The Mystery of Capital - Assignment Example

Paper Assignment Part A capitalist economy cannot simply produce wealth by its existence in a country but needs to take further steps to empower people to generate the wealth. According to De Soto, a capitalist economy needs a well-established structure of property ownership in order to produce wealth. Therefore, dead capital must be transformed into live capital by instituting formal property rights. A common characteristic in former communist and third world countries is the lack of appropriate access to formal property as well as property rights. In most cases, property is owned through informal neighborhood associations that are also often illegal. Therefore, the inability to use such property or assets as collateral limits transactions and the means to prosperity for capitalism. An example used by De Soto to prove this failure of capitalism shows that it took his team almost seven years to secure legal authorization for building a house on land owned by the state in Peru. This was further followed by 207 administrative procedures in 52 government offices. It is also pointed out that if one opts to go through legal procedures to own land, there are 728 steps to be followed. This is manifestation of the lack of property rights in Peru, which supports the concept that people cannot use the assets to free up capital. When one compares the economic developments of Peru and the US, the differences are striking and almost offer no room for comparison. The US is able to achieve such developments because of its formal and well-structured property ownership rights. This can be supported by the fact that the legal procedure that took almost seven years in Peru took a single day in the US. It is not just enough for a capitalist economy to have vast areas of state-owned property that cannot be used to secure credit. Therefore, it is important to perceive property in a different way other than its physical attributes. It is critical that property is perceived in terms of its title; a title that can be accepted by financial institutions as security against loans that people can use to generate wealth. That is the concept that most former communist and third world economies has not embraced, yet the property is readily available. The moment people are able to turn that property into capital, wealth generation will be realized. Therefore, when such economies create viable property systems, its people will be able to choose freely trading partners, rather than being restricted to the limited set that is mostly made up of state agencies (De Soto 218). Part 2 In Communist China, property ownership and rights extend only as far as the Communist Chinese Party (The Party) goes. The structure of The Party illustrates not only how communist the nation’s political system is, but also how Leninist it remains. It is true that China is not only communist in name. It is true that the nation shifted from its core communist economic system long ago and replaced it with a strict central planning that facilitated the coexistence of commercial state enterprises alongside a vigorous private sector. However, according to McGregor, it is also true that the tension existing within the political structure and the level to which capitalism may benefit the country is inextricably intertwined with how the political structure is permitted to develop the economy. This is in light of the Chinese dictators being keen to maintain a grip on politics by commanding the People’s Liberation Army, propaganda and personnel. All aspects of life, including owning property or conducting for-profit business, are controlled by The Party. Individuals cannot own private property exclusively in a manner that can afford them to use it as collateral and release capital. To be able to run a business and earn a sort of immunity from legal procedures or prosecution, one needs to seek membership to The Party. For example, as McGregor notes, all government networks in communist China are linked via special telephones that also include executives of big corporations. These executives may appear to be running private businesses in a capitalist environment, but are actually running state-owned corporations. A specific example he gives is when state banks intervened under The Party’s instruction in the financial crisis of 2006 and gave out loans. It is worth noting that the banks are headed by party members. More importantly, these loans were not issued against any property as collateral, another manifestation that property in communist China cannot be used to open up capital privately to individuals. Another example is the case of Nian Guangjiu. Because of starting and running a fruit business under his own name and earning profit, he was jailed three different times (McGregor 214). In contrast, when the state-owned dairy firm, Sanlu, produce contaminated baby formula, three individuals were executed for simply distributing it, yet it was produced by the state. No government official was executed. That is manifestation that property rights and the ability to use capitalism for wealth generation in communist China only extend as far as being a member of The Party goes. Part 3 Communist China’s dictators will be successful in producing prosperity using a capitalist system but will at the same time deny Milton Friedman’s thesis that prosperity will create individual freedom and end dictatorship. Looking at the Chinese economy, it evident that it is thriving, and it is also true that government systems are working alongside the private sector, albeit in a strictly, almost chokingly, monitored environment. However, the prosperity does not reflect at the individual level in the ideal situation one would expect in a capitalist economy. The Party remains highly conspicuous in public life, and the bureaucracy it imposes on systems does not give any indication to an end of dictatorship. So long as individuals, or even corporations, are not allowed to own and run business in their own name or capacity, they will not be able to realize prosperity. An obvious example that supports this view by McGregor is that of jailing the man who decided to operate a fruit business under his own name. Therefore, dictatorship exists even in the way businesses are registered and run. When a business is perceived as an asset or property, which it actually is, it should be able to be perceived from the angle of its title as well. However, that does not seem to be the case in communist China because The Party ensures that businesses are not registered under an individual’s name but are, rather, owned by the state. This means that individuals cannot draw prosperity from business because they do not have ownership rights. It follows, therefore, that individuals are not entitled to freedom, which is a necessary means to achieving prosperity. It is imperative that apart from facilitating a capitalist economy, authorities should afford people the freedom to express views, to associate with people or industries of their choice and receive fair legal representation. Such freedoms will enable the people to contribute practical ideas that will lead to the prosperity of not only the authorities, but also the people themselves as well as their nation. To this end, the dictators in China are not using capitalism as required to support individual prosperity. The dictators in communist China are oppressive and a barrier their subjects’ ability to use capitalism to gain prosperity. Further, so long as individuals do not participate in deciding who rules them and by extension their economy, there is no practical way to end dictatorship and assure them of prosperity. True, capitalism has generated a visible level of prosperity in China, but the authorities are just as determined to ensure it does not trickle to individual level that will also imply freedom. Works Cited De Soto, Hernando. The Mystery of Capital. London: Transworld, 2010. Print. McGregor, Richard. The Party: The Secret World of Chinas Communist Rulers. New York: Harper Collins, 2010. Print. Read More