Monday, 13 October 2014

The Capitalist Cure for Terrorism

If that sounds like an unusual headline, then consider that the ideas of Hernando De Soto have been credited not just with helping turn around Peruvian poverty, but also to putting an end to the Marxist guerrilla movements like Shining Path that plagued the place.

As he explains in one book, two TV documentaries, and countless speeches, lectures and articles, the two are not unconnected.

His weapons in this struggle: capitalism, and property rights – and he says the recipe can work just as well for the Middle East. Indeed, he says, it is how the Arab Spring began:

Deploy capitalism, he argues, and you can stop recruitment to Islamic State’s “network of death.”

I know something about this. A generation ago, much of Latin America was in turmoil. By 1990, a Marxist-Leninist terrorist organization called Sendero Luminoso, or Shining Path, had seized control of most of my home country, Peru, where I served as the president’s principal adviser. Fashionable opinion held that the people rebelling were the impoverished or underemployed wage slaves of Latin America, that capitalism couldn’t work outside the West and that Latin cultures didn’t really understand market economics.
    The conventional wisdom proved to be wrong, however. Reforms in Peru gave indigenous entrepreneurs and farmers control over their assets and a new, more accessible legal framework in which to run businesses, make contracts and borrow—spurring an unprecedented rise in living standards.
    Between 1980 and 1993, Peru won the only victory against a terrorist movement since the fall of communism without the intervention of foreign troops or significant outside financial support for its military. Over the next two decades, Peru’s gross national product per capita grew twice as fast as the average in the rest of Latin America, with its middle class growing four times faster.
    Today we hear the same economic and cultural pessimism about the Arab world that we did about Peru in the 1980s. But we know better. Just as Shining Path was beaten in Peru, so can terrorists be defeated by reforms that create an unstoppable constituency for rising living standards in the Middle East and North Africa.

How to make this agenda a reality?  By “legalising” the informal economy – by bringing in from the black market traders and entrepreneurs locked out by rules and bureaucracy – recognising their property rights and contracts, so allowing then to borrow and build capital.

Capitalism from the bottom up.  This is not simple Pollyanism. It works.

This new way of seeing economic reality led to major constitutional and legal reforms. Peru reduced by 75% the red tape blocking access to economic activity, provided ombudsmen and mechanisms for filing complaints against government agencies and recognized the property rights of the majority. One legislative package alone gave official recognition to 380,000 informal businesses, thus bringing above board, from 1990 to 1994, some 500,000 jobs and $8 billion in tax revenue.
    These steps left Peru’s terrorists without a solid constituency…
    Looking back, what was crucial to this effort was our success in persuading U.S. leaders and policy makers, as well as key figures at the United Nations, to see Peru’s countryside differently: as a breeding ground not for Marxist revolution but for a new, modern capitalist economy.

But can the recipe work in the Middle East?

These new habits of mind helped us to beat back terror in Peru and can do the same, I believe, in the Middle East and North Africa. The stakes couldn’t be higher. The Arab world’s informal economy includes vast numbers of potential Islamic State recruits—and where they go, so goes the region.
    It is widely known that the Arab Spring was sparked by the self-immolation in 2011 of Mohamed Bouazizi, a 26-year-old Tunisian street merchant. But few have asked why Bouazizi felt driven to kill himself—or why, within 60 days, at least 63 more men and women in Tunisia, Algeria, Morocco, Yemen, Saudi Arabia and Egypt also set themselves on fire, sending millions into the streets, toppling four regimes and leading us to today’s turmoil in the Arab world…
    These suicides, we found, weren’t pleas for political or religious rights or for higher wage subsidies, as some have argued. Bouazizi and the others who burned themselves were extra-legal entrepreneurs: builders, contractors, caterers, small vendors and the like. In their dying statements, none referred to religion or politics. Most of those who survived their burns and agreed to be interviewed spoke to us of “economic exclusion.” Their great objective was “ras el mel” (Arabic for “capital”), and their despair and indignation sprang from the arbitrary expropriation of what little capital they had.

There is a thirst in the Middle East, he argues, to build capital – a thirst than can be watered by recognising the contracts and property rights of these extra-legal entrepreneurs. It’s not so surprising – it’s the way capitalism itself was born.

As countries from China to Peru to Botswana have proved in recent years, poor people can adapt quickly when given a framework of modern rules for property and capital. The trick is to start. We must remember that, throughout history, capitalism has been created by those who were once poor.
    I can tell you firsthand that terrorist leaders are very different from their recruits. The radical leaders whom I encountered in Peru were generally murderous, coldblooded, tactical planners with unwavering ambitions to seize control of the government. Most of their sympathizers and would-be recruits, by contrast, would rather have been legal economic agents, creating better lives for themselves and their families.
    The best way to end terrorist violence is to make sure that the twisted calls of terrorist leaders fall on deaf ears.

I urge you to read and digest Hernando De Soto’s full piece (there’s much more, including some very persuasive stories):

(And if you’d like more where this came from, get hold of his book The Mystery of Capital. It’s a tour de force.)


[Video: YOUTUBE, cartoon: Wall Street Journal]


  1. Inspiring. Good to read on a Monday morning when there is so much fear . .
    I had read elsewhere how hopeless it had been for ordinary people to do business in Egypt.,and Tunisia.
    I have now just finished reading the polar opposite; which was Frank Dikotter’s book ‘ Maos Great Famine’.
    Here the collectivisation [ state ownership ] of everything from 1959 onwards, saw people digging the fields to one meter deep, following some mad communist ideal ; throwing pots and pans into the furnace for pig iron which was useless ; and and even pulling homes down to feed the fields with wooden fertilizer.
    Maos great leap backwards, [ following a similar plan to Stalin, earlier, and Pol Pot later] cost over 30 million lives, in cruel starvation.. Those are facts even though many still wish to deny.
    I was just a little kid complaining about eating porridge in the morning because my father lived in a world where his work paid off

  2. This is not Pollyanaism at all Peter - but a wonderful idea, and a wonderful article.

    Capitalism cures all and when you start putting a few quid in people's pocket their hearts and minds follow fairly easily and quickly.

    I have always said that you are not going to 'bomb' certain ideas out of these sorts of people, and sending in troops will have even less effect on them.

    Turn them into capitalists and show them all the things they can purchase with their newfound profits and they are going to embrace it and ditch this Islam palaver ASAP.

  3. I'm not convinced that this great example may apply to Islamic societies. Islam is a tribal religion and it operates in a fashion that is not complimentary to capitalism. Islamic societies are inherently corrupt because its all about looking after yourself and the family then relatives and up the chain - merit doesn't matter as much as connections. The mindset is different and I don't believe Peru had to jump this hurdle to make progress.


  4. 3:16

    " Islam is a tribal religion and it operates in a fashion that is not complimentary to capitalism. etc"

    Same can be said for Christianity, Judaism, and lately Hinduism (even Shintoism, although one can argue over what led to the fall there)

    Capitalism worked well for them, so I see no reason why Islam will be any different.

  5. Hey amit-dolf. Better get another handle buddy.

    You don't see many Christians running around deliberately targetting civilians and chopping heads off these days

    1. That fact makes the point of this article. Christians were similarly barbarous in the past but now they're not - which shows that change (or at least moderation) of a religion to be more peaceful is possible.

  6. Jamie

    You don't see Islamicists killing hundreds of thousands of children by denying them basic sanitation clean water, medicine, clean food and so forth. That is good Christians at work. Bush I, Bush II, Clinton, Obama, Cameron, Blair, Albright and all those hundreds of thousands of Christian minions, all god-bothering churchy folk who are, after all, only following holy orders (just like you).


  7. Don't you DARE tar me with their Brush amit-dolf.

  8. Jamie

    I just did. The reason is that you are exactly the same as them. The difference is merely a matter of degree.


  9. It isn't a cure for terrorism that is needed, but a cure for Islam. This is not something localised, like the Shining Path. It is global, and far broader and deeper in scope than the Middle East. It is taking hold in countries that have all the things that he says could end it. Not a chance. This is coming from the mosques, and it appeals to anyone who wants to be, for whatever reason, submissive to Allah.

  10. Agreed Richard, but how do we do this?

    The countries in which these mosques holds sway (the western ones) are the countries that have abandoned capitalism for a welfare state.

    The young men in Britain that get radicalised are the "beneficiaries", the ones that are economically consigned to a life of dependence, "just enough" and no way out.

    Going back to creed that carried the enlightenment of Christianity, that of economic and personal freedom, is a cure for all manner of stone age hoodoo, no matter how wide spread and deeply entrenched.

  11. Islam doesn't just appeal to those economically consigned to a life of dependence, whatever that means, it appeals to those who want to submit to a life program that requires no thought. There are many wealthy people who have, and do, enjoy all the benefits of property rights, etc, but support the supremacy of Islam. Property rights and all the rest didn't turn them, because it isn't property rights and Capitalism that they want. I don't think there is any cure for Islam, Dolf. We are just going to have to wake up and defend ourselves. I fear the waking up though will be a long time coming.


1. Commenters are welcome and invited.
2. All comments are moderated. Off-topic grandstanding, spam, and gibberish will be ignored. Tu quoque will be moderated.
3. Read the post before you comment. Challenge facts, but don't simply ignore them.
4. Use a name. If it's important enough to say, it's important enough to put a name to.
5. Above all: Act with honour. Say what you mean, and mean what you say.