Transcript: Hernando de Soto on Capitalism | Jun 09, 2001

A slate with two Doric columns reads "Hernando de Soto. 'The mystery of Capital: Why capitalism triumphs in the West and fails everywhere else.' Institute for Liberty and Democracy."

Hernando de Soto stands behind a green lectern on a small stage, and addresses an audience. He's in his late forties, balding, with a trimmed beard. He's wearing glasses, a black suit, white shirt, and red tie.

He says WELL, THANK YOU VERY
MUCH, ALL OF YOU,
FOR TURNING UP
TONIGHT.
THANK YOU FOR
YOUR KIND WORDS,
AMBASSADOR GOTLIEB
AND ROGER.
AND THANK YOU, OF
COURSE, TO THE DONNER
CANADIAN FOUNDATION FOR
HAVING INVITED ME OVER.
I'M GOING TO TALK TO YOU
ABOUT THE LAST BOOK,
THE MYSTERY OF CAPITAL,
BUT
TO SAY THAT IT'S NOT A BOOK
THAT I PUT TOGETHER IN A
LONELY ROOM LATE AT NIGHT,
IT'S THE RESULT OF THE
WORK OF MYSELF AND
MY COLLEAGUES IN DIFFERENT
COUNTRIES THROUGHOUT
THE LAST FIVE YEARS.
UP UNTIL ABOUT FIVE YEARS
AGO, CLOSER TO SIX NOW,
WE WORKED IN PERU,
ORIGINALLY AS A THINK TANK,
AND THEN GRADUALLY AS OUR
IDEAS OBTAINED ACCEPTANCE
BUT WEREN'T BEING
IMPLEMENTED,
WE THEN STARTED LEARNING
TO DRAFT LEGISLATION.
AND PASSING IT
THROUGH CONGRESS.
AND ONCE WE GOT OUR
LEGISLATION THROUGH CONGRESS,
WE STARTING SEEING THAT IT
WASN'T BEING IMPLEMENTED STILL.
AND SO THEN WE BECAME
IMPLEMENTATORS.
WE ARE A GROUP OF MANAGERS
AND WE STARTED DOING VARIOUS
PROJECTS IN PERU THAT HAD TO
DO WITH BRINGING THE POOR
OR THE EXTRA LEGAL ECONOMY
WITHIN THE FORMAL ECONOMY.
AND OF COURSE WE CAME OUT
WITH SOME TERRIBLE FIGURES
INDICATING THAT MOST PEOPLE
ACTUALLY HAD ASSETS BUT THAT
THEY WEREN'T ABLE TO ENTER
THE MAINSTREAM ECONOMY.
PEOPLE HAD HOMES BUT
DIDN'T HAVE TITLES.
PEOPLE HAD COMPANIES BUT
THESE COMPANIES COULDN'T
ISSUE SHARES AND COULDN'T
ISSUE COMMERCIAL PAPER.
IN OTHER WORDS, PEOPLE
HAD PHYSICAL ASSETS BUT
THEY COULDN'T USE THEM
AS COLLATERAL.
THEY COULDN'T PUT A
MORTGAGE ON THEIR HOUSES.
PEOPLE WERE NOT ABLE
TO OBTAIN CREDIT,
WERE NOT ABLE TO ISSUE
SHARES, OBTAIN INVESTMENT,
AND THEY COULDN'T
HOOK UP TO SERVICES
NOR SIGN LONG-TERM
CONTRACTS.
GRADUALLY THIS WORK BEGAN
GETTING FAMILIAR OUTSIDE
PERU AND WE STARTED GETTING
CALLS FROM DIFFERENT PLACES,
INCLUDING HEADS OF STATE,
SAYING WE'VE SEEN THAT
YOU'VE TALKED ABOUT HOW
IMPORTANT THE RULE OF LAW
IS TO CREATE A
CAPITALIST ECONOMY.
WE'RE ALL EMBARKED IN
IT BECAUSE IN EFFECT
SINCE 1989 AND THE COLLAPSE
OF THE BERLIN WALL,
ALL OF US DEVELOPING NATIONS
AND FORMER SOVIET UNION
COUNTRIES HAVE BEEN TRYING
TO WORK OUR WAY TOWARDS
SOME KIND OF A
CAPITALIST REGIME.
WE'VE BEEN STABILIZING
OUR CURRENCIES.
WE HAVE BEEN INTRODUCING
EQUILIBRIUM
IN OUR FISCAL ACCOUNTS.
WE HAVE BEEN PRIVATIZING
AND PEOPLE ARE MARCHING,
NOT ONLY ARE THEY MARCHING
OF COURSE IN QUEBEC
AND ELSEWHERE - THAT
WORRIES ME MUCH LESS -
THEY'RE MARCHING
BACK HOME.
AND THIS ALREADY BEGAN SOME
FOUR OR FIVE YEARS AGO,
AND SO THERE WAS CONCERN
AND THE THING IS,
IT SEEMED TO HAVE STARTED
BEING SUCCESSFUL IN SOME AREAS
IN PERU WHICH ARE NO
LONGER EXPLOSIVE IN SPITE
OF THE FACT THAT WE'VE HAD
A STRONG MAOIST MOVEMENT,
COME TO US TO
TALK ABOUT IT.
SO WHAT WE DID WAS WE PUT
TOGETHER A BUSINESS PLAN.
SINCE BY ABOUT 1995 FUJIMORI
HAD MADE SURE THAT WE COULD
NO LONGER WORK WITHIN
PERU AND WE SAID THE ONLY
SOLUTION IS WORKING OUTSIDE
BECAUSE WE DON'T LIKE TO THINK,
WE LIKE TO DO, OR
RATHER WE THINK WHILE DOING
AND THAT'S THE ONLY WAY WE
STARTED GETTING RESULTS.
SO ONE OF THE FIRST
CALLS THAT WE GOT,
WHICH WAS FROM EGYPT,
FROM PRESIDENT MUBARAK,
WAS RESPONDED BY SAYING, WE
WILL NOT GO TO EGYPT TO TALK
TO YOU ABOUT WHAT WE FOUND
OUT IN PERU BECAUSE
WE KNOW HOW THAT'S
GOING TO WORK.
YOU'RE GOING TO LISTEN TO
US AND YOU'RE GOING TO SAY,
OH, THOSE POOR PERUVIANS.
WE THINK IT'S BAD IN EGYPT,
BUT CERTAINLY NOT THAT BAD.
SO THE ONLY WAY WE'RE GOING
TO MAKE SURE THAT WE ARE
UNDERSTOOD IS IF WE FIND OUT
WHAT'S GOING ON IN EGYPT AND
IN OTHER COUNTRIES, AND THEN
FIND OUT TO WHAT DEGREE
THE LARGE BLACK MARKETS THAT
WE HAVE IN OUR COUNTRY
ARE A CULTURAL PHENOMENON
OR THEY'RE A UNIVERSAL
PHENOMENON, OR A VERY
FAMILIAR PHENOMENON
TO MOST OF THE WORLD.
THAT IS TO SAY, THE
5 BILLION DOLLARS PEOPLE
OUT OF THE 6 BILLION DOLLARS,
WHICH WE ARE IN THIS WORLD,
THAT ARE NOT IN THE
DEVELOPED WORLD.
THE FORMER SOVIET
UNION COUNTRIES AND
THE DEVELOPING COUNTRIES.
AND SO WE STRUCTURED OUR
SELF IN SUCH A WAY THAT
WE PUT UP 150,000 dollars TO START
OFF WITH FROM DONATIONS
WE OBTAINED, AND
THE GOVERNMENT,
THE RECEIVING GOVERNMENT
GOT ANOTHER 150,000 dollars
AND WITH THOSE 150,000 dollars
WE WOULD THEN DO
THE FIRST STAGE OF OUR
PROGRAM ABROAD.

A caption appears on screen. It reads "Hernando de Soto. 'Mystery of Capital.' Institute for Liberty and Democracy."

Hernando continues WE'RE NOW WORKING
IN FIVE COUNTRIES.
HOPEFULLY WE'LL BE IN
TEN COUNTRIES BY THE END
OF THE YEAR, IS
THE DIAGNOSIS.
IN OTHER WORDS, HOW BIG IS
THE BLACK MARKET SECTOR?
SO TO USE EGYPT AS AN
EXAMPLE SO WE GET QUICKLY
INTO A SENSE OF
THESE DIMENSIONS,
WE INTRODUCED THE FINDINGS,
OUR RESULTS ABOUT 1997
TO THE PRESIDENT.
USUALLY THIS IS IN
ABOUT FOUR VOLUMES.
AND FOR THE PRESIDENT -
HEADS OF STATE
DON'T HAVE MUCH TIME -
JUST ONE PAGE.
AND ONE PAGE WITH
FOUR DRAWINGS.
AND THE FOUR DRAWINGS
WHICH YOU WILL SEE ARE
THE FOLLOWING ONES WHICH I
WILL DESCRIBE AS WE GO ALONG.
THE FIRST THING
THAT WE TALK ABOUT
IS NOT THE BLACK
MARKET IN ITS TOTALITY,
BECAUSE MUCH OF THE BLACK
MARKET OF COURSE IS INSIDE
BUILDINGS AND YOU CAN'T
SEE WHAT PEOPLE
ARE DOING IN
THEIR HOMES.
BUT THE HOME IS SOMETHING
YOU CAN LOOK AT.
YOU CAN TAKE YOUR
LIMOUSINE ACROSS TOWN
AND YOU SEE THE HOUSES
AND THEY'RE ON MAPS.
AND THEREFORE ONE OF THE
FIRST THINGS WE SHOW,
THE FIRST DRAWING IS
A MAP OF THE CITIES.
HERE WHAT YOU'VE GOT IN
FRONT OF YOU IS A MAP OF CAIRO.

As he speaks, unintelligible slides appear on a projection screen behind him.

He continues AND, OF COURSE, ANYBODY
AND EGYPTIANS IMMEDIATELY
UNDERSTOOD THAT
THAT WAS CAIRO.
THERE WAS THE NILE, BUT
THEY DIDN'T UNDERSTAND,
WHAT WERE THESE
COLOUR CODES.
WE SAID, WELL YOU WILL
SEE THAT THERE
ARE NINE COLOURS THERE.
THESE ARE THE NINE DIFFERENT
WAYS THAT EGYPTIANS HAVE
OF HOLDING ONTO THEIR
ASSETS EXTRALEGALLY:
OUTSIDE THE LAW.
AND IT SEEMS TO TAKE
MOST OF CAIRO UP
AND IT'S TRUE, IT DOES.
THEY CORRESPOND TO DIFFERENT
CATEGORIES OF BUILDINGS THAT WE,
AS MATTER OF FACT, HAD
TO CONSTRUCT ALONG THE WAY.
HERE YOU'VE GONE THE NINE,
AND YOU WILL SEE ON
THE EXTREME LEFT BUILDINGS
ON AGRICULTURAL LAND.
AT THAT TIME, OF COURSE, THE
EGYPTIAN AUTHORITY SAID,
SOMETHING WE ALL
KNEW, WHICH WAS,
IT IS FORBIDDEN TO BUILD
ON AGRICULTURAL LAND.
WE ONLY HAVE ONE RIVER
AND WE DON'T HAVE MUCH OF
AGRICULTURAL LAND AND THAT'S
WHY WE'VE GOT IT IN
THE CONSTITUTION; SO IT'S
NOT ONLY EXTRALEGAL,
IT'S UNCONSTITUTIONAL.
AND WE ALL
AGREED ON THAT.
HOWEVER, WE ALSO WENT AND
COUNTED THE BUILDINGS ONE
BY ONE, AND AFTER ONE YEAR
WE CAME TO THE CONCLUSION
ABSOLUTELY RIGID CONCLUSION
THAT THERE WERE 4,700,000
BUILDINGS ON
AGRICULTURAL LAND.
SO THEN WE STARTED GETTING
AN IDEA OF THE DIMENSIONS.
AND EGYPT WAS NOT THAT
DIFFERENT FROM PERU.
AND IT WAS NOT THAT
DIFFERENT FROM EL SALVADOR
WHICH WE'VE ALSO WORKED IN,
AND NOT THAT DIFFERENT
FROM MEXICO, SO WE WERE
SHARING SOMETIMES GOOD NEWS,
SOMETIMES BAD NEWS.
THEN A QUESTION
CAME BY AND SAID,
WELL HOW ABOUT THOSE PUBLIC
BUILDINGS IN THE MIDDLE?
YOU CAN'T TELL US THAT
THOSE PUBLIC BUILDINGS,
THAT'S PUBLIC HOUSING BUILT
BY THE EGYPTIAN GOVERNMENT,
ARE EXTRALEGAL;
AND WE SAID, YES,
BUT YOU MUST REMEMBER
THAT WHEN YOU BUILT THOSE
PARTICULAR BUILDINGS, THEY
HAD THREE STOREYS HIGH
AND YOU SEE ACCORDING TO THE
PHOTOGRAPH THAT THEY
ARE SEVEN STOREYS HIGH.
SO THE BIG QUESTION IS
WHO BUILT THE NEXT FOUR?

[laughter]

Hernando continues AND THEN WE STARTED FINDING
OUT THAT THE PEOPLE WHO
BUILT THE FIRST THREE -
THE PEOPLE WHO STARTED
INHABITING THE FIRST THREE
WERE NOT ONLY PEOPLE
THAT LIKE HOUSING, THEY
WERE ALSO ENTREPRENEURS.
AND SO ON THE BASIS OF THE
FIRST PROPERTY RIGHTS THEY GOT,
THEY STARTED BUILDING
THE FOUR NEXT PROPERTY RIGHTS
AND PROBABLY FOUND THAT
IT WAS GOOD BUSINESS
SO KEPT ON MOVING
TO OTHER PLACES.
THE RESULT OF COURSE IS
IF YOU TAKE THE EGYPTIAN
RECORDS, YOU WILL CERTAINLY
NOT KNOW WHO LIVES WHERE.
YOU KNOW WHERE THE HOUSES
ARE BUT YOU DON'T KNOW WHO'S
IN THERE BECAUSE THAT WAS
SETTLED ALL OUTSIDE THE LAW.
THE IMPORTANT FINAL
CONCLUSION ABOUT ALL OF THIS
IS THAT WHEN YOU ADD ALL OF
THESE DIFFERENT HOMES UP,
THEY ADD UP TO
ABOUT 241 BILLION DOLLARS.
241 BILLION DOLLARS OF HOMES THAT
WE CALL DEAD CAPITAL BECAUSE
IT CAN'T BE USED
AS MORTGAGES.
THEY CAN'T BE USED EVEN
JUST TO APPROACH A BANK.
THE FIRST THING THAT A BANK
ASKED YOU IS WHAT'S YOUR NAME?
AND THE SECOND THING IT ASKS
YOU IS WHERE DO YOU LIVE?
AND IF YOU DON'T HAVE
AN EXTRALEGAL ADDRESS,
YOU'RE AN OUTLAW.
ONE DEFINITION OF AN
OUTLAW IS SOMEBODY WITHOUT
A KNOWN ADDRESS AND
THEREFORE YOU CAN'T APPROACH
THE FORMAL SYSTEM.
SO HOW MANY PEOPLE LIVE IN
THIS CONDITION IN EGYPT?
THE REPLY IS, 92 PERCENT
OF THE URBAN PEOPLE AND
83 PERCENT OF THE PEOPLE
IN THE RURAL AREAS.
ONE PIE THAT ISN'T IN THERE
IS HOW MANY OF THE PEOPLE -
HOW MANY OF THE
ENTREPRENEURS OF EGYPT WORK
OUTSIDE THE LAW - IT'S A
LITTLE BIT HIGHER THAN PERU -
IT'S 88 PERCENT.
BUT THE INTERESTING FACT IS
HOW MUCH IS 241 BILLION DOLLARS
JUST IN THE HOUSING?
WE'RE NOT EVEN TALKING ABOUT
THE VALUE OF THE BUSINESSES,
THE MACHINERY, THE CARS,
THE TAXIS, THE BUSES,
THE TRUCKS, JUST
THE REAL ESTATE.
WELL 241 BILLION DOLLARS IS 30
TIMES THE SIZE OF THE CAIRO
STOCK EXCHANGE AND IT IS
55 TIMES HIGHER THAN ALL
FOREIGN INVESTMENT IN EGYPT
OVER THE LAST 200 YEARS
INCLUDING THE ASWAN
DAM AND THE SUEZ CANAL.
SO THE QUESTION WE TOLD
EGYPTIAN AUTHORITIES THAT
THEY MUST ASK THEMSELVES,
WHICH IS THE ONE THAT
WE ALSO TELL OF COURSE
LATIN AMERICAN READERS IS,
ARE THE POOR THE PROBLEM OR
ARE THE POOR THE SOLUTION?
BECAUSE THEY SEEM TO HAVE
DONE A LOT OUTSIDE THE LAW,
BUT ALL THEIR ASSETS
ARE DEAD CAPITAL.
THEY CAN'T BE LEVERAGED AND
OF COURSE THEY CERTAINLY
CAN'T BE GLOBALIZED, SO
HOW DO YOU EXPECT THEM
TO SYMPATHIZE WITH
SOMETHING THAT THEY
DO NOT PARTICIPATE IN.
A IMMEDIATE REACTION TO
THESE KIND OF FIGURES
IS OF COURSE THIS
MUST BE CULTURAL.
YOU BROWN PEOPLE
ARE DIFFERENT.
AND YOU JUST DON'T
LIKE THE LAW.
AND THE REPLY TO THAT IS,
WELL, YES, IT COULD BE TRUE.
I CAN'T DENY THAT;
IT COULD BE TRUE.
BUT BEFORE WE FIND
OUT FOR CERTAIN,
MAYBE WE SHOULD SEE WHAT
THE IMPACT OF THE LAW
IS ON COUNTRIES
LIKE OURS.
SO ONE OF THE THINGS WE DO
AS PART OF THE EXERCISE
OF DIAGNOSTIC OR WHAT
WE CALL THE ASSESSMENT
IN EACH DEVELOPING COUNTRY
WE WORK INTO IS MEASURE
THE IMPACT ON THE LAW OF
THE LAW ON POOR PEOPLE.
IN OTHER WORDS, NOT ONLY
SEE THE LAW ON THE BOOKS,
BUT SEE THE LAW AS IT
IMPACTS DAILY LIFE AMONG
COMMON PEOPLE, AND WE
DO THIS THROUGH
A VARIETY OF MEANS.
ONE OF THEM IS SIMULATIONS,
AND THE OTHER ONE
IS WHAT WE LEARNED FROM
ANTHROPOLOGISTS OVER TIME,
WHICH IS LEARN TO LIVE WITH
POOR PEOPLE UNTIL SOMEBODY
WHO'S ACTUALLY TRIED TO
DO IT GIVES YOU THE LEGAL
INFORMATION YOU CAN
PIECE IT TOGETHER.
IT TAKES A LOT OF TIME.
YOU HAVE TO BUILD
CONFIDENCE.
NOT EVERYBODY
LIKES TO TALK.
SO IN THE CASE OF EGYPT, WE
SAW THAT LIKE US PERUVIANS
THEY HAVE A LOT OF SAND
DUNES, BUT MUCH MORE.
SO THE QUESTION IS, WHAT
HAPPENS IF SOMEBODY DOESN'T
WANT TO GET CLOSE TO THE
NILE AND THEY JUST WANT
TO BUILD A HOUSE
ON A SAND DUNE?
AND THE QUESTION THEN IS,
HOW MUCH TIME DOES IT GET
THEM TO OBTAIN AUTHORIZATION
TO BUILD A HOUSE
AND WHAT REQUIREMENTS
ARE NECESSARY?
AND THE REPLY IS THAT
IT REQUIRES THEM
77 BUREAUCRATIC STEPS,
CONTRACTS WITH GOVERNMENT,
AND THEY HAVE TO GO VISIT
31 GOVERNMENT AGENCIES
AND THE WHOLE PROCESS
TAKES 17 YEARS,
WORKING EIGHT HOURS A DAY,
WHICH IS A LOT BETTER
THAN PERU - WHICH IS
WHERE WE STARTED OFF -
WHICH IS 21 YEARS AND
CERTAINLY A LOT BETTER
THAN THE PHILIPPINES,
WHICH IS 54 YEARS.
SO WHAT WE DO KNOW FROM OUR
WORK ABROAD IS THAT THE LAW
IN DEVELOPING COUNTRIES IS
REALLY THE WORST FEATURE
OF UNDERDEVELOPMENT.
THAT IS TO SAY THE
SOCIAL CONTRACT,
THE WAY PEOPLE ARE ORGANIZED
TO TRY AND CREATE A MARKET
ECONOMY IS TERRIBLE AND
NOBODY IS GOING TO SUCCEED
AT CAPITALISM OR VERY FEW
PEOPLE WHILE THIS STATE
OF AFFAIRS GOES ON.
SO IT'S NOT A QUESTION
OF SAYING WE'RE GOING TO
EDUCATE THEM MORE, WE'RE
GOING TO GIVE THEM
MORE MICRO-FINANCE.
WE'RE GOING TO GIVE
THEM EDUCATION
THROUGH TELEVISION.
IT'S NOT GOING TO WORK
BECAUSE ESSENTIALLY
CAPITALISM - ESSENTIALLY
CAPITALISM AND A MARKET
ECONOMY IS A
LEGAL CONSTRUCT.
IT IS FIRST AND FOREMOST
A LEGAL CONSTRUCT.
IT'S LIKE A FOOTBALL GAME.
IT'S THE RULES.
YOU TAKE AWAY THE RULES
AND YOU DON'T HAVE A GAME.
IF ONE TEAM HAS 11 PLAYERS
AND THE OTHER ONE HAS 42,
IT'S NOT GOING
TO BE FAIR.
IF SOMEBODY CAN MAKE A
GOAL WITH THEIR HAND
AND THE OTHER PERSON CAN
ONLY DO IT WITH A LEG,
IT'S NOT GOING TO
BE FAIR.
THE RULES ARE WHAT MAKE
CAPITALISM WORK AND TO START
OFF WITH THE RULES OF THE
GAME IN DEVELOPING
NATIONS JUST AIN'T
WORKING.
JUST AREN'T IN PLACE.
WHAT HAPPENED, WE THINK,
IS THAT SINCE THE SECOND
WORLD WAR MOST POOR PEOPLE
WEREN'T IN THE SCENE.
THEY WERE IN THE
HINTERLAND.
YOU LEARNT ABOUT THEM LIKE
I DID THROUGH
NATIONAL
GEOGRAPHIC
MAGAZINE AND
TODAY THE DISCOVERY CHANNEL.
THEY WERE DIFFERENT.
BUT WHAT HAS HAPPENED SINCE
THEN IS THAT THESE PEOPLE
OVER THE LAST 40,
50 YEARS HAVE MOVED.
AND THEY'VE MOVED TO THE
CITIES AND THEY'VE MOVED
TO BIGGER CONCENTRATIONS, BOTH
IN THE FORMER SOVIET UNION
AND IN DEVELOPING
COUNTRIES AND THE LAW
WASN'T READY FOR THEM.
AND SINCE THE SYSTEMS TO
CREATE DEMOCRACY DID NOT
FEEDBACK FROM PEOPLE, WE
KEPT THE OLD STRUCTURES
WITHIN WHICH BOURGEOISIES
AND OLIGARCHIES WERE FAMILIAR,
BUT THEY WERE NOT
SUITABLE FOR PEOPLE.
THIS IS THE ONLY WAY THAT
YOU CAN ACTUALLY EXPLAIN
WHY SO MANY PEOPLE ARE
OUTSIDE THE SYSTEM.
BUT IT ISN'T ONLY
A PROBLEM OF COMING,
ENROLLING IN THE SYSTEM.
IT'S ALSO THAT IF
YOU DON'T HAVE PAPER,
IF YOU ARE NOT
WITHIN THE SYSTEM,
THERE'S A LOT OF THINGS
THAT YOU CANNOT DO
IN THE WIDER MARKET.
YOU MAY REMEMBER THAT WHEN
THE FIRST REAL ECONOMISTS
STARTED APPEARING
IN THE 18TH CENTURY,
START OFF WITH ADAM SMITH,
THEY SAID THAT THE REASON
WHY THE MARKET ECONOMY WAS
GOING TO WORK AND WHY
IT WAS GOING TO PRODUCE
ENORMOUS AMOUNTS OF WEALTH,
THE WEALTH OF NATIONS, WAS
BECAUSE THERE WAS GOING
TO BE A DIVISION
OF LABOUR.
PEOPLE WERE GOING TO GO FROM
WORKING ON A SMALL SCALE
WHERE YOU BUILT
YOUR OWN HOUSE,
YOU MILKED YOUR OWN COW,
YOU SOWED YOUR OWN CROPS,
TO A SYSTEM WHERE EVERYBODY
WOULD BE SPECIALIZING.
THIS WOULD INCREASE THE
PRODUCTIVITY AND THEN
HE TALKED ABOUT A PIN FACTORY,
HOW PEOPLE THEN COULD BE
MORE PRODUCTIVE, AND BECAUSE
THEY WERE CAPABLE OF
INTERCHANGING, THE WHOLE OF
SOCIETY WOULD WORK AS ONE
AND PRODUCTIVITY
WOULD INCREASE.
MARX DIDN'T DISAGREE.
HE ALSO AGREED THAT DIVISION
OF LABOUR WAS IMPORTANT.
BUT BOTH OF THEM DIDN'T GIVE
MUCH TIME TO TALK ABOUT
THE ROLE OF THE LAW, AND
THIS IS OF COURSE NATURAL
BECAUSE IT WAS STILL AN
INCIPIENT MATTER THEN
AND THEY MADE ENORMOUS PROGRESS
FOR ALL OF US TO BENEFIT
FROM MANY HUNDREDS
OF YEARS LATER.
BUT IT WAS OBVIOUS THAT A
LOT OF THE TRANSACTIONS
WE CARRY OUT, OR MAYBE YOU
WESTERNERS CARRY OUT
THROUGHOUT THE DAY, ARE
POSSIBLE TO DO THEM ON
A WIDE SCALE WITH CANADIANS
YOU'VE NEVER KNOWN,
WITH OTHER U.S. CITIZENS
YOU'LL NEVER MEET.
WITH DANISH PEOPLE YOU'LL
NEVER EVEN HEARD OF,
BECAUSE ESSENTIALLY
EVERYTHING IS DOCUMENTED.
EVERYTHING IS
REPRESENTED.
AND LET ME TELL YOU
WHY THAT'S IMPORTANT.
YOU MAY HAVE NOTICED
THAT I CAME ONTO
THIS LECTERN WITH A
LITTLE APPLE.
THAT APPLE, AS YOU MAY HAVE
ALSO NOTICED, IS MY APPLE,
AND I KNOW THAT THE
AMBASSADOR GOTLIEB HAS SEEN
THAT AND I KNOW HE'S GOING
TO SAY THAT IT IS MY APPLE.
AND IT'S IN THE BILL OF THE
HOTEL ROOM THAT I ACTUALLY
ASKED FOR AN APPLE TO BE
BROUGHT UP AND I KNOW THAT
ROGER'S ALSO GOING TO
AGREE THAT IT'S MY APPLE.
BY NOW YOU ALL ARE
CONVINCED IT'S MY APPLE
AND THE QUESTION IS, BY
LOOKING AT THE APPLE,
YOU'RE NOT GOING TO FIND
BECAUSE THERE'S NOTHING
ON THE APPLE THAT
SAYS IT'S MY APPLE.
SO AN APPLE IS MY APPLE
BECAUSE THERE'S A SOCIAL
CONTRACT, AN AGREEMENT
BETWEEN ALL THE MINDS HERE
THAT IT IS MY PROPERTY.
IN OTHER WORDS, PROPERTY IS
NOT SOMETHING PHYSICAL.
PROPERTY IS THE RESULT OF
A MENTAL PROCESS
WHEREBY WE ALL AGREE THAT
THIS BELONGS TO ME.
SO IF I DON'T HAVE A PIECE
OF PAPER THAT SAYS THAT THIS
BELONGS TO ME, THIS MAY NOT
BELONG TO ME EXCEPT
IN A TRIBAL SOCIETY, WHICH
IS WHAT WE ARE THIS EVENING,
WHERE WE ALL AGREE
THAT IT'S MY APPLE.
BUT IN A MORE COMPLEX MARKET
ECONOMY, THAT ISN'T AROUND.
THEREFORE THERE IS NO PIECE
OF PAPER THERE OR THERE
IS NOTHING IN THE APPLE
THAT SAYS WHO OWNS IT,
WHETHER I BOUGHT IT,
WHETHER I'VE PAID FOR IT,
WHETHER I'VE ALREADY PAID
SOME OF THE INSTALLMENTS.
WHETHER I CAN RENT IT.
WHETHER I CAN
PLEDGE IT.
WHETHER I CAN
TRANSFER IT.
WHETHER THE
NEIGHBOURS WILL ABIDE.
WHETHER ONE WAY OR
ANOTHER I CAN USE IT
AS COLLATERAL - NOTHING.
BECAUSE THAT REALITY IS
AN INTANGIBLE REALITY.
AND AS YOU WESTERNERS OVER
TIME HAVE DEALT WITH
THESE PROBLEMS, ESPECIALLY
OVER THE LAST 300 YEARS,
YOU HAVE LEARNED TO ACTUALLY
CERTIFY OWNERSHIP AND
PUT IT IN LEDGERS AND PUT
IT IN PROPERTY TITLES
AND ORGANIZE SOMETHING THAT
YOU CALL PROPERTY RIGHTS.
AND IT IS IN THAT WORLD OF
PROPERTY RIGHTS THAT IS NOT
THE RIGHT OF PHYSICAL GOODS,
BUT IS OUR RIGHTS THAT
TRAVEL ON PAPER, THAT YOU
HAVE MANAGED TO CREATE
A REALITY THAT EVEN
GOES BEYOND OWNERSHIP.
A REALITY OF THE MINDS WHERE
THINGS ACTUALLY ARE ABLE
TO CAPTURE ADDITIONAL
VALUE THAT IS NOT OBVIOUS
BY LOOKING AT THE
PHYSICAL OBJECT.
FOR EXAMPLE, AT THIS VERY
MOMENT IN THIS ROOM
THERE IS UKRAINIAN TELEVISION
AND BRAZILIAN TV.
YOU KNOW THERE IS BECAUSE
YOU KNOW THAT IF I ACTUALLY
BRING A TV SET HERE AND
IF I BRING SOME KIND OF
A SATELLITE DISH, WE'RE GOING
TO BE ABLE TO HEAR IT.
AND WE ALL KNOW THAT IT
ISN'T THAT I SENT A MESSAGE
TO THE UKRAINE OR I SENT
A MESSAGE TO BRAZIL,
IT'S THAT IT IS HERE.
SO THERE ARE MANY THINGS
AROUND US THAT ARE THE RESULT
OF SOCIAL BEHAVIOUR
THAT CANNOT BE CAPTURED
UNLESS YOU HAVE
INTERMEDIATING DEVICES.
AND THESE INTERMEDIATING
DEVICES WE INSIST SINCE
WE HAVE SEEN THE SIDE OF THIS
ARGUMENT FROM THE SIDE
OF THE POOR IS PRECISELY
WHAT IS MISSING
IN DEVELOPING COUNTRIES.
THE FACT THAT THEY DON'T
HAVE PROPERTY SYSTEMS MEANS
THAT MANY OF THE VALUES
ASSOCIATED BY THE APPLE THAT
RESPOND TO OUR FEELINGS
AND OUR SENTIMENTS AND OUR
THOUGHTS ON THE APPLE
CANNOT BE CAPTURED,
ORGANIZED, AND CONCRETIZED.
IN OTHER WORDS, VALUE IS
NOT IN THE PHYSICAL FEATURE
OF THE APPLE, BUT ITS
FUNCTION AND ITS DIFFERENT
STATUSES ARE SET
BY THE APPLE.
FOR EXAMPLE, AT THIS MOMENT
THIS APPLE IS AN APPLE THAT
CAN BE EATEN, BUT THE MOMENT
THAT I PLACE IT ON THAT PIECE
OF PAPER, THE APPLE HAS
OBTAINED A NEW FUNCTION,
WHICH IS THAT OF
BEING A PAPERWEIGHT.
THINGS OBTAIN FUNCTIONS
ACCORDING TO OUR MINDS
AND HOW WE ARRANGE THEM.
NOW SOMETIMES THIS
IS HARD TO BELIEVE
BUT I CAN BE
VERY CONCRETE.
BACK IN PERU ONE OF THE
THINGS WE STARTED
IN THE EARLY '90s WAS A
PRIVATIZATION PROCESS.
AND THE WHOLE PRIVATIZATION
PROCESS WAS OF COURSE PART
OF THE MACRO ECONOMIC
ADJUSTMENT PROGRAM WHEREBY
GOVERNMENT WAS GOING TO GET
RID OF THOSE ENTERPRISES
THAT IT COULD NOT RUN AS
WELL AS THE PRIVATE SECTOR.
BUT THE FIRST THING THAT WE
REALIZED AS WE WENT INTO
THE PRIVATIZATION PROCESS IS
THAT NOBODY WANTED TO BUY
THE COMPANIES BECAUSE
THEY WERE BADLY TITLED.
IN OTHER WORDS, THERE WAS A
PERUVIAN TELEPHONE COMPANY,
FOR EXAMPLE, AND IT WAS
WORTH IN THE STOCK MARKET,
BECAUSE THE TELEPHONE
USERS WERE THE OWNERS,
ABOUT 57 MILLION DOLLARS.
AND WE REALIZED THAT
NOBODY, AT and T, TELEFONICA,
BELL SOUTH, NONE OF THEM
WANTED TO BUY IT UNTIL
IT WAS PROPERLY TITLED.
THEY WEREN'T INTERESTED
IN PHYSICAL OBJECT.
THEY WERE ALSO
INTERESTED IN THE TITLES.
AND THEREFORE WE SPENT
THREE YEARS TITLING
ALL OUR PROGRAMS.
THAT'S WHAT THE FIRST STAGE
OF PRIVATIZATION CONSISTS OF.
IT MEANS THAT FIRST OF ALL
WE ARE ABLE TO ORGANIZE
THE INFORMATION IN SUCH A WAY
THAT EVERYBODY CAN READ IT.
KNOWLEDGE BY DESCRIPTION IS
WHAT BERTRAND RUSSELL
WOULD HAVE CALLED IT, AS
OPPOSED TO KNOWLEDGE
BY ACQUAINTANCE, WHICH IS
WHEN YOU PHYSICALLY
TOUCH SOMETHING.
KNOWLEDGE BY DESCRIPTION IS
THE WAY OF ORGANIZING THINGS
SO THAT YOU CAN PROCESS IT
WITH MUCH MORE SECURITY.
A SIMPLE EXAMPLE IS THAT
WHEN I JUST GOT INTO CANADA,
THEY SAID,
WHO ARE YOU?
I'M HERNANDO DE SOTO, LET ME
START TALKING ABOUT MYSELF.
AND THEY SAID,
FORGET THAT.
GIVE ME THE
DESCRIPTION.
SO I TOOK OUT MY PASSPORT
AND THEN I FOUND OUT THAT
MY IDENTITY WASN'T IN MY
BODY, IT WAS IN MY PASSPORT.
AND WHAT HAPPENS IN THE
WEST, IF YOU THINK ABOUT IT,
IS THAT EVERYTHING THAT YOU
OWN, FROM YOUR BICYCLES UP,
ARE ORGANIZED IN THE WORLD
BY DESCRIPTION WHICH
IS A SEPARATE MENTAL WORLD
THAN THE WORLD OF PHYSICS,
EVEN THE ONE OF PEOPLE.
AND THINGS AND IDEAS TRAVEL
WITH PASSPORTS AND WE DON'T
HAVE PASSPORTS FOR OVER
90 PERCENT OF THE THINGS
THAT WE PRODUCE IN
DEVELOPING COUNTRIES
AND THE THESIS GOES THAT
THAT'S WHY WE ARE POOR.
BUT LET COME BACK AGAIN TO
THE PRIVATIZATION PROCESS.
THE FACT IS, WE
SUBMITTED TO RULES.
WE ABIDED BY
THE RIGHT RULES.
WE ALSO DID SOMETHING VERY
IMPORTANT DEMOCRATIC,
WHICH IS, WE WENT TO TALK TO
ALL THE POSSIBLE BUYERS
OF THE COMPANY, FOUND
OUT HOW THEY WERE ABLE
TO RECOGNIZE OWNERSHIP.
HOW THEY WERE ABLE TO
SATISFY OR BE SATISFIED
BY RULES THAT WE
COULD ABIDE WITH.
WE FOUND OUT THAT THEY
DIDN'T LIKE THE PERUVIAN
JUSTICE SYSTEM, AND SO WE FOUND
WAYS OF PUTTING INTO PLACE
DISPUTE RESOLUTION THAT
DIDN'T GO TO THE CORRUPT
AND UNRELIABLE
PERUVIAN COURTS.
IN FACT, WE COMPLETELY REDID
ALL THROUGHOUT LATIN AMERICA
IN THE '90s THE PROPERTY
SYSTEM FOR LARGE COMPANIES.
AND THE PERUVIAN TELEPHONE
COMPANY WAS SOLD FINALLY
IN '93 IN NOT MANY DIFFERENT -
IN CONDITIONS THAT WERE NOT
DIFFERENT FROM THOSE OF
OTHER STATE CORPORATIONS
THROUGHOUT LATIN AMERICA.
IT WAS SOLD FOR 2 BILLION DOLLARS,
WHICH IS 37 TIMES
THE VALUE THAT IT
HAD BACK IN 1990.
THAT'S CAPITAL.
CAPITAL IS THE SURPLUS VALUE
THAT YOU CAN OBTAIN
BY BRINGING ALL OF SOCIETY
IN AGREEMENT AS TO WHO
OWNS WHAT AND FIND DIFFERENT
FUNCTIONS FOR IT BECAUSE
IT CAN BE LEVERAGED INTO
A WORLD THAT ALLOWS IT
TO PARTICIPATE IN THE
GREATER MARKET.
AND THE PROBLEM WITH
THE POOR, OF COURSE,
IN DEVELOPING COUNTRIES IS
THAT NOT ONLY CANNOT
THEY PARTICIPATE OUTSIDE THE
NEIGHBOURHOOD OR THE TRIBE,
THEY CAN'T EVEN GET
INTO THE GLOBAL ECONOMY.
BUT JUST THE POSSIBILITY OF
PAPERIZING SOMETHING IN PERU
THAT ALLOWS IT TO GET INTO
THE GLOBAL ECONOMY
MEANS THAT ITS VALUE
CAN INCREASE.
IT'S A GOOD THING
TO HAVE GLOBALIZATION.
BUT OF COURSE, IF 80 TO
90 PERCENT OF EGYPTIANS
AND PERUVIANS AND FILIPINOS
ARE NOT PAPERIZED,
DON'T HAVE PASSPORTS TO
ACCOMPANY THEIR PHYSICAL GOODS,
OR EVEN THEIR IDEAS,
THEY CAN'T PARTICIPATE
IN THIS WORLD AND ANY
SOCIOLOGIST WILL TELL YOU
THAT THEN A PHENOMENON
CALLED LEVELLING KICKS IN,
WHICH IS THAT THOSE WHO
DON'T BENEFIT WILL DISAGREE
THAT THE 10 PERCENT WHO CAN
CONTINUE TO BE THERE.
THAT IS WHY IN DEVELOPING
COUNTRIES WE HAVE ALWAYS
GLOBALIZED OUR ELITES
BUT OUR POOR PEOPLE HAVE
REMAINED BEHIND TO BE THE
SUBJECTS OF THE
NATIONAL
GEOGRAPHIC
MAGAZINE AND
THE DISCOVERY CHANNEL.
BUT THEY CAN'T FORM
CAPITAL BECAUSE CAPITAL
IS SURPLUS VALUE.
AND THIS WAS A
DIFFICULT CONCEPT
RIGHT FROM THE BEGINNING.
AS A MATTER OF FACT,
MARX, WHO WAS PROBABLY
A MUCH BETTER ANALYST
OF WHAT CAPITAL MEANT,
SAID THIS IS THE CRUCIAL
PART OF THE ECONOMY.
I MEAN, THE WHOLE IDEA THAT
CAPITAL CITY OF A NATION,
CAPITAL PUNISHMENT,
A CAPITAL ISSUE,
INDICATES THAT CAPITAL
IS THE MOST IMPORTANT
PART OF THE BODY.
THAT'S WHY YOU HAVE
CHAPTERS THAT BEGIN AT
THE PAGE AND FOOTNOTES.
CHAPTERS COME
FROM CAPITAL.
THE IDEA IS THAT THEY SAW
EARLY ON WHEN YOU WERE MAKING
YOUR TRANSITION FROM
PATRIMONIALISM AND FEUDALISM
TO A SYSTEM OF MARKET
ECONOMY ABOUT 250 YEARS AGO,
THAT THE ABILITY TO
UNDERSTAND AND CAPTURE VALUE
WAS THE CRUCIAL ASPECT
THAT WAS GOING TO MAKE
THE MARKET ECONOMY WORK.
WHAT THEY DIDN'T LEAVE CLEAR
AND THAT'S WHAT I TRY
AND EXPLAIN IN
THE MYSTERY
OF CAPITAL
IS THAT CAPITAL
IS CAPTURED ON PAPER.
IT'S ABSTRACT AND IT'S
CONCRETIZED ON PAPER
OR IN SOME KIND OF A
DESCRIPTIVE ANNOTATION.
AND ALL THE STUFF WE MAKE
IN DEVELOPING COUNTRIES,
AND WE PROVE WE
ARE ENTREPRENEURS,
IS NOT CAPTURED IN
THE LEGAL SYSTEM
THAT ALLOWS IT TO
BE PRODUCTIVE.
IT IS CAPITAL AS
THE ECONOMIST SAYS,
STUFF THAT BEGETS STUFF.
THERE'S ANOTHER THING THAT
OF COURSE I THINK ADAM SMITH
SAID THAT CAPITAL IS BECAUSE
IT CAME FROM MEDIEVAL LATIN,
AND MEDIEVAL LATIN SAYS THAT CAPITAL COMES THE WORD
CAPITA OR CAPUT,
THE HEAD.
IT IS SOMETHING SO
ABSTRACT AND SO ABSOLUTELY
SOPHISTICATED IT CAN ONLY
BE CAPTURED BY THE HEAD.
IT CANNOT BE CAPTURED
BY THE HANDS.
NOW THE FACT THAT SOMETHING
THAT IS OUTSIDE PHYSICAL
THINGS SHOULD BE ABLE TO
LEAD TO MORE VALUE SOUNDS
AWFULLY ESOTERIC, THOUGH I
HOPE I HAVE MADE A CASE
FOR IT NOT BEING ESOTERIC,
BECAUSE WE'VE SEEN HOW WE'VE
CREATED CAPITAL WHEN WE
PRIVATIZE IN LATIN AMERICA.
WHAT WE HAVEN'T BEEN ABLE TO
DO OR KNOW HOW TO DO IS HOW
TO GIVE THE
BENEFIT OF THE SAME
EXERCISE TO THE POOR.
BUT YOU KNOW IT'S FOR AGES
THAT PHILOSOPHERS HAVE BEEN
SAYING THAT THE MOST
IMPORTANT THINGS
ARE OUTSIDE OUR VIEW.
THE WHOLE IDEA OF
CARL GUSTAV JUNG
ABOUT THE SUBCONSCIOUS, THE
COLLECTIVE SUBCONSCIOUS WAS
THAT IT IS MUCH BIGGER
THAN THE CONSCIOUS.
AS A MATTER OF FACT, HE USED
TO SAY IF YOU WANT AN IDEA
OF PROPORTIONS THINK OF
A MAN ON A RAFT
WITH A CANDLE THAT'S LIT.
WHATEVER YOU CAN SEE,
THANKS TO THAT CANDLE,
IS CONSCIOUSNESS;
THE REST IS DARKNESS.
THAT'S THE
UNCONSCIOUSNESS.
AND THAT'S WHY YOU ACTUALLY
NEED TO FIND OUT WHAT THE
UNCONSCIOUS IS BECAUSE IT'S
THE LARGER PART OF LIFE.
PLATO OF COURSE AGREED THAT
WITHIN MANY THOUSANDS OF
YEARS BEFORE, HE SAID
WE WERE ALL LIKE
PRISONERS IN A CAVE.
WE ARE CONTINUALLY LOOKING
AT A WALL THAT'S GOT SHADOWS,
BUT WE NEVER ACTUALLY
GET TO SEE THINGS.
WE ONLY PERCEIVE SHADOWS
AND THAT'S WHY YOU NEED
PHILOSOPHY, AND THAT'S WHY
YOU NEED TO PERFECT HUMAN
TECHNOLOGY, TO BE ABLE
FROM THE SHADOWS
TO INTERPRET WHAT
REALITY IS ALL ABOUT.
KANT AGREED.
KANT SAID, IN HIS
CRITIQUE OF PURE REASON,
WE ONLY HAVE FIVE SENSES
AND THAT'S NOT ENOUGH
TO CAPTURE REALITY.
IN FACT WE NEVER REALLY
CAPTURE REALITY,
WE ALWAYS GO THROUGH
REPRESENTATIONS.
WE ALWAYS GO THROUGH
MANMADE REPRESENTATIONS,
AND THAT'S WHY HE
THOUGHT THAT PAINTING
WAS WONDERFUL,
OR MUSIC.
IN OTHER WORDS, WE HAD TO
REPRESENT THROUGH SIGNS THAT
WERE EFFICIENT MUSICAL NOTES
SO AS TO BE ABLE TO PLAY
ONE DAY WHAT ANOTHER PERSON
HAD PLAYED A PREVIOUS DAY.
WITHOUT ANNOTATION, WITHOUT
WAYS TO REPRESENT SOUND,
YOU COULDN'T
PLAY IT AGAIN.
THE OTHER DAY AT
THE INSTITUTE,
OUR FELLOWS AT THE
ECONOMIC'S DEPARTMENT TRIED
TO MULTIPLY 279 BY 438
WITH ROMAN NUMBERS AND
IT TOOK THEM HALF AN
HOUR AND SEVEN PAGES.
THEN WHEN THEY DECIDED TO
TAKE ADVANTAGE OF THE
NEW ANNOTATION SYSTEMS
OF REPRESENTATION
THAT CAME INTO OUR CIVILIZATION
IN THE 7TH CENTURY,
WHICH ARE THE INDIGO-ARAB
NUMBERS WITH A ZERO THAT
WE HAVE TODAY, THEY WERE ABLE
TO DO IT IN SEVEN LINES
AND IN SCARCELY
20 SECONDS.
THE QUALITY OF THE
REPRESENTATION DETERMINES
HOW EFFICIENTLY YOU CAN
ACTUALLY MANAGE NOT ONLY
PROCESSES AND NOT ONLY
PHYSICAL GOODS BUT HOW
YOU CAN UNDERSTAND
AMONG EACH OTHER.
THAT'S WHY KARL POPPER
BEFORE HE DIED TALKED ABOUT
THE ENORMOUS IMPORTANCE OF
WHAT HE CALLED WORLD 3,
WHICH HE SAID GUIDED
ESSENTIALLY OUR POSSIBILITY
OF PROGRESS
THROUGHOUT THE WORLD.
WORLD 3 IS THE WORLD IN
WHICH OUR IDEAS AND
OUR SYSTEMS LIVE, WHICH IS
COMPLETELY DIFFERENT
FROM THE PHYSICAL WORLD.
AND WHAT WE'RE SAYING IS
THAT DEVELOPING COUNTRIES
ARE MISSING PART
OF WORLD 3.
IT'S NOT PHYSICAL.
IT DOESN'T HAVE TO
DO WITH CHARITY.
IT HAS TO DO WITH THE
POSSIBILITY OF ORGANIZING
AND TRANSFERRING VALUE, AND
THAT IS DONE THROUGH LAW,
AND THE GREAT PITY IS THAT
LAWYERS KNOW ALL
ABOUT REGULATIONS, AT
LEAST IN MY COUNTRY,
BUT HAVE NO IDEA OF WHAT THE
LAW IS NOR ITS PREDOMINANT
FUNCTION WITHIN A
CAPITALIST SYSTEM.
AND WE ECONOMISTS SOMETIMES
BELIEVE THAT IT'S ALL
ABOUT NUMBERS AND NOW WE'RE
STARTING TO FIND OUT
THAT IT IS NOT ABOUT NUMBERS,
IT'S ABOUT INSTITUTIONS,
AND IT IS ABOUT LAW.
AND RECENTLY A GREAT
AMERICAN PHILOSOPHER CALLED
PAUL WEISS SAID THAT YOU
DISCOVER IN SCIENCE AND
TECHNOLOGY AND IN PHILOSOPHY
DIFFERENT MATTERS THAT
ACTUALLY ORGANIZE LIFE,
YOU START FINDING OUT
THAT THERE'S SOME THAT
CONSTITUTE A REALITY.
AND THE THESIS OF
THE
MYSTERY OF CAPITAL
IS THAT
THE PROPERTY SYSTEMS THAT
YOU HAVE IN THE WEST AND
THAT YOU TAKE SO MUCH FOR
GRANTED BECAUSE THEY'RE
BORING IN THE FIRST PLACE,
AND BECAUSE THAT'S THE WAY
THE WORLD ALWAYS SEEMS TO
HAVE BEEN, ACTUALLY WAS WHAT
PERMITTED YOU OVER THE LAST
TWO CENTURIES TO MAKE
AN ENORMOUS ADVANCE OVER
THE REST OF THE WORLD.
THE REST OF US WHO ARE
TRAPPED WITHIN THE five sixths
OF HUMANITY THAT IS IN THE
DEVELOPING WORLD AND
THE FORMER SOVIET
UNION NATIONS.
AND WHO WILL NOT EVER BE
ABLE TO RELEASE THE VALUES
IN OUR APPLES UNTIL WE
IN EFFECT ARE ABLE
TO REPRESENT THEM AND BE
ABLE TO CREATE CAPITAL.
NOW SINCE I HAVE JUST A
FEW LITTLE MOMENTS LEFT,
LET ME TELL YOU, BECAUSE
THIS ALL SOUNDS VERY SIMPLE
AND I HOPE IT SOUNDS SIMPLE,
OTHERWISE THE SPEECH
WON'T HAVE WORKED,
BUT IT'S ACTUALLY
IN A WAY QUITE COMPLEX.
HOW DO YOU BUILD A LEGAL
SYSTEM THAT PEOPLE RESPECT?
BECAUSE IT'S NOT THAT WE
HAVEN'T BEEN FOLLOWING YOU.
I MEAN, WHAT OUR LAW
STUDENTS DO ABROAD AND WHAT
OUR LEGISLATORS IN PERU DO,
IS DEFINITELY TRAVEL
TO DEVELOPED COUNTRIES,
TO CANADA, TO FRANCE,
AND WE COPY YOUR LAWS.
WE PHOTOCOPY THEM.
WE TRANSLATE THEM
INTO SPANISH.
WE SAY SINCE THIS WORKED
IN CANADA AND SWITZERLAND,
IT MUST WORK BACK HOME.
AS A MATTER OF FACT, FOR
THOSE OF YOU WHO HAVE VISITED
LIMA, IT MIGHT BE INTERESTING
TO KNOW THAT THE TRAFFIC
REGULATIONS OF LIMA
ARE THE TRAFFIC REGULATIONS
OF ZURICH, BECAUSE TRAFFIC
IS SO WELL ORGANIZED THERE.
AND THOSE WHO HAVE DRIVEN
IN LIMA KNOW THAT SOMEHOW
OR OTHER IT DOESN'T WORK.

[laughter]

Hernando continues NOW THERE ARE TWO
EXPLANATIONS TO THAT.
ONE OF COURSE IS THAT WE'RE
JUST CULTURALLY NOT SUITED
TO DRIVE CARS, WHICH
IS A STRONG ARGUMENT.

[laughter]

Hernando continues AND THE OTHER ONE IS THAT
MAYBE THAT'S NOT THE WAY
YOU BUILD A LAW.
ABOUT EIGHT YEARS AGO, MY
FIRST BOOK,
THE OTHER PATH,
WAS TRANSLATED INTO BAHASA
INDONESIAN AND I WAS THRILLED
BECAUSE IT'S RIGHT
AT THE OTHER SIDE
OF THE GLOBE FROM PERU.
AND BESIDES THAT, I ALWAYS
HEARD FROM ALL THE AIRPLANE
PILOTS I WAS ABLE TO
TALK TO THAT BALI,
WHICH IS AN ISLAND
OF INDONESIA,
IS THE MOST BEAUTIFUL
PLACE IN THE WORLD.
SO I SAID, GREAT,
LET'S GO SEE IT.
AND I WENT THERE WITH
MY WIFE AND I DID
THE USUAL THING, TALKED
TO A FEW PEOPLE,
WENT ON A FEW TV
PROGRAMS.
AND THEN WE WENT
OFF TO BALI,
WHICH WAS THE REAL
OBJECTIVE OF THE MISSION.
AND THERE WE WERE IN BALI
AND I GOT A CALL FROM
A FRIEND WHO SAID, YOU KNOW,
PRESIDENT SUHARTO SEEN
WHAT YOU'RE DOING AND
SO HAS HIS CABINET.
THEY'D LIKE TO TALK TO
YOU BECAUSE THEY KNOW,
NOT ONLY WHAT THE
BOOK IS ABOUT,
THEY'RE STARTING TO
UNDERSTAND THE PHILOSOPHY,
BUT THEY KNOW THAT
IT'S ACTUALLY WORKING
IN PARTS OF PERU,
SO THEY HAVE -
THIS IS VERY
IMPORTANT TO US.
AND I SAID, OF COURSE, I'D
BE DELIGHTED TO GO MEET THEM.
I NEVER TALKED TO
AUTHORITIES OUTSIDE
MY OWN CONTINENT, SO
LET'S DO THAT.
I WENT TO JAKARTA; I MET
WITH THEM FOR A DAY.
AND I REMEMBER, THERE
THEY WERE, THE PRESIDENT.
THERE WAS ALSO A MINISTER
CALLED EMIL SALIM.
ANOTHER ONE'S
CALLED SONI HARSONO.
A THIRD ONE, THE
MINISTER OF FINANCE
WAS CALLED RADIUS.
AND THEN THIS MAN
HARSONO STANDS UP,
WHO'S THE MINISTER OF
LANDS, AND SAYS, LOOK,
DON'T FILL US WITH ALL THE
WISHY WASHY THEORY
YOU'RE ONE DAY GOING TO TELL
ALL THESE CANADIANS ABOUT.
GET TO THE
CONCRETE STUFF.
HOW DO YOU FIND
OUT WHO OWNS WHAT?
BECAUSE WE KNOW THAT 92 PERCENT
OF THE HOMES TO BEGIN WITH
OR BUILDINGS IN
JAKARTA ARE SIMPLY NOT
IN THE RECORDING SYSTEM.
THE REASON WE CAN'T TITLE
THEM AND WE CAN'T ORGANIZE THEM
ON A KNOWLEDGE BASE AND
BE ABLE TO CREATE ALL THOSE
LEGAL LINKS AND WEBS WHICH
WILL ALLOW US TO NOT
ONLY MULTIPLY VALUE BUT ALSO
CREATE A SECURITY SYSTEM
SO WE KNOW WHERE THE
THIEVES HIDE OUT,
WHERE THE REBELS ARE, IS
BECAUSE WE CAN'T FIND
THAT INFORMATION.
HOW DID YOU DO
IT IN PERU?
SO WE HAVE A SYSTEM.
I MEAN, THAT'S WHAT
MY ORGANIZATION DOES.
IT STOPPED THINKING A LONG
TIME AGO AND STARTED JUST
CONSTRUCTING, AND
IT'S A LONG PROCESS
AND IT'S COMPLEX AND IT'S
TEDIOUS, BUT IT WORKS.
BUT I KNEW THE POLITICIANS,
INDONESIAN POLITICIANS
IF THEY WERE LIKE PERUVIAN
POLITICIANS HAD ABOUT
THE ATTENTION SPAN OF A FRUIT
FLY, AND THEREFORE YOU HAD
TO COME IN VERY QUICK AND
ILLUSTRATE IT AND THE METAPHOR
CAME INTO MY HEAD, WHICH
WAS BASED ON REALITY.
I'D BEEN WALKING UP AND DOWN
BALI AND IT'S A BEAUTIFUL AREA.
ALL YOU DO IS WALK BECAUSE
THEY HAVE THESE BEAUTIFUL
RICE FIELDS AND THEY ARE ALL
MATURING AT DIFFERENT TIMES
SO THEY'RE YELLOW AND
ORANGES AND GREENS,
AND THEY'RE SURROUNDED BY
THESE PALM TREES AND
THERE'S THIS TERRACED
AGRICULTURE AND THESE PAGODAS.
IT'S REALLY A PARADISE.
BUT I ALWAYS KNEW WHEN I WAS
WALKING THERE THAT EVERY TIME
I CHANGED PROPERTY,
A DIFFERENT DOG BARKED.
SO I TOLD THEM, YOU HAVE TO
TALK TO INDONESIAN DOGS.
THEY'VE GOT ALL THE
INFORMATION YOU NEED.

[laughter]

Hernando continues NOW, THE FACT IS THAT
THE INDONESIAN DOGS,
OF COURSE, HAVEN'T MADE A
DEAL AMONG THEMSELVES;
THEIR OWNERS HAVE.
AND THAT WHY ONE OF THE
MINISTERS SAID, AH,
HUKUM ADAT DI, WHICH
MEANS THE PEOPLE'S LAW.
I SAID, THAT'S
EXACTLY IT.
IN ALL OF OUR COUNTRIES,
DEVELOPING COUNTRIES,
ASIDE FROM THE BAD LAW THAT
OUR BOURGEOISES HAVE CREATED
AFTER BEING EDUCATED IN
WESTERN UNIVERSITIES,
THE POOR PEOPLE HAVE
ACTUALLY MADE ARRANGEMENTS
AMONG THEMSELVES, AND
THEY'RE VERY EFFICIENT.
THE TROUBLE IS
THAT THEY'RE SMALL.
THEY GO, IT'S 4
BLOCKS IN CAIRO.
IT'S 16 BLOCKS
IN JAKARTA.
IT'S 18 BLOCKS IN LIMA;
AND JUST LIKE THE UNIFIED
COMMERCIAL CODE OF
THE UNITED STATES,
YOU GOTTA BRING
IT ALL TOGETHER.
JUST LIKE ALL THE DIFFERENT
LEGISLATIONS AND PRACTICES
IN CANADA, YOU GOTTA
STANDARDIZE THEM.
YOU GOTTA BE ABLE
TO UNDERSTAND THEM.
THAT'S THE ONLY WAY YOUR
IMMIGRATION SERVICE
IS GOING TO BE ABLE TO
READ A PERUVIAN PASSPORT.
AND THAT'S THE EXERCISE.
THAT'S BASICALLY IT.
BUT THAT MEANS THAT YOU
HAVE TO STOP SEEING
POOR PEOPLE AS INFERIOR.
YOU HAVE TO KNOW THAT
WHEREVER YOU GO IN
THE WORLD, HUMAN BEINGS
ONCE THERE'S MORE,
THREE OR FOUR OF THEM,
WILL GET ORGANIZED AND
WILL COLLABORATE, BECAUSE
THEY'RE SOCIAL ANIMALS.
AND THE LAW IS ESSENTIALLY
A DISCOVERY PROCESS.
IT'S NOT A PROCESS WHEREBY
SOME PEOPLE THINK THEY'RE
EDUCATED AND THAT THEY
CAN TELL EVERYBODY ELSE
WHAT TO DO.
THE LAW IS BORN
THROUGH CONSULTATIONS.
IT IS SOMETHING THAT IS
AUTOMATICALLY HAPPENS
WHEN YOU CONSULT PEOPLE, AND
WE IN DEVELOPING COUNTRIES
AND THE FORMER SOVIET UNION
STOPPED TALKING TO PEOPLE
A LONG TIME AGO.
AND THEY BASICALLY HAVE COME
OUT WITH THESE TREMENDOUS
CULTURAL ARGUMENTS
OF SAYING,
THEY NEED TO BE EDUCATED
AND THAT'S BALONEY.
BECAUSE THEY'VE GOT AN ORDER
AND NO MATTER HOW MUCH
WE TRY TO IMPOSE AN
EXTERNAL ORDER ON THEM,
THEIRS WILL SURVIVE.
SO THE BOOK IS NOT
A MAGIC BULLET.
I DON'T PRETEND TO
HAVE A MAGIC BULLET.
I JUST THINK THAT WE HAVE
REALLY COME UPON SOMETHING
THAT IS RATHER VERY IMPORTANT
AND I WANT TO THANK YOU
ALL FOR BEING HERE
TONIGHT TO LISTEN TO IT.
THANK YOU.

[applause]

Classical music plays as the end credits roll.

Comments and queries, email: bigideas@tvo.org

Telephone: (416) 484-2746.

Big Ideas, TVONTARIO, Box 200, Station Q, Toronto, Ontario, Canada. M4T 2T1.

Producer, Wodek Szemberg.

Associate Producer, Mike Miner.

Sound, Maurice Dalzot.

Executive Producer, Doug Grant.

A production of TVOntario. Copyright 2001, The Ontario Educational Communications Authority.

Watch: Hernando de Soto on Capitalism