We are entering into our midterm election. News reporters are speculating whether states are staying blue or turning red. It will be interesting to see what actually happens next week. I am a pretty simple man, and typically see things pretty simply. I think this election reflects what the argument entails – big government or small government. However, I don’t think this is just a first world problem, I think it is a worldwide issue, one that gets in the way of poverty reduction.
Several weeks ago there was a great article in the WSJ, that reinforced my thoughts on this matter. Hernando De Soto wrote an article discussing the impressive results in Peru when the government began to support its entrepreneurs. The article was titled, “The Capitalist Cure For Terrorism.” I think all of us agree that what our government has done to alleviate terrorism in the Middle East has not worked. Therefore, maybe we should look at a Capitalist cure for the problem?
De Soto Looks at Latin America and declares “a generation ago it was in turmoil.” He mentions the Shining Path and other Marxist-Leninist organizations that were leading the so-called rebellion against impoverishment and unemployment. The wisdom of the time felt that Latin countries did not understand free market processes. However, De Soto demonstrates that this was not the case. “The conventional wisdom proved to be wrong. Reforms in Peru gave indigenous entrepreneurs and farmers control over their assets and a new more accessible legal framework in which to run businesses, make contracts and borrow – spurring an unprecedented rise in living standards.”
De Soto also argues that between 1980 and 1993, Peru won the only victory against a terrorist movement since the fall of communism without the intervention of foreign troops or significant outside financial support for its military. Over the next two decades, Peru’s gross national product per capita grew twice as fast as the average in the rest of Latin America, with its middle class growing four times faster.”
The question in my mind at this point centers on why this worked? It wasn’t focused on corporate partnership. It wasn’t having Walmart come in to provide jobs, although I imagine that Peru probably has some Western corporate presence now, I just have not checked to see if that was true. Do they have a McDonald’s?
However, I think I know why it worked, and I would like to argue there were three things that helped make this successful change: a focus on a free market, private ownership of property (thus creating a strong middle-class), and a governmental/legal system that supported entrepreneurship.
This in essence is Capitalism, at least the type of Capitalism that I think can make a difference throughout the world. It is not the large Corporation focused perversion that creates an army of unemployed to limit paying a livable wage.
Don’t get me wrong, Corporations are critical to the economic health of our global economy, but when government/legal systems become cronyistic creating corporate monopolies we are undermining the ability of the middle class to thrive. The focus on corporate advantage through the legal system is an aberration to the Capitalism that early writers wrote about, and one that Marx rightfully warned us about. I don’t care what you call your political system, but from an economic perspective for an economy to thrive you need a strong middle class. To do that there needs to be opportunity. This means a focus on a free and fair market, private ownership of property, and a government/legal system that supports a strong economic system favoring the middle class. This is what will defeat terrorism, not more boots on the ground.
And that is my thought for the day!