Book review: The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, by Hernando de Soto.

“Sendero Luminoso!” A name that struck so much fear in the hearts of Peruvians in the 80’s that they uttered it only in a whisper. Yet of all the terrorist movements since World War II that had any realistic potential to form a national government, only this one was decisively defeated on the battleground of ideas.

Il Otro Sendero
The task of making The Shining Path politically irrelevant was accomplished primarily by ideological means. Hernando de Soto, of The Institute of Liberty and Democracy in Lima, offered an alternative vision of Peru’s poor. Rather than see them as the proletariat, he showed that they were in fact budding entrepreneurs whose greatest desire was not to bring down the market economy but to join it. Surviving numerous assassination attempts, de Soto engaged with The Shining Path on the battlefield of the media, placing advertisements in the press advocating for another way—Il Otro Sendero. Eventually, without an ideological foundation The Shining Path collapsed. But de Soto’s new work is even more challenging.

“Capitalism can be the engine by which the poor, set free in an open market place, can raise themselves from poverty. We must give them the tools. We ignore them at our peril”
—Hernando de Soto

Underserved markets
There’s a mass movement of people to the cities. They seek to cluster together so that they can divide labour among themselves to become more productive. This is the very same reason you work for a corporation. The poor want the same things as the rich—homes, work, structures from which they can trade, schools, shops. They’ve seen these things on TV; they’ve read about them in the press, they’ve watched how we live. Yet they can’t have these things because the legal systems upon which we rely are too unfriendly to them. De Soto predicts the poor will bring down these systems as many times as they need until they feel included, not excluded.

Do you feel some of these symptoms in your markets today? Would your perceptions of the poor change if you thought of them rather as underserved? Understanding the extralegal problem, can you design product variations that tap this vast market?

Tagged as: bureaucracy, bureaucratic, extralegal, poor, underserved