| | The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else by Hernando DeSoto (Perseus Books, 2000)
"In Haiti, untitled rural and urban real estate holdings are togther worth some $5.2 billion. To put that sum in context, it is four times the total of all the assets of all the legally operating companies in Haiti, nine times the value of all assets owned by the government, and 158 times the value of all direct foreign investment in Haiti's recorded history to 1995."
Haiti is not an exception. Egypt, the Philippines, and Peru follow the same pattern.
"In every country we have examined, the entrepreneurial ingenuity of the poor has created wealth on a vast scale -- wealth that by far constitutes the largest source of potential capital for development. These assets not only far exceed the holdings of the government, the local stock exchanges, and foreign direct investment: they are many times greater than all the aid from advanced nations and all the loans extended by the World Bank."
Then, why are the Third World and former communist nations poor? Lack of objective law.
"Any asset whose economic and social aspects are not fixed in a formal property system is extremely hard to move in the market."
Objective property law only evolved in the USA in the late 19th century when the new rights of squatters were reconciled to the old rights of colonial land grants. This is precisely the situation in the Third World and former communist nations. "The poor have accumulated trillions of dollars of real estate during the past forty years. What the poor lack is easy access to the property mechanisms that could legally fix the economic potential of their assets so that they could be use to produce, secure, or guarantee greater value in the expanded market."
Of course, objective law rests on objective epistemology.
"The proof that property is pure concept comes when a house changes hands; nothing physically changes. Looking at a house will not tell you who owns it. ... Property is not the house itself but an economic concept ABOUT the house embodied in a legal representation. ... A formal property representation such as a title is not a reproduction of the house, like a photograph, but a representation of our concepts _about_ the house. Specifically, it represents the nonvisible qualities that have potential for producing value."
As a result, a house is more than shelter. In fact, de Soto points out that the primary source of capital for new ventures in America is mortgages on the homes of the new corporation's principals. In the rest of the world, this is typically impossible.
In some places, land cannot be sold at all but must be passed on to the male progeny. In most places, most people live on land to which they have no clear title. They plant, they harvest, they build, they manufacture, but they can never BORROW or LEND against their assets. Their addresses have no independent existence except as shelters.
In most of the world, most of the people steal the electricity they need, mostly because their residences have no legal standing. One consequence of this that electric companies can never plan adequately and --- more deeply, they can never CAPITALIZE the demand for electricity: they cannot borrow money against their future expectation of income. They have no way to measure demand and no way to collect for delivery.
In the West we can. Your address -- whether you own your home or rent a space for your trailer -- has legal status that allows you and the entities with which you contract to capitalize on the relationships about your address.
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