World on Fire - Brownstein, Michael [141]
In the West, strong redistributive measures such as progressive taxation, social security, and unemployment insurance, as well as antitrust and financial regulation, temper the harshest effects of capitalism. In the non-Western world, it is equally imperative to try to spread the benefits of markets. There is no good reason why, in some of the poorest countries in the world, the tax rate for the very wealthy is effectively zero. At a minimum, when exporting Western market institutions, the advanced countries should also be working toward the creation of the social safety net programs and tax-and-transfer institutions familiar throughout the Western nations.
Unfortunately, the realistic redistributive potential of tax-and-transfer policies in the developing world is limited, at least in the near future. To put it bluntly, there is not enough to tax, and nearly no one who can be trusted to transfer.
12 While Westerners take sophisticated tax systems for granted (and complain about them all the time), establishing the institutions and practices necessary to effectuate tax-and-transfer programs is immensely difficult in countries where the state is weak, money scarce, and corruption pervasive.
A second strategy for spreading market wealth was recently proposed by Hernando de Soto in The Mystery of Capital: give the poor in the developing world formal, legally defendable property rights. Specifically, de Soto advocates integrating extralegal businesses into the formal property system and giving squatters legal title rather than evicting them. Based on de Soto’s proposals, countries like Peru (de Soto’s home country) and the Philippines have implemented bold new titling programs, attempting to debunk the prevailing view in the developing world that capitalism is a “private club,” only benefiting the West and the already-rich.
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A passionate and brilliant champion of both capitalism and the poor in the Third World, de Soto has managed to capture the imaginations of influential figures like Margaret Thatcher and Milton Friedman, along with millions who are currently excluded from globalization’s benefits. Insofar, however, as de Soto believes that mere “titling,” combined with a market economy, can eliminate poverty quickly and on a large scale, his proposals are probably idealistic. Some of the new “titled” communities established on de Soto’s model are located in remote areas and still lack sewage and basic infrastructure. More broadly, de Soto’s book does not account for the fact that the existing property rules do not seem to have impeded wealth accumulation by certain ethnic groups—market-dominant minorities—many of whom began with no property at all. As a result, while de Soto’s proposals are eminently worth pursuing, I fear that a mere change in formal property rules may not substantially alter the realities of entrenched poverty and the current extreme ethnic maldistributions of wealth. Nevertheless, by drawing international attention to the urgency of trying to expand popular participation in the market system, and by offering a concrete way of doing so, de Soto has performed a tremendously important service and represents a courageous step in the right direction.
A third strategy for spreading the benefits of free markets involves finding ways to give the poor majorities of the world an ownership stake in their country’s corporations and capital markets. In the United States, a solid majority of Americans, even members of the middle and lower-middle classes, own shares in major U.S. companies, often through pension funds, and thus feel that they have a stake in the U.S. market economy. This is not the case in the non-Western world, where corporations are often privately owned by single families belonging