The Mystery of Capital or the Mystification of Capital?

Abstract

In contemporary political economic analyses of development processes, Hernando De Soto's The Mystery of Capital, has been one of the most discussed, albeit controversial, books. Although well received by global development agencies such as the World Bank, a key exponent of De Soto's work, positing that the creation and institutionalisation of individual property in housing and land revives “dead capital” and creates the conditions that will enable the poor to emerge from abject poverty, has been widely criticised. These criticisms show that (1) the thesis is flawed, (2) the flaw is due to implementational problems and (3) the practical implications arising from the thesis are largely neutral and will neither improve nor worsen poverty. Although agreeing with the first criticism, this paper argues that the second critique must be nuanced, and the third is entirely mistaken. Utilising insights from Joseph Schumpeter, Karl Polanyi and Henry George, it makes the case that applying De Soto's ideas through policy would be ineffective in curbing urban poverty, and actually serve to simultaneously entrench and augment it. Moreover, while finding that De Soto's assumption that the poor possess some economic agency is sound and may, indeed, secure socially beneficial outcomes through pursuing innovative and entrepreneurial endeavours, De Soto's conception of such processes remains largely emasculated from broader political economic considerations.

Keywords::

• dead capital
• social innovation
• progress amid poverty
• fictitious commodity

Acknowledgements

I thank David Primrose (Department of Political Economy, The University of Sydney, Australia), Priscilla J. Lee (Department of Sociology, University of California, San Diego, USA) and the anonymous referees for Review of Social Economy for their constructive feedback on draft versions of the paper.

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Notes on contributors

Franklin Obeng-Odoom

Franklin Obeng-Odoom is the Chancellor's postdoctoral research fellow at the School of the Built Environment and a member of the Asia Pacific Centre for Complex Real Property Rights at the University of Technology, Sydney. His doctoral work was supervised by Frank Stilwell, Australia's leading radical economist and first full professor of political economy. Franklin's research interests are in political economy of natural resources (especially water, oil and land), political economy of cities and political economy of development. His current work at UTS is in agrarian political economy, looking at inherited, imposed and directed transformations in land and property rights, food security and economic development, as well as their spatial and temporal dynamics. Among the journals in which his research has appeared are Review of African Political Economy, The Review of Black Political Economy and Regional Studies. Franklin is Associate Editor of African Review of Economics and Finance and Journal of Sustainable Development, and the Book Review Editor of Journal of International Real Estate and Construction Studies. He serves on the editorial board of Urban Challenge (Urbani Izziv).