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« Back to Capitalism and Culture main page   Transcript for: Capitalism and CultureTHINK TANKWITH HOST: BEN WATTENBERG SATURDAY, NOVEMBER 4, 2000 ANNOUNCER: Funding for Think Tank is provided by the John M. Olin Foundation, the Lynde and Harry Bradley Foundation, the Smith Richardson Foundation, and the Donner Canadian Foundation. (Musical break.) MR. WATTENBERG: Hello, I'm Ben Wattenberg. Ten years after the end of the Cold War, the capitalist nations of the West continue to prosper. But, despite some success stories, much of the developing world is still plagued by political instability and economic stagnation. Why? Are bad policies to blame, or is it a matter of culture? To find out Think Tank is joined by: Hernando de Soto, President of the Institute For Liberty and Democracy in Lima, Peru, and author of the new and controversial book, the Mystery of Capital, Why Capitalism Triumphs in the West, and Fails Everywhere Else; and Lawrence Harrison, associate at the Harvard Academy for International and Area studies, and coeditor of Culture Matters, How Values Shape Human Progress. The topic before the house, why are some countries rich and others poor, this week on Think Tank. (Musical break.) MR. WATTENBERG: Almost half of the world's people live on less than $2 a day. According to the World Bank the situation in many sub-Saharan African countries has worsened in the 40 years since most of the continent gained independence. However, other developing countries have made considerable advances. East Asia, in particular, has seen major progress. But, why does so much of the developing world continue to struggle? The old answer was embodied by dependency theory, the idea that the Third World was the victim of exploitation by the first world. But, poverty persisted despite sustained, and usually Western led, efforts to eradicate it. Many prominent thinkers have reassessed their views. Think Tank panelist Hernando de Soto argues that it's the absence of legal property rights that prevents the emergence of true free market enterprise in the developing countries. Others, like panelist Lawrence Harrison take a broader view. It's culture that counts, they say. And certain cultures are more likely to bring about progress than others. That raises a fundamental question about human endeavor, what causes some societies to fail while others succeed? In our never-ending search for answers we turn now to our distinguished panel. Welcome to Think Tank. Hernando, you have the new book out. Tell me, briefly, what your thesis is. MR. De SOTO: The Mystery of Capital has a new take on all of this, based on empirical investigations. We have seen that about 80 percent of the world doesn't have property rights. We've been to Egypt, we've been to Mexico, we've been to -- MR. WATTENBERG: Who is the we? MR. De SOTO: We is my organization, a think tank called The Institute for Liberty and Democracy. We work in many countries throughout the world, and we've done empirical studies to find out what happens with the assets of poor people. So let me give you an example. We've been to Egypt, and we have seen that the so-called poor between 80 and 90 percent of the population actually have managed to accumulate a very important amount of assets since the Second World War until today. We've counted them, house by house, real estate, and found out that in real estate and land they own about $240 billion worth of assets. We've done this together with Egyptians and the Egyptian government, $240 billion, Ben, is 55 times greater than all foreign investment in Egypt in the last 200 years, including the Suez Canal and the Aswan Dam. It's 30 times greater than the Cairo stock exchange. So the first conclusion of the book, and the same analysis applies to other countries and former communist nations, is that the poor in the last half-century have actually accumulated and built an enormous amount of assets. But, interestingly enough, as opposed to the United States, where every bicycle, every house has got a title to it, 80 percent to 90 percent in developing and former communist nations don't have their right represented in such a way that they can enter the modern market. MR. WATTENBERG: What's wrong with that? MR. HARRISON: I don't think there's anything wrong with it. I think that the book is a very useful book. I think that the predecessor book, The Other Path, is a very important book. But, it gets presented as if it is a magic wand, and panacea, and it isn't. And there are three basic premises in the book that are erroneous. First of all, the subtitle says capitalism triumphs in the West and fails everywhere else. But, that's not true. Capitalism, in a variety of forms, as you pointed out, has succeeded in East Asia. Of the top ten countries in the world in terms of per capita income you have three that are from Confucian East Asia. So it's not just in the West and failing everywhere else, because it also succeeds in East Asia. MR. De SOTO: The West is a generic that includes, from my point of view, and I mention it in the book, Japan and her two former colonies, which were Formosa, today called Taiwan, and Korea. In both of these three countries, after the war, and thanks a lot to U.S. pressure you created a property rights system. And the other two that were mentioned by Larry, Hong Kong and Singapore, happen to be the only other two former colonies where property rights were put into place. So I think that culture may explain something of it. But, to me it's quite clear that you had legal property systems, and that's what makes the whole difference. So I would say -- MR. WATTENBERG: I have been to a number of less developed countries. And one of the criticisms you hear of them, and in fact, we can often see it, feel it and touch it, is not that they don't have enough paperwork, but that they are overwhelmed with bureaucracy, and layers, and layers, and layers of clerks and bureaucrats. I assume that they're, among other things, in these authoritarian states, titling assets, aren't they? MR. De SOTO: Absolutely, the reason that these property rights don't work isn't because of a lack of titles. As a matter of fact, in Peru we have seen that there's an average of about 20 pieces of paper per parcel of land. So there's an inflation of titles in the same way that we had an inflation of money. But, the fact that we have excessive paper doesn't mean that we have good property rights. What we're trying to point out is that to create a property rights system you need a minimum of legal coordination, which doesn't exist in these countries. So I'm not saying there's a lack of paper. There might, in effect, be an excess of paper. MR. WATTENBERG: Okay. You had a second and third point. Let's just go on, and then we can -- MR. HARRISON: There's an assertion that entrepreneurship is evenly divided among nations and ethnic groups. And there's absolutely compelling evidence that this is not the case. You have only to look at the performance of the Chinese in Thailand, Malaysia, Indonesia, the Philippines, the United States, the Japanese in Brazil, Peru, and the United States, the Koreans in the United States, to see that in multi cultural societies, where the rules are the same, where you have, in the United States, excellent registration systems, and excellent financial institutions to reach out, where some ethnic groups do much better than others. MR. WATTENBERG: What's your problem with that? MR. De SOTO: My problem with that is that all culturalist type arguments, though useful, tend to be soft. MR. WATTENBERG: In your book you condemn the culturalists? MR. De SOTO: No, let me tell you what I do, because if you look at chapter six of the book I say that to put a good titling system into place you need to plug into the cultures, you need to bring up the social contract. What I believe that's a mistake is to come in and say that one culture is necessarily superior to the other. History also gives us examples that are contrary to the ones mentioned by Larry Harrison. There used to be a time, for example, when Oliver Goldsmith, the British historian, used to talk about corruption in Britain, and say the best way to define a judge is as a living creature who is capable of selling half a dozen laws for a dozen chickens. We've all had our moments in corruption, and our moments in history. I think that if what we're trying to talk about is how do we get development going, there's a very important case to be made that the only countries with solid property rights happen to be the ones that are today prosperous. MR. HARRISON: But, you have some cases, which fly in the face of Hernando's thesis. In the 1980s and the 1990s, the Chinese economy averaged about a 10 percent growth annually. In those two decades GNP has about sextupled. So here's a case of a society where all of the prerequisites that he established, a good registry system, financial institutions designed to reach out to the poor, a good and independent judiciary don't exist, and yet you get very, very high rates of growth. There's the other side of this. There's a Latin American country that substantially conforms to Hernando's criteria, that's Costa Rica. Costa Rica has got a very good land registry system. It has for decades been reaching down through its financial institutions to poor and neglected people. It is one of the few Latin American countries with an independent judiciary. In the last two decades it has grown at about 3 percent a year. It has lacked for -- MR. WATTENBERG: Three percent a year compounded is significant growth. MR. HARRISON: Three percent a year with a population growth rate of let's say 1 percent, which it's more than that, would be 2 percent a year, which means that it would double in 36 years. In 20 years the Chinese income has sextupled. So Costa Rica, I've lived there, and I have a strong sense of this, it has a tradition that is not entrepreneurial. Coffee was introduced by the Germans. Bananas were introduced by the Americans, and the current most important thing is Intel. MR. De SOTO: The reply to that is this, obviously a good legal system isn't absolutely indispensable to entrepreneurship, and I say so in the book. You can start off a county of entrepreneurs without the law. What I'm saying is that to become effective, to create that wealth that you have done in the west, you need a good legal system, property assets travel in paper, and they can be affirmed. Also, you have to understand, talking about Egypt as we were before, that if you have the law against you, as opposed to on your side, certain problems happen. For example, in the case of Egypt, we have measured the time it takes to get your firm or your enterprise recorded and work according to law. And we did this in the case of our Egyptian friends at the Egyptian Center for Economic Studies, to find out how much time it took an Egyptian that owns a bakery to get recorded, be able to get credit according to law. And we have done the history for hundreds of enterprises and it takes 650 days working eight hours a day. So what I'm trying to say is, that hasn't stopped the Egyptians from being entrepreneurial, but the lack of good law allows them to be increasingly more entrepreneurial. MR. WATTENBERG: My understanding has been, notwithstanding everything that we've talked about today, over the last, say, 30 years, the actual rate of growth in the less developed countries has been admittedly from a lower base, but has been faster than that in the developed world. Is that correct? MR. De SOTO: Probably, and I'd like to add the following thing. What has happened over the last half-century is that poor people in developing and former communist nations have started moving towards greater centers of population, bigger cities. They're moving from a life on a small scale to life on a large scale, that's a fact. There's a huge concentration of wealth. That's the industrial revolution, that's when Oliver Twist comes to town, and when people start the division of labor. Now, when you start the division of labor, which is happening in five-sixths of the world at this time, 150 to 200 years later than happened in the West, what you need is to be able to cooperate with larger amount of peoples. And the way you cooperate with larger amount of people is on the basis of the property rights system. I've just come to the United States now, for example, and I have certain streams of income in Peru, I even own certain assets, small mines, now nobody when I got to the hotel I'm lodging asked me, are your mines solid, what do your neighbors say about you? All I did was bring out my credit card, which at this time sustains my property rights systems, and I was able to take what wealth I have in Peru and pass it to the United States. MR. WATTENBERG: But, you could take that same credit card in Lima and they would honor it. MR. De SOTO: They would honor it for 10 percent of the wealth. What I'm trying to say -- MR. WATTENBERG: What does that mean? MR. De SOTO: What it means is this, that the amount of rights that are paperized in Peru are about 20 percent. So the 20 percent of Peruvians, like the 20 percent of Venezuelans, like the 10 percent of Mexicans that can travel have this. What I'm saying is that 80 to 90 percent of the citizens in developing and developed countries are not able to represent their assets in such a way that they can move them, that they can cut them up, that they can divide them, that they can combine them, and create surplus value, which is the secret to successful capitalism. MR. HARRISON: Let me go back to your question, what's happened in the Third World versus the First World, over the last 20 or 30 or 40 years, you've got disaggregate. If you throw in East Asia, that is going to skew the Third World up. But, if you look at what has happened in Africa and most of Latin America, I think that you'll find that -- and surely in Africa the growth rates have probably been below what they've been in the West. In some cases -- MR. WATTENBERG: But, that's really -- I mean, Africa south of the Sahara is the only place in the world where that may be true. The other countries -- MR. HARRISON: Latin America is probably marginally ahead of the West over that period. But, when you start with a base that is so vastly higher, as you point out, the well being effects are very different. MR. WATTENBERG: All right. Let's just hold on for a minute. I want to talk to our viewers for a moment. We at Think Tank depend on your feedback to make our program better. So please email us at thinktank@pbs.org. Now, what about the underground economy. If all that underground economy wealth were recorded you would probably have more closure between the so-called Third World and the First World, is that right? MR. De SOTO: Absolutely. And I go back to my example here, if it takes 650 days to legally open a bakery and get out of the underground economy in Egypt, if it takes 52 years, like in the Philippines -- MR. WATTENBERG: But, while it's underground it's still making money for the proprietors. MR. De SOTO: Yes, but it is making money on the basis of local reputations. In other words, if I'm in the underground economy, I have to know you to make a deal with you. What we should do is first of all concentrate on one aspect of culture, which is law, and when we create a law that is accessible to most citizens in the developing and former communist nations, we can then come to the conclusion, to find out if some people are superior to others. MR. WATTENBERG: So as I understand what you're saying, and you just put your finger on it, you're not saying that the people who say culture counts are wrong, but you are highlighting one specific aspect of these various cultures that you think deserves greater emphasis than it's getting. Is that a fair -- MR. De SOTO: That's right. But, let me give you an illustration which is, for example, what you did regarding culture. In Japan when you occupied it, when General MacArthur occupied it between 1945 and the early ‘50s, and you had to break the local feudal system in Japan and distribute property, what did you do? You handed it over to the Japanese government and you said, according to your culture who owns what? And the Japanese themselves destroyed the major restoration registrations, went down, legalized the different hamlets and city neighborhoods that are called kubakus, created 10,900 of them and asked them, according to their culture who owned what. The result of that was the creation of a widespread property system in Japan. When culture analysis worked was when instead of saying how superior we Anglo-Saxons are, you decided to make capitalism enter on the basis of the local culture. MR. WATTENBERG: Larry, you've done some work on Japan. Is what Hernando saying incorrect? MR. HARRISON: Yes, it's not incorrect, it's correct but it's partial. First of all, let me say that I think a good argument can be made that at least in the last 50 years Confucian culture has outdone Anglo-Saxon culture, in terms of human progress particularly economic progress. I'm certainly not arguing that Anglo-Saxon is the only way to go. MR. WATTENBERG: Yours is a very sort of anti PC view of the world. In other words, you are not afraid to say -- you're kind of like Tom Saul, I mean, you're prepared to say these cultures work because they work, and these cultures don't work because they don't work, and the Confucians are better than the Latinos and the Anglo-Saxons aren't quite as good. I mean, this goes back to an ancient and oft times challenged stratification of humanity. MR. HARRISON: Absolutely. And there's a very interesting contrast here. MR. WATTENBERG: There are a lot of bad words that go with that, which I'm not going to use. MR. HARRISON: Sure, and believe me, I've heard a lot of them for the past 20 years. MR. De SOTO: You're talking about racism, is that what you're thinking? MR. HARRISON: It has nothing to do with race. Culture is something that's transmitted without reference to genes. Tom Saul and I agree on a lot. But, the interesting thing is he's a lifelong Republican, and I'm a lifelong Democrat. Let me go back to -- MR. WATTENBERG: I'm not criticizing necessarily either you or Saul, but it is a view -- MR. HARRISON: It is a controversial view that gets him in hot water, has gotten me in hot water. But, the fact is that as other explanations, economic, legal, and what have you, have sort of faltered in the face of the evidence of a very much slower rate of human progress in a good part of the world in the last 50 years, that increasingly culture has become acceptable for discussion. And of course, the new book, and it's quite significant impact is Culture Matters. And its reception by people of all political and ideological orientations suggests that the environment has changed significantly. Let me go back to Japan. What Hernando says is quite true in a technical sense, but it gives the impression that development started in Japan, at least modernization, after World War II. The fact is that probably one of the most impressive development performances of any nation in the world was the major restoration of Japan in the three decades following 1868. And in the decades leading up to World War II, Japan's economy was among the fastest growing in the world. It may have been the fastest growing in the world. So it's not just a question of suddenly the United States coming in and transplanting its legal institutions, and making Japan what it is, although they certainly helped, it's a question of something that goes back much deeper. MR. WATTENBERG: Let me ask -- we're running out of time. My old boss LBJ used to take conversations like this and just say, therefore what? So why don't you tell me therefore, what should we do about it, Larry, and then we'll get out. MR. De SOTO: Let me tell you, I have admired the work that Larry is doing, because I think it is important to discuss matters that are culture. But, every time I try and use it in the many countries that we've been called to work, it's like nailing Jell-o to the wall. It's interesting, but I don't know how to handle it. Where I've been able to handle this, and where I have seen throughout history people being able to hold culture, is when you start codifying, or putting into legal systems what culture they have about cooperating. What you do is you have to create a property system that is capable to represent wealth. That what you call capital at the end isn't money. It's a paper that represents assets and that you can convert into liquidity. If you create that kind of a property system, you make a huge advance. And while all the cultural arguments are interesting, and they may make Anglo-Saxons feel good at night, when you read the book and find out how well you've done. I don't think it leads us anywhere. It certainly depresses the French, it depresses us Latins, it depresses the Arabs, it depresses the Russians. MR. WATTENBERG: Larry, if I made you president of the world tomorrow, would you have any problem with what Hernando is talking about? MR. HARRISON: First of all, this is important, what he's suggesting, because it can help to reduce poverty, it can help to give resources to people who can use them intelligently, although some may not use them intelligently. What I'm going to say in answer to your question is -- MR. WATTENBERG: Which is, therefore what, what do you do? MR. HARRISON: What you've got to do is look at what the cultural values and attitudes that have succeeded, what they are that have succeeded in various parts of the world, not just the West, also East Asia, and these upwardly mobile ethnic groups. MR. WATTENBERG: Give me a list of three of those values. MR. HARRISON: Okay. First, the idea that the world is manipulable, that you can influence your own destiny, and that you are not the subject of the various actions of gods, or authoritarian leaders, or arbitrary rules. You can influence your future. Second, that education is absolutely indispensable to human progress. Third, that merit is an indispensable element in human advancement. Let me take the example of a fellow Peruvian who has come to the conclusion that what matters in Peru, and explains why Peru is underdeveloped is culture. This is a self made businessman, who for many years was the Honda agent in Peru. And he made a lot of trips to Japan, and he came to a conclusion. And that conclusion is that there is no fundamental difference between Peru and Japan, except that Japanese kids learn progressive values, and Peruvian kids don't. So he went back to Peru, and ten years ago started the Institute of Human Development, which propagates what he calls the ten commandments of human development, which are, if you will, a summary of the progressive aspects of Confucianism, the progressive aspects of the Protestant ethic, or the Jewish ethic. And this he is promoting in the school systems, and it's not only happening in Peru, but also Mexico, Nicaragua, and other Latin American countries. MR. WATTENBERG: How do you -- I mean, to Hernando's credit, he sets up something specific. He says, okay, let's get to this titling system, this paperizing thing. What you are talking about people learning that they can shape their own destiny, that god can't do certain things, I mean, that is -- I don't disagree with it, but how do you do that? It's saying, I'm going to put this vast cloud over your country and everything is going to come up different. I mean, Hernando's got a one-point program. MR. HARRISON: And what he's dealing with is much, much easier, and there's no question about that. In the book, and out of the symposium on which it was based, came a research agenda, of theoretical and applied research, which is the next step. And actually, I will be talking to the development institutions in Washington about starting next week. It includes looking at these spontaneous things that people in poor countries have already started, like the one I just mentioned. But, let me also say that what Hernando is promoting will also change the way people see the world in a progressive sense. MR. WATTENBERG: Okay. Thank you, Hernando de Soto, Lawrence Harrison, and thank you. Please remember to send us your comments, via email. For Think Tank, I'm Ben Wattenberg. ANNOUNCER: We at Think Tank depend on your views to make our show better. Please send your questions and comments to New River Media, 1219 Connecticut Avenue, Northwest, Washington, D.C. 20036, or email us at thinktank@pbs.org. To learn more about Think Tank, visit PBS Online at pbs.org. And please let us know where you watch Think Tank. This has been a production of BJW, Incorporated, in association with New River Media, which are solely responsible for its content. Additional funding is provided by the John M. Olin Foundation, the Lynde and Harry Bradley Foundation, the Smith Richardson Foundation, and the Donner Canadian Foundation. (End of program.) Back to top  Think Tank is made possible by generous support from the Smith Richardson Foundation, the Bernard and Irene Schwartz Foundation, the Lynde and Harry Bradley Foundation, the John M. Olin Foundation, the Donner Canadian Foundation, the Dodge Jones Foundation, and Pfizer, Inc. ©Copyright Think Tank. All rights reserved. 
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