3 min readNew DelhiFeb 15, 2010 01:44 AM IST
First published on: Feb 15, 2010 at 01:44 AM IST
He acquired global fame,and the attention of world leaders,by championing the cause of private property rights as an instrument for poverty alleviation in the developing world Bill Clinton once called him the worlds greatest living economist. Now in New Delhi to deliver a lecture to Ficci members on inclusive growth through property rights,Hernando de Soto,the 68-year-old award winning Peruvian economist,also met Prime Minister Manmohan Singh,UPA chairperson Sonia Gandhi and Planning Commission Deputy Chairman Montek Singh Ahluwalia over the weekend.
In a conversation with FE,a day before his lecture,he however revealed his newest interest analysing what went wrong with capitalism in the West using the framework of property rights.
Taking aim at the same financial derivatives that Warren Buffet described as weapons of mass destruction,de Soto said,The biggest problem today in the world economy is that its not India that has the biggest shadow economy in the world,its not Peru or Mexico,its the West. They have got the biggest economy where nobody knows where the majority of the assets derivatives are thats a shadow economy.
According to my calculations,there are 170 trillion of stocks and bonds in the global market,110 trillion of physical goods and that in total the world may have 400 trillion worth of assets. But you have anything between 600 trillion and 1 quadrillion BIS estimates worth of derivatives. Theres too many of them.
But when asked if he would say derivatives should be banned,de Soto said,No. First,we dont know the facts. We have to determine how many there are. Second,we need to find out how many types there are. There may be 70-80 idiosyncratic types. So we have to find out: where are they? Who owns them? How many types are there? The next thing you need to know is whats their value? 600 trillion or 1 quadrillion? In the old days,you had a mechanism called mark to market. But for derivatives it was seen as unfair. So now,for a start,put out a regulation that makes it compulsory to declare this information. That which isnt declared doesnt count. This will take care of compliance. After getting all the information,you can decide whether these derivatives are weapons of mass destruction as Warren Buffet and George Soros say,and whether you have to ban them; or whether some are good,some are bad; or whether its all okay. But right now,we dont know.
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