De Soto Vs. Piketty

Thomas Piketty’s Capital in the Twenty-First Century comes under fire from Hernando de Soto in his “The poor against Piketty.” De Soto is the author of The Mystery of Capital. Having devoted his life to extolling the virtues capital, he is not happy with Piketty’s argument that capitalism produces unsustainable inequality. According to De Soto, Piketty’s “political” thesis is “clearly wrong.” This he knows because of field research he has done on Arab revolutions. Right here, red flags should go up for the reader. If there is one thing that has been a constant in De Soto’s career it is his remarkably ability to say things that are absolutely of a piece with neoliberal economic orthodoxy while appearing to derive his findings from empirical research. His work on the informal economy in Peru, on indigenous peoples, and now on Arab revolutions always arrive at the same conclusions. These conclusions are presented as the findings of a Third World researcher, un-blinkered by Eurocentric categories. They just happen to align perfectly with the thinking of the World Bank and Chicago School economics.

So the main point De Soto wants to make is that the poor in countries like Egypt and Tunisia are really bustling entrepreneurs who have substantial capital (mainly land and real estate) even though these assets are not part of official accounts because they are in the informal sector. De Soto claims that Egyptian “workers” (scare quotes in original) own $360 billion in assets. This fact was discovered by his team of 120 Egyptian researchers working at the request of the Egyptian Minister of the Treasury. With his flair for the dramatic, De Soto (or his researchers) interviewed half of 37 self-immolators who (like Mohamed Bouazizi) burned themselves in protest against the expropriation of their capital, thereby sparking the Arab “revolutions.” For De Soto these revolutions are Industrial Revolutions—i.e. processes driven by entrepreneurs who are struggling for capital. In other words, violence is not caused by capitalism but by the oppressive deadweight of the state which does not allow informal capitalists to thrive. Thus, as expected, De Soto’s findings are exactly the same as in all his previous researches: capital is the solution not the problem, workers are actually entrepreneurs, development is held back by the inability of people to build and protect their capital.

De Soto seems utterly blind to the fact that there is a big difference between a small entrepreneur (read: worker) and a large entrepreneur (read: corporations) and that one of the most important differences is their relationship to the state. In many countries, both in the “West” and in the “Third World”, corporations (both national and increasingly multinational) have substantial structural power over states. A nice example from De Soto’s Peru is provided by UBC doctoral student Zarai Toledo, who recently visited Tambogrande, in the north of Peru just outside Piura. In 2002 Tambogrande held a popular consultation (referendum) on whether to accept a proposal by the Canadian Manhattan Minerals Corporation to start a gold mine in the area. The result was an overwhelming 98 percent “No.” The Peruvian government, after years of resistance, decided to cancel the project (leading to an unsuccessful lawsuit by Manhattan). Since then, 70 referenda on extractive projects have been held, involving 700,000 people from Guatemala to Argentina.

But the interesting thing about Toledo’s analysis is that she looks at what has happened in Tambogrande since the referendum. It turns out that Tambogrande is doing very poorly by comparison with the rest of the region. Half the children are anemic, water is scarce, dengue has spread, and young people are leaving in search of work. Predictably, De Soto argues that the rejection of formal mining has led to informal mining, which shows that people everywhere want to be entrepreneurs as long as they benefit directly. In fact, there is not a lot of informal mining in Tambogrande—most of it is happening elsewhere in the region (Suyo, Sapillica, Lomas and Paimas). Toledo shows that the real problem facing Tambogrande is neglect by the state. Since the Manhattan project was rejected, local authorities have been unable to extract resources from the central government, which has no interest in promoting the local economies that are not associated with extraction. Tambogrande remains heavily dependent on agriculture, which remains the backbone of the economy. Informal mining attracts migrant workers in certain periods when demand for agricultural labor is low. Just as in the past, when state policy focused on import substitution industrialization and neglected agriculture, today agriculture is neglected by a state that is single-mindedly interested in promoting extraction.

Capitalism generates inequality both directly (pace Piketty) and indirectly (through the structural power of capital over the state). De Soto’s utopia of competitive markets in which everyone is an entrepreneur and everyone can get ahead is just that. A neoliberal utopia.

Reflections on Joseph Heath’s “The Forever Campaign”

The best thing in the paper today is Joseph Heath’s “The Forever Campaign.” Heath makes the case that competition, left unchecked, can undermine everything from sports to politics. It is a great argument, and I like the analogy with sport. As football gets more and more competitive, the risks of playing the game outweigh the benefits. “Left unchecked, competition will escalate over time to the point where it becomes all-consuming. Unless carefully controlled, it may begin to undermine itself, to defeat its own purpose.” Or rather, purposes, because a game always has many purposes, including having fun, entertaining people, testing abilities, creating community and esprit de corps. Playing as if all that mattered was winning undermines the activity. And so it is with politics.

Heath points out that elections are competitions: “The basic rule is simple: if you want to run the show, you have to go out and get more votes than your opponents.” But when winning election becomes the only goal of politicians the activity of politics is undermined or corrupted. After all, democracy is not just about elections, it is also about governing. Yet we cannot govern democratically when every aspect of politics becomes about winning election. Hence the “forever campaign.” Harper thinks nothing of calling an 11-week election campaign. After all, he never stops campaigning. And Heath is right: the risk to democracy is not a breakdown and authoritarian rule. The risk is that the value of competition—viz. the alternation in power and the accountability and good government this encourages—is eroded when it is not “carefully managed” to ensure this result.

In the name of competition the US Supreme Court has knocked down all the rules carefully put in place to limit the role of money in politics. The result is the obscenity we currently observe in US campaigns. And we’re not too far behind. More and more, parties are becoming PR vehicles for candidates and candidates are devoting more and more of their time to fundraising. Happily, we have a system of public support for campaigns, but I fear that the expense of the federal election this year will test public patience with this system. But if we abandon it, we will win up with private money controlling everything.

Among the problems Heath sees with competition are its wasteful and self-defeating quality. Like an arms race, competition ratchets up the pressure, leaving everyone worse off. More competition does not create more winners, just more expense. Moreover, and this is critical, the activity of politics is undermined. More time is spend fundraising, the airwaves are saturated with attack ads, and politics becomes an activity dominated by consultants, pollsters, PR experts, and career politicians. Not surprisingly, the public feels left out. Worse still, governance suffers. Heath notes that Harper has turned governing into campaigning: bundling potentially unpopular legislation into omnibus bills to avoid debate and then pandering to their base with laws calculated to shore up public support. And, I would add, often accompanied by fundraising appeals.

I would add to Heath’s excellent analysis that part of the problem is how we think about democracy itself. “We often forget,” he says, “democracy is a staged competition designed to achieve a narrow purpose, which is to produce good government.” Democracy is more than elections, about that we all agree. But it is also more than competition. Deliberative democrats have long argued that democracy is also a system that forces those in power to defend their actions with reasons, and to do so in public in the face of criticism. There is a dimension of elections that is highly cooperative. It provides an opportunity—indeed it compels us—to see the issues of the day from a range of perspectives. The goal is not just to find a majority opinion, but also to allow us to arrive a collective judgments through a process in which everyone is answerable to criticism in the public sphere. This process can be degraded, as when candidates focus on one another’s appearance (“nice hair” mocks a Conservative ad aimed at Trudeau, which is hardly an informative statement). But in the debate on Thursday we saw a pretty high level discussion of the current government’s economic, environmental, and foreign policy record.

If democracy is about producing good government, it must enable us to construct notions of the good in the process. Is the exploitation of the tar sands a good? Is bombing ISIS a good? Is child care a good? The democratic process is about both the collaborative search for answers to such questions, and the competitive struggle to decide which answer should guide policy and law.