Saturday, April 26, 2008

Musings on Capital, Property and Morals

I recently read Hernando de Soto’s The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, which has been one of the better decisions I’ve made in my quest for intellectual development. I highly recommend the book to anyone with an interest in the legal and economic basis of property rights, their historical development in the West or concrete strategies for helping developing nations.

(The book is also quite good for anyone under the mistaken opinion that the plight of the poor in the developing world is a result of the capitalist system. The perversions of capitalism under which power and property are monopolized by the rich and powerful through extensive government and bureaucratic force certainly have nothing to do with the spirits of freedom, entrepreneurship or capitalism.)

At any rate, as I neared the end of the book it occurred to me that comparing de Soto’s explanation of the failure of attempts to institute new property rights systems that aren’t in sync with the local informal systems to attempts to legislate morality might make the issue much clearer to those who hadn’t thought of it before.

Uncontroversial, effective law embodies the pre-existing values of society – opposition to theft and murder are good examples – and is almost universally followed.

Controversial and therefore oft-broken and ineffective laws usually try to impose a set of values not overwhelmingly held by society. In this category we see any number of attempts to prohibit consensual activities – probably the least controversial of which to address would be the tremendous failure of the prohibition of marijuana to stop or even significantly stem marijuana usage. Any number of public polls reveals why this law is so often broken – people don’t agree with it in the first place.

In The Mystery of Capital, de Soto alleges that the poor are not all without property as we often assume, and that in fact the majority of them have a great deal more property than we would expect - an estimated $9.3 trillion worldwide - including houses and businesses. This property is not legally owned, but held according to the social contracts of the communities in which they exist. These “extralegal” arrangements are not discovered or recorded by governments, let alone legislated, but they exist just the same.

The book argues (convincingly, in my opinion) that the secret to the economic progression and success of the developing world is the successful integration of these extralegal arrangements into cohesive legal property systems enforceable by higher levels of government. The fact that this has been successfully achieved only in the West explains “why capitalism triumphs in the West and fails everywhere else.”

The historical failure of attempts to legally integrate the poor of developing nations into national property rights systems is explained by governments that have attempted to mimic Western property rights systems without recognizing and incorporating the property systems already informally in place.

The West, de Soto alleges, was able to develop a socially accepted and therefore effective legal property system only over time, working through and then with the existing arrangements of extralegal property owners rather than against them. The purpose of government, after all, isn't to create property rights, but to protect them.

It doesn't take much of a stretch to see how the explanation of the failure of legal systems de Soto makes a case for appears to apply also to failed attempts to legislate morality, rather than to simply codify existing values into law.

Margaret Gruter, quoted from Law and the Mind in de Soto’s book, puts it very succinctly:
“Law is... not simply a set of spoken, written or formalized rules that people blindly follow. Rather, law represents the formalization of behavioural rules, about which a high percentage of people agree, that reflect behavioural propensities and that offer potential benefits to those who follow them. (When people do not recognize of believe in these potential benefits, laws are often disregarded or disobeyed.)”
and de Soto correctly observes that "if the legal system does not facilitate the people’s needs and ambitions, they will move out of the system in droves” and simply own homes and operate businesses illegally.

No comments: