counterparts function in economiesngoverned by politics rather than markets.”nThis is the primary failing ofndevelopment “specialists” in NorthnAmerica and Europe, who assume thatna democratic or rightist authoritariannregime in the developing world automaticallynequates to a modern marketneconomy.nSome of the most pro-US regimes,nmost notably that of the former Somozangovernment of Nicaragua, have alsonbeen highly statist. Nicaragua comes tonmind when de Soto says “the traditionalnleft also confuses the two systemsn[free market and mercantilist], but theynconclude that, although private ownershipnof the means of production predominates,nthe development the countrynneeds has not been achieved,nproving that capitalism has failed andnthat a collectivist model is needed.”nBilateral economic assistance givennto a fragile young democracy in LatinnAmerica or elsewhere can prove counterproductivenunless the regime is activelynpursuing market-oriented structuralnreforms, for an unwillingness tonunravel the barbed wire shroud ofnstatism ultimately discredits the conceptnof development via a formal privatensector.nThird World Marxists continuallynseek “evidence” to use in repudiatingnthe free market model so that a countryncan be electorally kicked back onto thenstatist path. The most glaring recentnexample of this is Ecuador, where antragic combination of natural disastersnand falling oil prices, coupled with anninability to retract the state’s tentacles,ncast a dark shadow over the free marketnpolicies of former President LeonnFebres Cordeiro and led to a decisivenleftist victory in the last national elections.nDe Soto’s development theories donnot easily fit into an ideologicalnmatrix. Whereas his strongest advocatesnin the United States have been conservativesnor libertarians, in Latin Americanhe is generally viewed as a threat by thenold conservative elites while winning ansurprising degree of support from then”soft” left. The Institute for Liberty andnDemocracy, de Soto’s Lima-basednthink tank, is funded by the US Agencynfor International Development (AID),nthe John M. Olin Foundation, andnother organizahons identified with thenReagan and Bush administrations. Yetnthe 40 full-time economists, lawyers,nand engineers employed by the institutenwould tend to identify themselves asnpolitically left-wing. De Soto explainsnthis seeming contradiction by sayingnthat American conservatives are actuallynclassical liberals and philosophical descendantsnof revolutionaries such asnJefferson and Franklin, whereas the Peruviannright continues in the tradition ofnFrancisco Pizarro! As I number amongnmy friends several thoughtful Peruviannconservatives, I find this characterizationnunfair, and wonder whether suchnrhetoric impedes de Soto’s efforts tonbuild bridges to Peru’s political establishment.nDe Soto must know thatnrevolutions are, in practice, usuallynmade from the top down rather thannthe bottom up. ,nDe Soto claims that his institute’snstaff, along with thousands of othernLatin American intellectuals, hadnturned to the left out of concern for thenpoor rather than because they had beennconverted by the writings of Marx,nEngels, and Lenin. Offering the freenmarket as the best means of solving thenproblems of underdevelopment, the authornhas induced many of these wouldben(or perhaps more aptly, armchair)nrevolutionaries to tread his “OthernPath.” Now, de Soto says, not a singlenone of his staff “believes that statencontrol of the economy is the panaceanfor injustice and backwardness.”nIt is tme that many who countnthemselves among the social democraticnleft of Latin America and the Caribbeannhave been affected by de Soto’snideas, with profound implications fornthe future course of economic andnpolitical development in this region ofnsuch importance to the United States. Inwas acquainted with Jamaica’s MichaelnManley for some years before his reassumptionnof power earlier this year,nduring which time I had given himnbooks and articles by and about de Sotonand privatization guru Stuart Butler. Atna recent meeting with US CommercenSecretary Robert Mosbacher, PrimenMinister Manley told me that thesenmaterials had played a significant role innhis decision to continue the privatizationnpolicies of his predecessor EdwardnSeaga, and that he intended to gonfurther by finding ways of bringing Jamaica’snfamous parallel marketeers, then”Higglers,” into the formal economy.nnnTherein lies the crucial dilemmanposed by the concluding chapter of ThenOther Path — how to reform the unbelievablyncomplicated and fiercely resistantnmacroeconomic structures of thendeveloping world without precipitatingnthe type of bloody anarchy that convulsednVenezuela in the early part ofn1989. De Soto recommends that “thenformals and the informals should benintegrated into a single economic andnlegal system which outlaws discriminationnso that the entire population cannmake full use of its creative energies.”nWhile he acknowledges the need forn”appropriate” macroeconomic policiesnand corresponding investments, I believenhe errs somewhat by stressing thatnthe adoption of microeconomic measuresnis “the most important element.”nBoth are equally important to ancountry’s development, yet microeconomicnreforms can never be addressednunless grander policy issues such asntrade, foreign investment, debt, andnsecurity are responsibly dealt with.nAlan Woods, head of US AID, seemsnto agree, saying in his recent report onnUS foreign assistance initiatives thatn”the same economic and developmentnpolicies that benefit developing nationsnas a whole also benefit individuals . . .ndevelopment means choice; the greaternthe range of choice, the greater thendegree of development.”nWith the exception of countriesnsuch as Mexico and Bolivia, which arenbravely adopting structural adjustmentsnat great political risk to the incumbentnparties, macroeconomic reforms havenbeen slow at best and an outright shamnin some cases. Unfortunately, mostnThird World governments respondnonly to strong external pressure tonprivatize or reduce trade barriers.nWhile de Soto and his supporters havenmade notable gains in revamping aspectsnof Peru’s byzantine legal system,nand have certainly caught the attenhonnof the government, they appear powerlessnto halt the country’s precipitousneconomic decline that has resultednfrom the Garcia regime’s maladroitninterventionism.nThe World Bank has disbursed overn$4 billion since 1980 to help ThirdnWorld countries make “the necessaryninstitutional changes in governmentnprograms and policies to modify theneconomy’s structure.” Yet the WorldnBank itself concluded that its structuralnJULY 1989/21n