It’s now a cliché to say that capitalism is in crisis, and after that not much more of value gets said – just lots of hand-wringing and head-shaking about inequality, stakeholders, the 1%, and social responsibility. So it was refreshing to hear original thinking on the issue from two of the smartest people I know, the Peruvian author and researcher Hernando de Soto and former Treasury Secretary and Harvard president Larry Summers. Both spoke this morning at the Fortune Time Global Forum in Rome. As they showed, the problem isn’t quite what most people think it is, and the solutions may not be either.
Remember how the Arab Spring of 2011 got started? A Tunisian merchant set himself on fire as a protest, starting a cycle of rage that spread across the region. But as de Soto discovered when his Institute for Liberty and Democracy researched the events, dozens of other people soon also self-immolated, and some of them were saved by bystanders. When de Soto’s researchers asked those survivors why they’d done it, they didn’t talk about abstractions like religion or democracy; the word they used most was “expropriation.” Authorities were taking their capital. “This is the basis of revolutions,” de Soto said. And while we in developed economies see globalization as the underlying cause of voter revolts like Brexit and Donald Trump’s victory, that isn’t the problem with capitalism in most of the world. “The problems those people face don’t have to do with globalization,” he says. “They have to do with getting established identities and property rights.” Those are features of society that we take for granted. A driver license or other government document establishes who we are, and a strong system of contracts and laws establishes what we own. De Soto’s work over the past 30 years has shown that bringing those features into an economy can spark significant new, broad-based prosperity.
Summers, always iconoclastic, said something to the room of top global CEOs that they don’t often hear: “You deserve more credit than you get for doing what you do every day: making better products that cost less, which makes people richer and helps them live better lives. That’s a substantial accomplishment that we don’t give sufficient credit for.” He also pointed out that by some measures, inequality is actually decreasing rapidly; the gap between rich countries and the rest is shrinking because countries led by China and India are growing far faster than developed economies. The rise of inequality is within countries, not between them.
As for solutions: “We should support education that teaches people to do what machines can’t do,” Summers says. “A big sign that education needs a total reinvention is that every high school in America still teaches trigonometry, but virtually no one today has any reason to care about the cosine of an angle. Yet only about one-third of them teach probability and data analysis, skills we need today.”
While conventional thinkers worry about technology eliminating jobs, de Soto thinks it can help make billions of people more prosperous. That’s because in much of the world, antiquated record keeping makes property rights impossible to enforce. But blockchain technology “could get the whole world onto one system” – enabling a revolution in property rights that could transform economies for the better.
Original thinking like this sparks new ideas. The crisis of capitalism developed in a way that surprised most people. The resolution of the crisis may do the same.
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