Taking It To The Bank Unlocking Community Cultural Assets

________________________________________ The Mystery of Capital Why Capitalism Triumphs in the West and Fails Everywhere Else by Hernando DeSoto Basic Books, 2000, 288 pages ________________________________________ In The Mystery of Capital, Hernando DeSoto reflects, …the great practitioners of capitalism, from the creators of integrated title systems and corporate stock to Michael Milken, were able to reveal and extract capital where others saw only junk by devising new ways to represent the invisible potential that is locked up in the assets we accumulate. Does the “developing world” of community-based nonprofit cultural organizations sit on a mountain of assets that are far greater than we had previously imagined? If we understood these assets, codified them and developed the right tools to leverage them, could we unleash vast wells of hidden resources to further the human and social development of our communities? On the surface, The Mystery of Capital has nothing to do with art and culture. In fact, DeSoto adamantly denies – with little success, in my reading – that culture, in its broad sense, has anything to do with why capitalism is more successful in some parts of the world than in others. The Peruvian researcher and theorist DeSoto provides a radical theory to understand what enables capitalism to work and, conversely, what prevents it from working. And he supplies an economic-development approach that he hopes will make what he considers the “inevitable” spread of this economic system more equitable. “Charitable organizations have so emphasized the miseries and helplessness of the world's poor that no one has properly documented their capacity for accumulating assets,” he writes. Through his Lima-based Institute for Liberty and Democracy, DeSoto has done just that. He conducted exhaustive research in dozens of countries around the globe, examining the property holdings of the poor and the status of legal property structures. In addition he explored the business-licensing procedures in various countries to ascertain what portion of their economies was outside “legal” frameworks – and why. What he found was vast land holdings that are unrecorded or unrecognized by governments, and extensive underground economies and unlicensed enterprises. DeSoto's central assertion is that in developing and post-communist countries, where capitalism isn't taking hold as some would like, there is an enormous well of untapped, or what he calls “dead,” capital. More importantly, he contends that if these dead assets were legitimized through a credible legal system, they could be put to work to leverage investment and spread entrepren-eurism through the grassroots. He argues that it is not lending policies, foreign aid, cultural differences, levels of education, or other “soft” differences that make capitalism more successful in some places than in others. Growing ranks of economists and social theorists disagree with DeSoto on the significance of culture in enabling both capitalism and democracy to effectively function. Max Weber in The Protestant Ethic and The Spirit of Capitalism, 1904, established the basis for this thinking, and more recently Francis Fukuyama in Trust, 1995, and Samuel P. Huntington and Lawrence E. Harrision in Culture Matters, 2000, provide convincing arguments around the central role of culture – or “values, attitudes, beliefs, orientations and underlying assumptions” – in the success of economies, democratic governments, and large organizations. Rather, Desoto argues, it is the legal systems – or lack thereof – that can concretize property ownership so that it is “fungible” (a term referring to the ability to exchange goods, services, or other valuables into another form – most commonly, money). These systems, he contends, enable the value of real-estate holdings (or other intangibles that have value, such as intellectual property) to be leveraged to finance enterprises small and large. DeSoto's analysis has profound meaning for the poor looking to leverage their resources. Parallels for the Cultural Sector In making his case, DeSoto – perhaps inadvertently – sheds light on how the nonprofit sector in the US operates, especially the world of undercapitalized, small and medium-sized organizations. Some of his descriptions of “Third World” economies, with the simple substitution of the word “nonprofit” in place of “Third World,” serve as insightful descriptions of deficit-based thinking and the resulting inability of these economies to be entrepreneurial or act strategically. To those of us in the nonprofit sector, what may be more useful than his economic-development analysis is the concept of dead capital or dead assets (I would prefer he use “dormant”), and his way of identifying assets and having the right “technologies” to leverage them. DeSoto writes, “As Aristotle discovered 2,300 years ago, what you can do with things increases infinitely when you focus your thinking on their potential.” With his call to mobilize the hidden assets in the “Third World,” I felt the need for a parallel call to re-examine the dormant capital of the nonprofit cultural sector in the U.S. – a sector perennially challenged by a short supply of financial resources. Unlike the “Third World,” the nonprofit sector's dormant resources may not be as much in the form of land or other real property, but instead may be in human relationships, trust, community identity, connection to place, creativity, intellectual property, or any number of other intangible assets. What DeSoto supplies is incentive for us to look deeper and to find, formalize, and leverage previously invisible assets. I recall hearing a General Mills marketing executive describe the substantial value of what she called the “real estate” on the back of a cereal box. What other product container, she asked, do people stare at while they eat a meal? General Mills acts very strategically in how it leases and extracts both financial and promotional value from this “real estate.” Some strategies go well beyond simply advertising products. They include the promotion of education and social causes – ways of thinking and constructing a “culture” – that ultimately encourage the consumption of cereal and related products. The most provocative metaphor DeSoto uses is that of a beautiful mountain lake, which he describes in economic terms as having little intrinsic value. “It's just a lake,” he says. When the comprehension of gravity combined with the technology of water wheels or turbines transform it into a mighty economic engine it is of enormous value. I think many would challenge DeSoto's contention that it was “just a lake,” but he makes his point. “…the value of things can be increased by reducing the costs of knowing them and transacting with them,” DeSoto writes, crediting this concept to Nobel Laureate Ronald Coase. While the legal formalization process begins with real estate, it inevitably moves to other forms of intangible property. “Property is not the assets themselves but a consensus between people as to how those assets should be held, used and exchanged,” he writes. “Capital results from the ability of the West to use property systems to represent their resources in a virtual context. Only there can minds meet to identify and realize the meaning of assets for humankind.” If pork-belly futures (which don't sound too pleasant or even possible to trade by hand) can be traded in huge quantities by computers and can generate massive surpluses, then why can't something like creative potential or cultural equity be likewise traded based on its proven worth? Mark Stern (at the University of Pennsylvania) with The Social Impact of the Arts, Diane Grams and Michael Warr in Chicago with, Leveraging Assets: How Small Budget Arts Activities Benefit Neighborhoods, and other researchers have demonstrated that arts organizations have the capacity to increase property values, stabilize neighborhoods, and decrease many negative social conditions. Labor economists Ann Markusen and David King at the University of Minnesota, in The Artistic Dividend: The Arts' Hidden Contributions to Regional Development (see review on page 31) have demonstrated that artists' creative presence bring an “artistic dividend” to a region's economy. Do we now need a Michael Milken to commodify, monetize, and leverage these intangible assets? http://www.giarts.org/library_additional/library_additional_show.htm?doc_id=296018

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