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September 23, 2016

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Home » Opinion » Foreign Views

Don’t blame global wealth inequality on free trade

By Hernando de Soto | September 23, 2016, Friday | Print Edition

Nowadays, globalization’s opponents seem increasingly to be drowning out its defenders. If they get their way, the post-World War II international order — which aimed, often successfully, to advance peace and prosperity through exchange and connection — could well collapse.

Can globalization be saved?

At first glance, the outlook appears grim. Every aspect of globalization — free trade, free movement of capital, and international migration — is under attack. All the attackers see are unbending institutions and intolerable inequalities in wealth and income, and they blame globalization.

There is some truth to these arguments. The world is a very unequal place, and inequality within societies has widened considerably in recent decades. But this is not because of international trade or movements of people; after all, cross-border trade and migration have been happening for thousands of years.

The anti-globalization movements’ proposed solution — closing national borders to trade, people, or anything else — thus makes little sense. In fact, such an approach would hurt virtually everyone.

So what is fueling inequality?

A central aspect of globalization is the careful documentation of the knowledge and legal tools needed to combine the property rights of seemingly useless single assets (electronic parts, legal rights to production, and so on) into complex wholes (an iPhone), and appropriate the surplus value they generate.

Clear and accessible ledgers that faithfully describe not only who controls what and where, but also the rules governing potential combinations — of, say, collateral, components, producers, entrepreneurs, and legal and property rights — are vital for the system to function.

The problem is that five billion people around the world are not documented in national ledgers in anything approaching an organized manner. Instead, their entrepreneurial talents and legal rights to assets are recorded in hundreds of scattered records and rules systems throughout their countries, making them internationally inaccessible.

Under these conditions, it is impossible for the majority of humanity to participate effectively in their national economies, much less the global one.

So it is a lack of consolidated, documented knowledge — not free trade — that is fueling inequality worldwide.

But addressing this problem will not be easy. Just determining how many people are left out took my organization, the Institute for Liberty and Democracy (ILD), two decades of fieldwork, conducted by more than 1,000 researchers in some 20 countries.

Legal lag

The main problem is legal lag.

The lawyers and corporate elites who draft and enact the legislation and regulations that govern globalization are disconnected from those who are supposed to implement the policies at the local level. In other words, the legal chain is missing a few crucial links.

Experience in Japan, the United States, and Europe shows that a straightforward legal approach to ensuring equal rights and opportunities can take a century or more. But there is a faster way: treating the missing links as a break not in a legal chain, but in a knowledge chain.

We at the ILD know something about knowledge chains.

We spent 15 years adding millions of people to the globalized legal system, by bringing the knowledge contained in marginal ledgers into the legal mainstream — all without the help of computers. But we do not have decades more to spend on this process; we need to bring in billions more people, and fast. That will require automation.

Last year, ILD began, with pro bono support from Silicon Valley firms, to determine whether information technology, and specifically blockchain (the transparent, secure, and decentralized online ledger that underpins Bitcoin), could enable more of the world’s population to get in on globalization. The answer is a resounding yes.

By translating the language of the legal chain into a digital language, we have created a system that could locate and capture any ledger in the world and make it public. Information technology has democratized so many elements of our lives. By democratizing the law, perhaps it can save globalization — and the international order.

Hernando de Soto is President of the Institute of Liberty and Democracy and the author of The Mystery of Capital. Copyright: Project Syndicate, 2016.www.project-syndicate.org

Foreign Views


 

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