The Capitalist Cure for Terrorism

Mohamed Bouazizi who's immolation sparked the Arab Spring. He was a small businessman who had just been shut down by bureaucrats.
Mohamed Bouazizi, who’s immolation sparked the Arab Spring. He was a small businessman who had just been shut down by bureaucrats.

Hernando de Soto is one of my favorite economists. (Though as with almost anyone I disagree with him on some important points.) A champion of capitalism and everyday people he is my kind of guy.

His argument basically goes like this:

Poor people are shut out of economies. Cronyism and red tape make building businesses almost impossible. In many countries the poor remain permanently on the margins of society. The poor typically have no property rights (even if they’ve been on a piece of land for generations for instance) and enforceable contracts do not often exist. As a result this situation limits access to capital – no one will provide a loan on a piece of property for which there is no deed – which then keeps the poor poor.

This sadly this is exactly what the powers that be in many places, Latin America, the Arab world, South Asia, (the West?) want.

Capitalism and the rule of law challenges the staus quo. It creates avenues to power for the poor and middle class which challenge the crony class.

Socialism isn’t a revolutionary ideology. It’s actually just another way to keep the peasants in line. Give the peasants and proletariat a fair shake in a truly free market instead. THAT is revolutionary. And it is why throughout history despots and cronies of various kinds have so feared free enterprise.

(From The Wall Street Journal)

I know something about this. A generation ago, much of Latin America was in turmoil. By 1990, a Marxist-Leninist terrorist organization called Sendero Luminoso, or Shining Path, had seized control of most of my home country, Peru, where I served as the president’s principal adviser. Fashionable opinion held that the people rebelling were the impoverished or underemployed wage slaves of Latin America, that capitalism couldn’t work outside the West and that Latin cultures didn’t really understand market economics.

The conventional wisdom proved to be wrong, however. Reforms in Peru gave indigenous entrepreneurs and farmers control over their assets and a new, more accessible legal framework in which to run businesses, make contracts and borrow—spurring an unprecedented rise in living standards…

And de Soto argues that the Arab world is not so different from Peru. The poor yearn for a better life. A more economically prosperous life. But as in much of Latin America the poor are shut out of the economy, by design. This creates dangerous radicalization as people become desperate.

…These suicides, we found, weren’t pleas for political or religious rights or for higher wage subsidies, as some have argued. Bouazizi and the others who burned themselves were extralegal entrepreneurs: builders, contractors, caterers, small vendors and the like. In their dying statements, none referred to religion or politics. Most of those who survived their burns and agreed to be interviewed spoke to us of “economic exclusion.” Their great objective was “ras el mel” (Arabic for “capital”), and their despair and indignation sprang from the arbitrary expropriation of what little capital they had…

…Meanwhile, government inspectors made Bouazizi’s life miserable, shaking him down for bribes when he couldn’t produce licenses that were (by design) virtually unobtainable. He tired of the abuse. The day he killed himself, inspectors had come to seize his merchandise and his electronic scale for weighing goods. A tussle began. One municipal inspector, a woman, slapped Bouazizi across the face. That humiliation, along with the confiscation of just $225 worth of his wares, is said to have led the young man to take his own life.

Click here for the article.