The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else.

• Author: Werner, Louis
• Position: Review

The Mystery of Capital: Why" Capitalism Triumphs in the West and Fails Everywhere Else, by Hernando De Soto. New York: Basic Books, 2000.

The ideology of political economist Hernando De Soto, president of the Lima-based Institute for Liberty and Democracy, is not easy to classify by the predilections of those who champion his cause.

His first book, The Other Path, an analysis of the legal obstacles keeping black market economies from going mainstream, was heralded by political libertarians who believe no law is best. From the late 1980s to the early 1990s, his advice to Peruvian presidents Alan Garcia and Alberto Fujimori helped bridge the gap from the former's populism to the latter's shock therapy. By the end of the last decade, his institute's consulting work in developing countries on three continents had won plaudits from even the World Bank's most non-ideological technocrats.

More recently, De Soto's new book, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, a manifesto for the cause of expanded property registration among the poor, has been recommended by such doctrinaire advocates of unbridled global capitalism as the Wall Street Journal and the Economist.

But De Soto might surprise all these admirers if they were to read his tome's penultimate paragraph. "I do not view capitalism as a credo. Much more important to me are freedom, compassion for the poor, respect for social contract, and equal opportunity," he wrote, sounding more like Mother Theresa and her Little Sisters than Adam Smith and his booster club of bankers.

By virtue of his education and formative experience, De Soto should himself be such a booster. A veteran of an elite Swiss business school, banking job, and stint with an international trade organization, it was not until he strolled along Lima's narrow streets teeming with food vendors, gypsy bus drivers, and unlicensed money changers that he truly saw how the system worked--or in this case, did not work.

The proof was all over the sidewalk. These small-scale entrepreneurs did better--for their customers, who incidentally were just as likely to be rich as poor, as well as for themselves--by skirting authority rather than respecting it. So De Soto asked, instead of forcing them into regulatory straightjackets, why not loosen the collar? That way, entrepreneurship could go mainstream, adding to tax receipts and creating economic stability.

De Soto's latest project to expand...