Monday, May 07, 2007

Obama-Squatters and the Liberation of Value

As the Obama camp continues to sift through the media fallout of their decision to wrest control of the Barack Obama myspace site from its founder, Joe Anthony, I was reminded of the insights of Hernando de Soto’s study of the differences between capital-accumulating cultures and the rest of the world, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else

De Soto’s thesis, well-advanced, is that a major distinction between successful, capital-accumulating societies and the rest of the world is the body of processes capital-accumulating societies have to recognize and record the creation of value, regardless of the legal framework in which the value is created. The classic example to which de Soto returns throughout his book is the status of squatters during the settlement of the American West. While the Homestead Act resolved most of the confrontations, the right of squatters to fair compensation for improvements made upon non-legally possessed property upon their eviction in favour of legal tenants was a crucial facilitator to the settlement and development of all the wealth-creating potential of the United States from the earliest colonial settlements down to the current day.

While the right of legal titleholders to the land is ultimately defended in the U.S., the rights of squatters to compensation for improvements allowed the value the squatters created to be recognized and liberated to serve as collateral for further investments and improvements, creating a virtuous cycle of settlement, improvement and development which allowed the U.S. to bootstrap itself successfully, with the initial foreign investment primarily from Great Britain, into a major industrial power within 100 years, in contrast to the many other, failed colonial or neocolonial investment schemes undertaken by the British at the same time in other parts of the world—most notably in Latin America and Africa.

What the Obama campaign has done, instead, is to strand the social capital created by Mr. Anthony’s efforts, resulting in the necessity of recreating the friend list and creating a completely unnecessary media distraction which undermines Obama’s efforts to portray himself as the champion of the little guy and advocate for the efforts of grassroots social activism. For $39,000, all of this could have been avoided, leading one to question whether Obama’s campaign truly understands either economics or public relations.

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