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):

• The Capitalist Cure for Terrorism – WALL STREET JOURNAL

(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]