Do my eyes and ears deceive me? Or is it indeed so? South African communists have been conducting a campaign over the past month to force local banks to give ordinary folk access to, yes, capital – to banking services, particularly loans and the like?
What are we to make of this?
No doubt there are political points to be scored. I could argue that it is further evidence that even capitalism’s harshest critics can no longer find a plausible alternative to it.
Point-scoring would, however, obscure a more interesting and important debate. The debate arises from the same territory as that inhabited by the South African Communist Party. It arises from the fact that the vast majority of South Africans are excluded from full participation in our capitalist system and, so, are excluded from the benefits that participation could give them.
Why are they excluded?
The simple answer is: because they cannot get access to capital.
And why can they not get access to capital?
Many in the SACP and African National Congress allege the reason is that most unsuccessful applicants for loans are black and that most of those in local banks who decide who should get a loan are racist whites. Some will go on to argue that capitalism is destined only ever to be able to benefit the few in any society.
On the first point, no doubt racism does play a role in some loan refusals. On the second, capitalism certainly did, in its early days, fail to improve the lives of the majority of people living under it. Witness the sweatshops and exploitation of children down mine shafts in Britain a few hundred years ago.
But the present tells a different story. It is apparent that, across vast swathes of America, Australasia, Asia and Europe, capitalism is “popular”. It is popular in the sense of being liked. And it is popular in the sense that is it a form of wealth creation in which the vast majority of citizens can participate if they wish to – and many do.
Yet, alongside the countries in which capitalism has become popularised, there are many others in which it has just not taken off. No matter how much help these other countries get from the International Monetary Fund, the World Bank and bilaterial aid programmes – no matter how many structural adjustment programmes they agree to – the vast majority of their populations are excluded from the main economy, and that economy lurches, rather like a drunkard, between collapse and speed wobble. Why?
The reason may indeed be that there is in the workings of capitalism, as some of its critics allege, an intrinsic propensity to exploit, exclude and victimise. What I would like to do, however, is to ignore this possibility for long enough to explore another explanation for capitalism’s failure to become “popular” across large parts of the developing world, including South Africa.
It is provided in a book, The Mystery of Capital, by a Peruvian economist, Hernando de Soto, recommended to me last week by my editor, Phillip van Niekerk.
De Soto argues that the reason many millions of people live in poverty and exclusion in capitalist societies is because the system of property law and property registration in those countries is inappropriate.
The poor, according to De Soto, are invariably hardworking and industrious. They produce many different kinds of goods and services. Most significantly, they have accumulated valuable assets – be they shanty houses, stretches of land they occupy and work or productive machinery they employ.
De Soto and a group of colleagues calculated, for example, that in Haiti untitled rural and urban estate holdings were worth about R39-billion. In the Philippines the value of untitled real estate was R998-billion. In Egypt it was R1.800-billion. And in South Africa? Someone should do a calculation and tell us.
Yet, because these assets are not formally registered or otherwise represented in property law, they cannot be used, say, as collateral against which to raise capital with which to expand the production or service in which these poor and excluded people are engaged, be it shoemaking or car repairs. The assets they control are, thus, “dead capital”. This failure places millions of productive, industrious individuals in a sort of extra-legal world, according to De Soto.
They have usually been forced into this twilight world by the burdensome bureaucratic requirements of, say, registering ownership of a property (or perhaps, in some cases, by the cost of accounting to the state for their employment practices or income).
De Soto shows, by way of example, that in Peru it takes 207 bureaucratic steps to formalise ownership of a legally obtained home. It also took a group of De Soto’s economist colleagues 289 days, working six hours a day, to register a small business in his home country.
In South Africa, a highly educated small business person from the middle classes who employs a handful of people told me last week it had taken her three days of non-stop daytime work to fill in various forms she was legally required to complete. What small business person can afford that kind of time off the job? Or much longer, if, as is likely in most cases, a small business person is poor, less well resourced and less educated than my friend?
The answer is very, very few.
Poor and excluded communities develop their own system of property transactions. These are of varying degrees of sophistication. But, because these systems apply only in those communities, they do not provide a basis for wide-ranging business exchanges between individuals in different communities or who are unknown to each other. This retards business development and the division of labour that usually stimulates and accompanies rapid economic growth.
The challenge before many developing countries, according to De Soto, is to integrate the poor, the excluded and their industry into the main economy. The way to do so is to create a pervasive legal framework that enables them to turn their assets into capital. That is to give them the potential to raise their output, so their income, so their standard of living and, so, their countries’ rates of growth.
Doing so requires creative adaptations to property law that can incorporate the varied forms of informal contract agreed upon in various communities. It also requires vastly improved registration and administration of property transactions.
In other words, if you and I want to defend the rule of law we may need to expand its applicability – rather than merely protect it in the form in which we currently find it.
De Soto shows that this was the challenge taken up and met last century in the United States and other countries in which capitalism has now become “popular” and in which citizens’ standards of living are the highest in the world.
It may well also be the challenge before us in South Africa now: how can we make sure that our poor and excluded people can turn their assets into capital?
So the problem, comrades, may be less with our banks than with our property law.