The Other Path: The Economic Answer to Terrorism

by Hernando de Soto

In this, his classic book on the informal economy of Peru and the reasons why poverty can be a breeding ground for terrorists, Hernando De Soto describes the forces that keep people dependent on underground economies: the bureaucratic barriers to legal property ownership and the lack of legal structures that recognize and encourage ownership of assets. It is exactly these forces, de Soto argues, that prevent houses, land, and machines from functioning as capital does in the West -- as assets that can be leveraged to create more capital. Under the Fujimori government, de Soto's Institute for Liberty and Democracy wrote dozens of laws to promote property rights and bring people out of the informal economy and into the legitimate one. The result was not only an economic boon for Peru but also the defeat of the Shining Path, the terrorist movement and black-market force that was then threatening to take over the Peruvian government. In a new preface, de Soto relates his work to the present moment, making the connection between the Shining Path in the 1980's and the Taliban today.

Genres: Economics, Politics, Nonfiction, History, Terrorism, Business, Anthropology

352 pages, Paperback

First published January 1, 1989

Reviews

[Brian Griffith · Rating 4 out of 5]

De Soto explores the power of actually free economic competition, where poor, jobless people create their own businesses in the streets of Peru. His research team exposes the labyrinth of official regulations that protect established businesses from facing the challenge of informal local enterprise.

[Shane · Rating 4 out of 5]

Four and a half stars. I did read the 1991 'Invisible Revolution' edition and not the more recent 'Answer to Terrorism' edition, and I do not know if there is any difference. I would highly recommend this book for anyone of a smaller government mindset (Libertarians, Propertarians, etc.); this should be required reading of anyone looking into or leaning towards Anarcho-Capitalism. I have read Rothbard's For a New Liberty: The Libertarian Manifesto and recently wrote a very favorable review of Huemer's The Problem of Political Authority: An Examination of the Right to Coerce and the Duty to Obey. These are interesting introductions into the theory of Anarcho-Capitalism; Rothbard gets into theoretical nuts-and-bolts while Huemer looks more at the general ideals. "The Other Path" shows us how Anarchy works (and doesn't) in the real world.

De Soto and the Instituto Libertad y Democracia (ILD) have deeply explored the informal society and economy that exists in 20th Century Peru, especially in and around Lima. There is an amazing story here of the struggle to survive and succeed in a world where most are outcast and must live outside the law. The book focusses in three major areas to demonstrate consistencies and differences; housing, trade, and transportation. It also offers insightful comparisons between the formal and informal activities in Peru and there costs in both physical and human capital. Throughout the book De Soto refers to the 'extra-legal' system of arbitration and dispute resolution used by informals, but he never goes into any detail whatsoever on this system. I feel this should have been the other area covered because its effectiveness or lack there of is so crucial to the functioning of a healthy society.

Chapter Seven is worth the price of book no matter how much you paid for it. It looks at the history of European Mercantilism of the 17th and 18th centuries and compares and contrasts it to current government in Peru (although it applies elsewhere as well). De Soto doesn't use the modern term 'Crony Capitalism' but does mention 'State Corporatism' and you can see the direct ties to modern Progressivism on both the left and the right. De Soto quotes; "there is a big difference between and fox and a wolf but, for the rabbit, it is the similarity the counts". Brilliant!

[Frank · Rating 1 out of 5]

Check out this review in Slate: http://www.goodreads.com/search/searc...
http://www.slate.com/id/2112792/

"On the white board, de Soto's ideas flatter the imaginations and sensibilities of Davos-types (particularly the American ones). But on the ground, it turns out that de Soto's ideas are doing very little to solve the actual problems of poor people."

For example, when Cambodia adopted a de Soto inspired program, this happened:

"In the nine months or so leading up to the project kickoff, a devastating series of slum fires and forced evictions purged 23,000 squatters from tracts of untitled land in the heart of Phnom Penh. These squatters were then plopped onto dusty relocation sites several miles outside of the city, where there were no jobs and where the price of commuting to and from central Phnom Penh (about $2 per day) surpassed whatever daily wage they had been earning in town before the fires. Meanwhile, the burned-out inner city land passed immediately to some of the wealthiest property developers in the country."

as Audre Lord might say, you can't use the master's tools to dismantle the master's house.

[Melanie · Rating 4 out of 5]

I had little choice about reading this book because I had to review it for a class. But it was surprisingly interesting - mostly because it was a politically motivated book than an academically inspired one.

Much of the book is devoted to a description of how the informal sector formed in Lima, Peru. Basically, the government tried to block peasants from coming to the city by making ridiculously strict laws that didn't allow them to legally live or function there. So they made their own markets, neighborhoods, small businesses and transportation system.

The description of all that was interesting, but the best part was when a team of researchers got together and tried to do everything the legal way. In one example, it took them 289 days to obtain the 11 neccesary permits to set up a small business. Besides just being a gigantic waste of time, it cost 32 times the monthly living wage. This is a great demonstration of how ridiculous the laws were at that time.

The book was a bestseller in both Latin America and the U.S. Unfortunately, it is used as a tool by the neo-liberals to promote free markets and capitalism. Look! These uneducated peasants had scarce resources that they needed to use efficiently, and they formed their own market economy.

[Julia · Rating 4 out of 5]

It is fun to believe that he defeated terrorism through economic ideology alone. Seems to be untrue though. Book's core idea is interesting, descriptions a bit convoluted, and depiction of mercantilism hugely relevant. If only the informal economy were actually so efficient...

[Alkek Library · Rating 5 out of 5]

In The Other Path, Hernando de Soto makes the populist argument for capitalism and property rights in the 3rd world.

The social and economic environment of many 3rd world nations resembles feudalism, with entrenched economic privileges and near-overt ethnic discrimination. The privileges of the elite are protected by law, which creates economic stagnation for the poor - if they follow the law, which, out of the need for survival, they don't!

So, an informal economy springs up, with noisy microbuses and illegal markets. For the majority of the people, this is where market clearing prices exist. People live as squatters, oftentimes in rather nice houses.

Trouble is, you are outside the law and you do not have formal title to property or legal protection.

De Soto argues that the fait accompli of these markets and businesses should be recognized formally and given protection of the law. This action unlocks capital (via loans), reduces crime, and brings people psychologically into the community.

At the time, Peru was fighting a Maoist insurgency in The Shining Path (hence the title of this book), but De Soto's work stands as an interesting contribution toward our understanding of the black market.

[Charles Allan · Rating 5 out of 5]

In The Other Path, Hernando de Soto makes the populist argument for capitalism and property rights in the 3rd world.

The social and economic environment of many 3rd world nations resembles feudalism, with entrenched economic privileges and near-overt ethnic discrimination. The privileges of the elite are protected by law, which creates economic stagnation for the poor - if they follow the law, which, out of the need for survival, they don't!

So, an informal economy springs up, with noisy microbuses and illegal markets. For the majority of the people, this is where market clearing prices exist. People live as squatters, oftentimes in rather nice houses.

Trouble is, you are outside the law and you do not have formal title to property or legal protection.

De Soto argues that the fait accompli of these markets and businesses should be recognized formally and given protection of the law. This action unlocks capital (via loans), reduces crime, and brings people psychologically into the community.

At the time, Peru was fighting a Maoist insurgency in The Shining Path (hence the title of this book), but De Soto's work stands as an interesting contribution toward our understanding of the black market.

[Michael · Rating 4 out of 5]

// From my 2004 book diary:

Academic economic writing for the common man? Yes, both in audience and intent. Like the writings of Joseph Stieglitz, here is a book that takes on serious issues that affect our world today. It deals with them in a measured critical way. Not just complaining about the things that make them so, but also what can be done today and tomorrow to address them.

Hernando De Soto (not to be mistaken with the 16th century Spanish Explorer) addresses the challenge of inequality. And let's use a term dear to economists: the inefficiency created by corruption. He also surveys how a lack of land and infrastructure stifles economies [specifically Peru in this case - many of the findings are universally applicable though]. Despite all, a local 'informal sector' can boom but would be able to do ten-fold better through sensible, fair and open administration.

A favourite example is the 289 days that De Soto and his research team (at the time) found that it would take to legally set up a factory in Lima. They repeated the effort in Tampa, Fl, and there it took - two hours...

[Pablo Molina · Rating 3 out of 5]

Despite me being significantly to his left, I have to admit that De Soto is the odd conservative that avoids paternalisitc atitutdes towards poor and homeless people, and he does seem to have a genuine admiration for the interesting ways that they adapt to systems and institutions built to exclude them. My main gripe, however, is that despite his condemnation of the traditional Latin American right, it rings hollow given that he then spent most of his political career enabling and advising Alberto and Keiko Fujimori. I will also admit that even if the book is interesting from a sociological perspective, its organization of each chapter into different historical stages gets somewhat tedious eventually, but this might just be because I had to read it for grad school.

[Ricardo · Rating 4 out of 5]

Hernándo de Soto has a very interesting insight. Definitely, widespread informality in the economy implies a distortion in the legal system. Most of the time, Latinamerican countries have tried to eliminate the informal sector of the economy in a violent way instead of creating a new legal framework which allows it to become part of the formal economy. This book is really good for all those interested in development economics.

[Pompski · Rating 3 out of 5]

Definitely an approach to think about. Laws should always be made with the idea in mind to great a just society and leaving no person or animal behind.
Should probably be read be every politician even if the situation in the country is different just to learn how a solution process could be started.

[OvercommuniKate · Rating 3 out of 5]

I'm very bitter that this wasn't assigned to me in college as I think De Soto offers a really good perspective on legal and economic philosophy in Latin America, especially Peru where his economic conclusions were put into place as they match the IMF's outline as well.

[James · Rating 3 out of 5]

Kinda normie not sure if I even agree w a lot of the solutions BUT very interesting look into the extra legal world of informals that is something I didn’t realize I was as interested in until I read this

[Dennis Murphy · Rating 4 out of 5]

The Other Path: The Economic Answer to Terrorism by Hernando de Soto is one of those books that are difficult to read out of order. It is in some ways unfortunate that I read the mystery of capital first, as this book reads like an extended case study that would have been about twenty or so pages in the follow-up book. This is not helped by three additional problems. Most of the book is set out to argue for a case that has since become an anachronism, a lot of the writing is dense to the point of being difficult to read for long stretches of time, and the titular subheading of the book enters into it only in fragments for the preface and the conclusion. While much of what is said has an immediate implication for a state experiencing terrorist violence, this is mentioned only in passing and is never laid out in a prescriptive fashion directed at the actual terrorist actors. I waited, and waited, and waited, and I found the case presented in this book is what can be argued as an immediate reaction to The Mystery of Capital, or books that are similar to this one (like Why Nations Fail). I was honestly left baffled why Gonzalo thought this was a target he needed to destroy.

At the same time, this book has a lot of embedded profundity. Most of this can be found in his later work, in a more refined form, but there's plenty here to make it worth a read if it being dated and surpassed by a later sequel is not enough to stop you. The key thesis in the text is to celebrate informal industry, find a way to formalize it, but to do so in a way that you remove the incentive structures that led to that informality in the first place. Should you just formalize an informal industry, but then chain it to the same regulations and licenses that were too onerous for them to keep up with, then you end up prompting new informal sectors to emerge and defeat your new formalized informals. Or, as can be found on page 124: "The declining service and the newly emerging one repeated the past, but this time the victims were the earlier murderers" that had previously forced out the prior formal group.

Probably one of the better gems in the text is this: "In the redistributive state, the enviable capacity to be generous with other people's money is an invitation to corruption. In the struggle for wealth and favorable redistribution, no means are spared. And as corruption grows, so does anarchy. In a country where the law can be bought, where both left- and right-wing political parties agree that it is the state's prerogative to regulate and legislate in detail, and where the false ethic of redistributive justice has evaded and consigned to oblivion the ethic of productive justice, there are no secure property rights and no legal incentives for creating wealth. The inevitable hallmarks of the resulting system are instability and anarchy."

Oh, he's talking about Peru by the way. When it was in the grips of one of the largest and bloodiest periods of terrorism and civil conflict in the American continent. He's not describing some hypothetical scenario in the tradition of some Hobbes/Burke hybrid that can be dismissed, but an ongoing, present reality.

He has a bone to pick with the conservatives and socialists of his country, calling them both mercantilism and far removed from the understanding of the political spectrum that outsiders usually project upon them, as neither have any truly liberal values in the sense of a liberal democratic society.

The main point, however, is the recognition and celebration of informal workers and their productive efforts. The goal of an effective government should be to support them, recognize that they are not the bad guys, and try to incorporate them in such a way to avoid the resurgence of new informals later on down the road. This is the titular "Other Path." As, in his time period, it appears either the bad mercantilism of Spanish Colonial legacy or the worse mercantilism of state capitalism coming in on the red horse of Peruvian Maoism carried by Sendero Luminoso.

Its a good book.

89/100

[Caroline · Rating 2 out of 5]

Eh, it was okay.

I think the general thrust of the book - that informality is the result of individuals trying to find a way to improve their lot in life via the free market outside the formal economy, in instances when it is closed to them - is completely reasonable and makes good economic sense. However, the execution of this book leaves a bit to be desired.

First, where, oh where, are the footnotes?! De Soto talks all about the many studies and surveys his organization has conducted that range from estimates of how long it takes to get a business license to the approximate number of informal settlements there are relative to formal ones. It seems like the antithesis of good academic procedure to not include citations to all of these referenced studies so that the reader at least have the option of looking at the evidence they are using to back up their arguments. The lack of citations were so blatant to me, it was distracting as I made my way through the book.

Second, instead of footnotes, it seems that de Soto decided to explain in exhaustive detail all of the various phases involved in the rise of Peru's informal economy. In each chapter on a variety of different topics (informal housing, transport, businesses, etc.), de Soto would spend dozens of pages going through the upwards of fifteen (FIFTEEN!) milestones that took Peru from a majority formal to a majority informal economy in whatever area was being discussed. The level of detail was excruciating and unnecessary. There's a reason it took me almost four months to finish this book - it's because slogging through all of this extraneous information was the opposite of a good time.

Third and finally, the above to points really made the book feel less like an academic magnum opus and much more like a large brochure for de Soto's Institute for Liberty and Democracy. I expected more from a book that upon its release was lauded as a a game-changer by many in development circles.

[Wendy · Rating 3 out of 5]

This book is de riguer if you work in regulatory reform in developing countries. However, it is not a lofty treatise on the subject, its a detailed history of informal economies in Peru - first informal settlements (that become satellite towns) then informal transportation, etc. So in that way, I was glad because a whole book on regulatory reform could be incredibly boring (and I work in the field!) It sometimes bogs down in detail, but overall its very interesting. In addition the subtitle "The Economic Answer to Terrorism" is another fascinating angle to the book. When it was written and the research was being done, Peru really was at a point of "choosing" between the militant Shining Path and a democratic capitalism. That's why the book is named the "Other Path" (i.e. not the Shining Path).

If you work on or in a developing country in which the bureaucracy always seems to win, its a good book to read.

[Jed · Rating 5 out of 5]

If you only read one book ever about economics this should be it. De Soto's book is not so much about the dry working of an economic system as the triumph of the human spirit against the oppressive "help" of the state. De Soto explains exactly how a government that tries to control the economy for the benefit of its citizens only suceeds in perverting, stifling and distorting the productive impulses of the citizenry. While doing this he also demonstrates how entrepreneurs create ingenious methods of getting around bad laws and creating norms that help in supplying good law. He goes on to show that the existence of bad law and the absence of good law still damages society in real and meaningful ways. Finally he lays out some prescriptions for getting rid of bad laws and implementing good laws. If you want to understand the argument for free-markets even if you disagree this is the best source.

[Gwenyth · Rating 4 out of 5]

This is an interesting book, as much for its historical context as for content. I would recommend it for people interested in Peru or Sendero. For those more interested in development in general I'd recommend de Soto's other book, the Mystery of Capital.
The first section of the book is spent tracing the history of land invasions in the country - for example, San Isidro began as one. The only thing I was curious that didn't get addressed was how this practice in Peru was related to similar trends in Latin America more generally (this isn't really de Soto's focus anyway).
Then histories of informality in transportation and small business are worked out - again, probably too much detail is provided here for some readers (ie, those without a specific interest in Peru).
The end of the book deals with parallels between mercantilism and the current Peruvian system and that was really fascinating and well worth the read even independently of the rest of the book.

[Erin · Rating 2 out of 5]

unfortunately, i only got through about 50% of this book. it was an assigned reading for a grad class. the information de soto presents is very intriguing -- about the extralegal sector in peru -- but the text hasn't been updated since its initial late 80s/early 90s publication. as such, much of the info seems dated.

also, while not exactly a neocon, de soto and his ideas come off as a bit TOO friendly toward neoliberalism. his narratives of peru's extralegal business and settlement groups are really intriguing, however.

if he were to create an updated edition of the other path (which, BTW, has a really interesting history to it... the intersection of terrorism with poverty, the most marginalized in the community, etc.), i'd likely consider reading it.

[Alex McManus · Rating 4 out of 5]

This book helped me realize the energy, creativity, and resourcefulness of our species, especially the entrepreneurial drive of the very poor who figure out ways to survive and thrive when unhampered by the State.

This shelf is dedicated to some of the books that have influenced me as I wrote Makers of Fire. Some of these books did not necessarily influence the book directly, but in terms of general frameworks. Others offered particular ideas that ignited my imagination. Makers of Fire: The Spirituality of Leading from the Future

[Abe · Rating 3 out of 5]

While the argument is well researched and explained, the book overall contains much more specific Peruvian history than I was expecting. Of course, it is necessary to give background, but I felt that much the first half of the book was somewhat extraneous given the author's overall intent.

The book is more like three lengthy essays pasted together than an actual book, but as a whole it holds mostly relevant information and provides a unique argument as to how to combat terrorism economically and assist developing nations.

[Glenn Robinson · Rating 4 out of 5]

Important study of Peru and what happens (or does not happen) when there is excessive regulation. In Peru's case, excessive regulation led to the strangulation of the economy and the creation of black market industries, rogue bus systems, food industries and mass takeover of land in which to build houses. Reduction of regulations led to more prosperity, better living standards and healthier, safer living.

[Leanna · Rating 2 out of 5]

I just couldn't do it - the introduction was moderately interesting if a tad self-congratulatory but it just didn't seem to be leading anywhere, I was already pretty convinced about his premise and I just had absolutely no desire to continue reading. If this book changed anyone's life, let me know and maybe I'll try again . . .

[Varmint · Rating 3 out of 5]

First heard of De Soto when he was acting as advisor to Mario Vargas Llosa's presidential run. Wish I could vote for them up here.

Understand he's updated the book relating to the Shining Path and other terrorist movements. Will have to see the new version.

[Ryan Kirwin · Rating 3 out of 5]

Fairly heavy-duty treatment of El Sendero Lumioso (The Shining Path) in Peru. A background to The Mystery of Capitalism. Maybe good for Undergrad / Grad student in Econ / Dev. Econ - pretty dry otherwise.

[L. Stephen Wolfe · Rating 4 out of 5]

Explains why respect for invididual (not just corporate) property rights is the best way to improve living standards among the world's poor people. This book is not easy reading, but should be required for all college graduates.

[Hayley Owens · Rating 4 out of 5]

Um, the title after the colon is "The Invisible Revolution in the Third World," not "The Economic Answer to Terrorism." This must be a newer edition appealing to newer concerns. But fuck that. I just can't find the original.

[Phoebe · Rating 3 out of 5]

A very informative book about the situation in Peru, concerning the local work-force, which is organized to a great extent informally.
Informality is the engine that keeps the country running (at least at the time the book is talking about, and surely quite a long time after).

[Zanny · Rating 5 out of 5]

This man has actually discovered the secret to world peace and prosperity.

[Emily]

bought this in grad school and started it a while back - time to read something i can learn from again.