Section 1. What is the something else that De Soto argues is necessary for a capitalist economy to produce wealth? Choose and explain one example or counter-example used by De Soto to make his case.
De Soto was able to point out some flaws of the Capitalism. He is concerned that Capitalism is only succeeding in the west but failing terribly in other regions. As a way of proving the inadequacies of the Capitalism, De Soto uses various mysteries of the capital which include: the Mysteries of the missing information, capital, political awareness, missing history of United States, and the mystery of the failure in legal structures and practices as far as capitalism is concerned. De Soto suggests that there should be the integration of the extralegal understandings that will be vital in coming up with a cohesive system of the property rights.
Apparently, De Soto views the reviving of the dead capital as the as the necessary solution for the capitalist economy when it comes to producing the wealth. De Soto claimed that with the use of the formal property rights, accumulation of the wealth will be stimulated due to the enhancement of the active capital (De Soto 42). It is outlined that when assets are fixed and acquired in a manner that lasts for some time when the labor is fully supplied, then the accumulated assets will become active capital. This will lead to additional production which will, in turn, lead to further accumulation of the wealth in a capitalist economy. It is argued that there is huge potential amongst the poor but this potential can optimally utilize only if the property rights has been availed to them.
According to the De Soto, the accumulation of the property by the poor people in the capitalist economy has been perpetuated by their inaccessibility to the property mechanisms. These mechanisms are crucial in the legal fixation of the economic potential of the amassed assets. These assets can be used not only in producing extended market but also in guaranteeing its greater value (De Soto 42). It follows that fixation of the potential assets in the economy enhances a universal interpretation of the human-driven economic as well as the social economic values. Realization of this potential in the capitalist economy makes the property (assets) be used as an investment, which is a crucial element in the accumulation and production of wealth. De Soto claims that unless there is the ability for the assets to be used as a collateral (leverage of assets), it is impossible to produce extra value or produce extra wealth.
De Soto gives an example of the poor inhabitants of the Third World and the nations that were previously communists. He points out that these people possess assets but do not have the appropriate process that enhances representation of their property as well as the creation of the capital; which are essential elements in producing wealth. In this example, De Soto claims that people in these nations can have houses but no title deeds or can have crops with no deeds. They can also have businesses but with no statutes of incorporation (De Soto 51). Through this example, it apparent that the lack of the crucial elements of property representation in the Third World nations or the nations that were previously communist have been unable to have a sufficient capital and eventual being unable to produce sufficient wealth that can sustain their economy. This is the main reason behind the mystery of the capital. In order to solve this problem, it is important that other nations understand the reasons as to why Westerners value the representation of their assets or properties with titles.
Section 2. Is Communist China a capitalist economy?
Mao Zedong triggered the onset of communism in China. During his tenure, Mao, under Chinas Communist Party embarked on ruling China as a democratic dictatorship. He confiscated lands from the Lords and made them be collective farms for Chinese people. In the 1950s, Mao banned free trade in China, making it embrace the Communism. However, his death paved a way for Deng Xiaoping who supported Capitalism. For instance, he came up with policies that allowed families to lease their farms. He also encouraged the setup of the rural industries that were collectively owned by the villagers which operated under the free market. The reforms overseen by Deng made China republic to adopt capitalism.
McGregor example of the state-owned enterprises (SOE) can be used to illustrate the capitalist aspects of the Chinese economy. SOE represented the industries as well as businesses that were not only owned but also operated by the state. They included small silk factories, huge steel mills, and other processing industries. The reforms that were incorporated into these industries during the reign of Deng indicated that China was moving towards capitalism economy (McGregor 30). For instance, the initial reforms in these SOEs constituted of the independence given to managers when it came to the wages, pricing and production methods used. The motive was to make SOEs compete against private enterprises. For instance, those SOEs that did not make profits were forced to go out of the business.
Another example that illustrates the capitalist aspect of the Chinese economy is allowing of the foreign traders and investors into the country. McGregor points out that in the 1980s, China allowed foreign capital to move into the coastal regions, which were considered to be special zones, to work with the Chinese managers (McGregor 33). This move encouraged the government officials as well as private individuals at the township or at village levels to start profit-making businesses. The move also saw the managers who were working in the SOEs receive incentives that were on the basis of their operational profitability. This was meant to entice and motivate them into increasing their efficiency. It also highlighted that the attributes of the capitalist economy were being embraced in the Chinas methods of production. Capitalism methods of production advocate for efficiency which is a key in having a competitive edge over the rivals. The end result was seen in the rapid growth of Chinas economy.
There are instances that McGregor uses to point that China is not, after all, a capitalist economy. In one of the example, McGregor is likening the Chinese Party to the God because it is everywhere (McGregor 52). This implies that the party has been bestowed with all powers to control economic activities of the state which is not a feature of the capitalist economy. In another example, McGregor uses Red Machines to refer to the special network for the telephones that is associated with the top individuals in the government. This special network is supposed to enhance the keeping of the secrets that are not supposed to reach the public, implying that crucial economic information is barred from reaching the public, which is not the feature of the capitalist economy.
McGregor is also able to point out that Chinas capitalist has something else that makes it be different from other capitalist nations. For instance, it is argued that China has a healthier balance of payments surplus. It is alleged that China has more dollars in its reserves than U.S. Federal reserve, making China be more stable even when other countries suffer from the credit crunch. McGregor also gives an example of Chinas ability to withstand adversities of the economy as an indication that it is something else (McGregor 67). It is alleged that large portion of the Western Wishful thinkers expected the Chinese economy to collapse just like the Soviet Union did but it has not happened. This is because Chinese system is flexible and protean enough to withstand all forms of economic adversities.
According to Milton Friedman, the combination of the free markets and the governments that follow the Do-Nothing Policy is a blueprint for the prosperity and freedom. This approach describes the essentials of the capitalist economy. This implies that capitalist economy requires limited controls and directions from the government. These aspects of the capitalist economy are easily adopted by the democratic government as opposed to a dictatorial government. It follows that dictators in the communist China will not be able to use capitalist system to produce wealth.
Corruption and favoritism are elements that characterize the dictatorial regimes. These aspects are known for crippling the economies which in turn hamper the freedom and prosperity of individuals within a country. Dictatorship also does not enhance formation of the credible property rights policies which are essential in stimulating the creation of wealth. McGregor gives an example of how corruption, through the provision of bank loans threatened to wipe out some enterprises in the Chinese economy. Local officials embarked on appointing bank managers. As a way of returning the favor to these local officials, bank managers favored them when it came to lending money for the pet projects of the town officials (McGregor 64). The overall effect was that the number of the loans escalated highlighting the poor management of the township as well as village projects. This example points out the inefficiency of the dictatorial leadership that do not foster economic prosperity or freedom.
McGregor, Richard. The Party: The Secret World of China's Communist Rulers. Penguin Books, 2011. Web.
Soto, Hernando De. The Mystery Of Capital. Transworld, 2010. Web.
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