The Rules of Capitalism
Posted: 17 Dec 2001
Hernando de Soto's book, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, has been widely hailed as a seminal contribution to our understanding of the relationship between legal institutions and development. This review suggests that although the book is engaging and stimulating, its central claims require a great deal of further clarification and analysis. De Soto argues that the main reason why Western countries have been so successful over the past two centuries is because of the quality of their 'formal property systems.' He also argues that the crucial determinant of success for formal property regimes is whether they are designed to reflect the extralegal arrangements that people have created in the absence of appropriate formal law. Although not particularly novel, the first claim is interesting because of de Soto's emphasis on how formal property systems enhance accountability. The analysis could be strengthened, however, by clarifying the distinction between two forms of accountability, namely, exposure to sanctions that involve deprivation of property, and removal of anonymity. This distinction is important because the two mechanisms for achieving accountability are not equally dependent on the quality of formal property regimes. De Soto's second claim is less than compelling because of his failure to examine whether it is safe to assume that rules that reflect parties' extralegal arrangements are likely to be either efficient or fair.
Note: This is a description of the paper and not the actual abstract.
Keywords: Property rights, law and development
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