“Globalization must do more than connect elites and big businesses that have the legal means to expand their markets, create capital, and increase their wealth.” –Hernando de Soto
When assessing the causes of the recent boom in global prosperity, economists and analysts will point much of their praise to the power of free trade and globalization, and rightly so.
But while these are important drivers, we mustn’t forget that many people remain disconnected from networks of productivity and “circles of exchange.” Despite wonderful expansions in international free trade, much of this has occurred between “outsiders,” with many partners still languishing due to a lack of internal free trade within their countries.
Much of this is due to an absence of basic property rights, as economist Hernando de Soto argues throughout his popular book, The Mystery of Capital. If the global poor don’t have the legal means or incentives to trade beyond families and small communities, so-called “globalization” will still leave plenty behind.
In a recent lecture, de Soto distilled this basic argument rather well. The full remarks are worth noting, but his point on the lack of internal trade deserves more attention than it receives:
Forget about globalization — real globalization. To be sure, the world has become smaller and more interconnected for many people and businesses. International commerce, the media, the Internet, and advances in computer and information technology have changed the world. “Globalization” is on everyone’s agenda. But if, as I have argued, most of the businesses and entrepreneurs in the world are on the outside looking in, operating outside the legal system in a parallel, extralegal economy, then four billion or so people around the world are in no position to take part in globalization. None of these changes touch them — which, by the way, is why in the Third World there is a general indifference to the issue of globalization. These four billion outsiders do not even have the legal means to trade with most of the people in their own cities and nations, never mind with the rest of the world. Because they are unable to expand their markets so close to home, “international free trade” and “globalization” are no more to them than shiny, meaningless phrases uttered by the intelligentsia and local politicians. No matter how hard they try to get into the system, discriminatory laws and unaffordable bureaucracy keep them on the outside looking in.
“International free trade” will not truly exist until most of the people in developing nations have internal free trade — in other words, are free to do business outside their limited family and neighborhood circles. “Globalization” must do more than connect elites and big businesses that have the legal means to expand their markets, create capital, and increase their wealth. To involve the rest of the entrepreneurs around the globe in globalization will require the kind of legal reform that makes existing systems more inclusive, gives everyone access to legal tools that will allow them to organize their businesses more effectively and productively, gives them the means to operate in markets beyond their families and friends, and gives them the formal, fungible property rights that not only allow their assets to be identified but also allow ordinary people to move them in expanded markets to capture as much value as possible.
If we truly believe in the power of free trade and the promise of globalization, connecting the disconnected ought to remain at the forefront of our thinking. How much sweeter will the fruits of prosperity be when they extend to more people, and in turn, when those same people are enabled to offer up their gifts to the world?
For more on this, see The Mystery of Capital and watch the PovertyCure series, in which de Soto makes routine appearances.