From: Mark Steven Heyman (markheyman@infoproconsulting.com)
Date: Tue May 17 2005 - 07:23:27 BST
Hi Sam,
I'm not sure why I need to state my understanding of Capitalism, as
it is derived from Adam Smith and Karl Marx, but anything to make you
happy:
Capitalism is a socio-economic system in which the means of
production of essential goods and services are privately owned and
managed by individuals or small groups. By "means of production" I
mean land and its associated resources, both natural (water, soil,
oil, ore, etc.) and manufactured (plant and machinery). These
individuals leverage their ownership advantage into greater personal
wealth by producing essential goods and services and selling them for
profit, which is excess value produced through the exploitation of
labor, that is, by paying laborers less than the value of their work.
For the purposes of our discussion, I'll limit "essential goods and
services" to the following: access to clean water and clean air,
access at cost (or less if necessary) to basic food, shelter,
clothing, health care, police-fire-military services, infrastructure,
and standard utilities.
To use De Soto's lake analogy, the capitalist scenario is one in
which the lake and hydroelectric plant are privately owned and the
power thus generated is sold for more than its creation cost.
This "excess value" is then pocketed by the owners.
A non-capitalist alternative would be community ownership of the lake
and plant with the produced power sold to consumers at cost. Another
non-capitalist alternative would be community ownership of the land
and lake, with private development of the plant at private expense,
including fair rent paid to the landowners. As the private
developers would in this case have a monopoly over the production of
an essential service, the consumers of the service would determine
the fair profit due the developers.
Now...
msh before:
The question I'm hoping you'll ask yourself here is, if all de Soto
cares about is making sure that the title of the land is established
by law, so that the potential of it can be fixed, then why not opt
for common ownership of land via the State? Very simple, very easy
to administer. Then all those entrepreneurs who want to use their
genius to derive profit from the common lands need only pay fair rent
to the common owners.
See, I think all his talk about establishing clear title by law, is
really about securing private property rights for existing
landholders, while ignoring the moral dimensions of land ownership in
the first place.
sam:
That last sentence is why I think you have got completely the wrong
end of the stick regarding his analysis.
msh says:
But it's the FIRST sentence above that you need to answer. If De
Soto really does have at heart the best interest of the poor, why
would he advocate a system that requires private rather than
community ownership of land and resources? The vast majority of
people in so-called third-world countries don't own land.
sam:
De Soto's principal concern is that those activities of the poor
which are outside the capitalist framework are vulnerable to
predation by those with physical power. So for example, he runs
through various countries (Peru, Philippines, Egypt) describing the
economic size of the assets OF THE POOR and argues
msh:
This seems counter-intuitive, if not unintelligible. Who are these
poor people? Are you talking about squatters on public land, or
trespassers on private land?
de soto via sam:
"In every country we have examined, the entrepreneurial ingenuity of
the poor has created wealth on a vast scale - wealth that also
constitutes by far the largest source of capital for development.
These assets not only far exceed the holdings of the government, the
local stock exchanges and foreign direct investment; they are many
times greater than all the aid from advanced nations and all the
loans extended by the World Bank".
msh says:
As above, what does this mean? How did the poor come by these assets?
If they have created this vast wealth, what does it mean to call them
poor? Are these people producing essential goods and services for
profit, or are they merely self-sustaining?
sam via sam:
What happens is that those who have no legal title to that land are
a) prevented from using it as collateral to gain access to credit; b)
operate outside the law, and so have no protection from police and
other officials; c) are vulnerable to decisions by landowners and
governments to have their property and businesses destroyed without
compensation.
msh says:
But, see, all of this suggests that the answer to the problem is to
simply grant legal title to these once poor people who have, what,
somehow produced wealth by shall we say extra-legal means? As I said
before, still unanswered, this simply ignores the moral dimension of
private land ownership in the first place. If De Soto doesn't
address this issue, and simply assumes that private land ownership is
the best way to go, then he is not so tacitly embracing the
capitalist model without considering the alternatives.
So, what textual evidence do you have that De Soto has considered and
rejected the non-capitalist alternatives I suggested above?
sam:
I don't mean to be rude but THE WHOLE POINT OF WHAT DE SOTO IS
ARGUING FOR IS TO HELP THE POOR.
msh says:
Oh, go ahead and be rude. Just don't quote De Soto again, unless it
is to address my question, immediately above.
sam:
'll quote another paragraph from him: "The words 'international
poverty' too easily bring to mind images of destitute beggars
sleeping on the kerbsides of Calcutta and hungry African children
starving on the sand. These scenes are, of course, real, and millions
of our fellow human beings demand and deserve our help. Nevertheless,
the grimmest picture of the Third World is not the most accurate.
Worse, it draws attention away from the arduous achievements of those
small entrepreneurs who have triumphed over every imaginable obstacle
to create the greater part of the wealth of their society. A truer
image would depict a man and woman who have painstakingly saved to
construct a house for themselves and their children, and who are
creating enterprises where nobody imagined they could be built. I
resent the characterization of such heroic entrepreneurs as
contributors to the problem of global poverty. They are not the
problem. They are the solution."
msh says:
They are neither the problem nor the solution. They are the
exception. How did they acquire use of the land? And are their
efforts self-sustaining or for profit? That is, are they now
capitalists by the definition given at the start of this post? If
so, saying they are the solution is saying that capitalism is the
solution, which is precisely my point re De Soto. Why does he reject
the alternatives? Unless you can answer that question we really
won't get far in this discussion.
sam:
And before you get uptight about the reference to 'heroic
entrepreneurs' and think he's a closet Randian, a large part of his
research is about the steps you have to go through to either get a
business registered legally in Peru. <snip the stats> That's what
you need to do in Peru if you're going to be legal.
msh says:
Ok, so the bureaucracy is inefficient. Why? The state is in the
complicated position of having to monitor the status of private land
holdings and yet register and otherwise permit use of land for the
generation of private profit. Things are simplified tremendously if
all land is held in common, and people who wish to profit from it
simply pay fair rent to the common landowners.
sam:
Of course, the vast majority of the poor don't have the resources of
an academic department - if nothing else they're too busy earning a
living - but it means that all the activities that they undertake,
which generate wealth and support their existence, are vulnerable to
exploitation.
msh says:
But wealth is by definition more than what is necessary to support
one's existence. You and others tend to blur that distinction. This
is where the privitization of property for the generation of private
profit becomes an issue.
sam:
I can't think of a clearer example of moral conflict, which - using
Pirsig's hierarchy - the sense of capitalism that de Soto is talking
about is the major step that will safeguard all those people.
msh says:
But you haven't convinced me that De Soto's sense of capitalism is
fundamentally different to my own, as stated at the beginning of this
post. And history reveals that my sense of capitalism results in a
most inequitable distribution of our earth's common bounty.
So, maybe the best way to proceed is for you to try to persuade me
that I am mistaken in my evaluation of De Soto; but this means
addressing the primary issue, which is why he thinks private land-
ownership is necessary for the production of essential goods and
services.
I'll let you stew on this, and respond more, later. But, in my later
responses, I'll assume you understand my notion of capitalism as
presented above.
Best for now,
Mark Steven Heyman (msh)
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