts in the autumn of that year that doubts began to be felt. In the wake of the default came the collapse of a massively leveraged $100-billion hedge fund ironically calling itself Long Term Capital Management. For a while, the fund's meltdown may have put at risk the stability of the world's financial system--and it certainly cost a number of well-placed individuals and institutions some very serious money. From that moment onward, the project of building interconnected market economies throughout the world was no longer exempt from criticism.

Where political beliefs are concerned, events are always more compelling than arguments. Global capitalism has always been chiefly a political project. Only secondarily--and often at a long remove--is it a description of economic reality. Conceived in the shallow and ephemeral mood of triumph that followed the fall of the Berlin Wall, "global capitalism" stands for a world made over to match the beliefs and values that prevailed in a few Western countries, above all the United States, in the last decades of the 20th century. For its supporters, it is not any existing state of affairs but an ideal, a credo, virtually a religion. In "The Mystery of Capital," Hernando de Soto attempts to explain where the project of creating free markets throughout the world went wrong and suggests how it can be rescued from even more far-reaching failures.

De Soto denies that he views capitalism as a credo. But at the end of this impassioned and thoughtful yet narrowly focused and deeply simplistic book, he writes that for him freedom, compassion for the poor and equal opportunity are much more important than any free-market doctrine. He goes on to affirm that, for the time being at any rate, only capitalism allows these goals to be achieved. Like all true ideologues, De Soto displays an impressive freedom from doubt. Capitalism, he writes, is "the only game in town." In one broad and catholic sense, he is obviously correct. There are no longer two economic systems in the world, centrally planned and market-based, but only varieties of the latter.

In the conflict between central planning and market institutions, the market economies have won. But when he insists that there is no alternative to capitalism, De Soto is doing more than alluding to the fact that, outside of Cuba and North Korea, there are no more command economies. He is making an altogether more controversial claim. His clear message is that one particular variant of capitalism--roughly the free market type that exists in the United States at the present time--is the only way forward for developing societies throughout the world. It is impossible to draw any other conclusion from the book, if only because the history it draws upon is almost exclusively American. Other varieties of capitalism--German, Japanese or Taiwanese, for example--are barely mentioned. Though the point is never argued, it is taken as given that the only model worth considering is American. De Soto makes much of his Third World credentials as a Latin American activist and claims a universal significance for his insights, but there is nothing in his book that will not chime perfectly with the insular prejudices of American conservatives. As a result, the genuinely universal truths he restates are lost in a simple-minded paean to the free market.

De Soto argues that there is nothing in the cultures or histories of post-Communist and developing countries that would make capitalism unworkable in them. The most fundamental reason why capitalism has not been transplanted to many of them is because they have failed to put capital to work. (In this respect, he maintains, their condition does not differ greatly from that of most Western countries two centuries ago.) Countries such as Russia and Egypt have enormous assets, natural and human, but they have not converted them into capital. Their wealth is locked in "dead capital," much of it extra-legal--in land, houses and businesses that people possess but over which they cannot effectively exercise legal title.

Advertisement
Los Angeles Times Articles
|
|
|