The Power of the Poor
 
Globalization To Hernando de Soto, globalization is on one hand the best path to broad prosperity. On the other hand, it is an exclusive club for the West and elites in the developing world.

Because it rewards economies of scale and theoretically can involve everyone, globalization is a source of broad based prosperity. It is the extension of the network of laws, documents, and rights that has developed in the West and which has resulted in unprecedented wealth—including a sizable middle class.

But in its current form, de Soto thinks globalization is limited. The legal structures that give rise to it have left out the majority. To be truly worth its name, globalization must actually include the majority of people on earth:

We’ve never had it really so good. The prosperity of the world has grown more since the Second World War than the previous 2,000 years, and yet the system that allows most of the world to prosper, which is globalization, could falter. It could stumble.

The systems behind civilizations — the weaving of transactions and relationships among people — have always been designed by elites. The tendency of elites has always been to believe that if the system covers themselves and maybe the top ten or twenty percent, it’s acceptable.

But if we don’t bring the other 80 percent of the population inside the system, this 80 percent will bring it down in the same way that they brought down the Greco-Roman Empire, the Roman Empire, or the Ottoman Empire.

Either those that are excluded are brought into globalization, brought into its benefit and given its tools, or they will bring the system down.
As it stands now, globalization only links the elites of the developing and post-Soviet world to the world economy. The elites, living in “bell jars,” have the tools and connections to do business with the West. It’s a private club with very high gates. Everyone else lives in an extralegal world where they have a hard time even doing business across town — much less around the world. If we can just get them the tools and abilities for free trade inside their home countries, eventually they can link and trade with the rest of the world.

Institute for Liberty and Democracy (ILD) teams have their ears to the ground in every country they work in. They can tell you how the excluded majorities feel – that globalization is not open to them. It’s a discriminatory system where only the West and the elites in their countries have access. In their bones, the poor believe that they’re never going to make it into that big, plush globalized tent. They perceive a unbridgeable chasm between themselves and those who have access to the system beyond–which gives rise to feelings of social injustice.

If we do not bring these people inside the system of globalization and give them the tools, that sense of injustice won’t go away and it will move them to bring the system down.

The market economic system, itself, is the result of a legal revolution that has been taking place — especially in the West — over the last 150 years. De Soto feels that if market institutions were to be brought down, it “could take a few centuries” to develop it again. We would experience another Dark Age.

It is naïve to think that globalization could not stumble, falter, or collapse. Globalization is a budding civilization. It’s a way of dealing between people and countries and continents we’ve never really had before. But like all civilizations, it can die. This system can only be preserved provided we make sure that everybody’s included.

Many civilizations have come and gone on the earth over the centuries. De Soto likes to point out that the 19th Century had many similarities with the present day: there were mass migrations, great advances in business tools, and new methods of communication, interconnectivity and information exchange.

In the West, it was mostly inclusive. Prosperity increased in those places. But in early 20th Century Russia, of course, capitalism was not inclusive. The excluded overthrew the elites. With Bolshevism, however, they threw the baby out with the bathwater—the means to prosperity went out with the prosperous.

Then a couple of decades later, capitalism itself almost died. In 1942 the free world’s future looked especially dark. As Lester Thurow wrote:

The United States and Great Britain were essentially the only [major] capitalist countries left on the face of the earth... All the rest of the world were fascists, communists, or Third World feudal colonies. The final crisis of the 1920s and the Great Depression had brought capitalism to the brink of extinction. The capitalism that now seems irresistible could, with just a few missteps, have vanished.1

De Soto agrees:

The capitalist system nearly perished. It was pretty much put into a corner during the Second World War, where the Anglo-Saxons were alone fighting fascism on one side and communism on the other. It’s happened before and just very recently. Why shouldn’t it happen again?

As of this writing, we are dealing with a worldwide recession. As we think about the future of the global economy, we must take important lessons from history. One important lesson is clear, according to de Soto: big players can no longer go it alone–we need to accelerate inclusion. Globalization must leave no orphans.

The bottom line for de Soto? To be sustainable, globalization must include the majority of people on earth.
References:
1 Thurow, Lester, The Future of Capitalism, Penguin Books, New York, NY, 1996, p5.