The Mystery of Capital | Hernando de Soto

Summary of: The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else
By: Hernando de Soto


Embark on a journey to understand the very essence of capitalism and the vital role ownership plays in its worldwide success, as explored in Hernando de Soto’s book ‘The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else.’ The book delves into the complex nature of ownership, its history, and its influence on the development of capitalism. Furthermore, learn about ‘dead capital’ and its enormous yet unrecognized potential in transforming and uplifting economies across the globe. The book provides intriguing insights into how the Western world has managed to harness the power of property systems to generate capital, and how developing countries can learn from this rich experience.

Ownership, Capitalism, and the Developing World

The success of capitalism in the West is due to an integrated system of ownership. In the developing world, migrants who move to the cities opt-out of the legal system as complying with regulations to legalize ownership rights is expensive and time-consuming. As a result, the extralegal sector thrives in many countries, where migrants use informal, community-based rules to protect their rights.

The concept of ownership is an artificial construct that supports the success of capitalism in the West. However, ownership is not universal, and many countries in the world lack a representational system for it. In countries where migrants move from rural to urban areas, the legal system is cumbersome, expensive, and tricky to navigate. Therefore, these migrants become extralegal, opting out of the legal system and using informal and community-based rules to protect their rights.

The developing world has many lessons to learn from the history of ownership in the United States. At the start, the US did not have a clear system of titles and ownership. Land titles overlapped, and squatters believed in owning land by improving it. Today, most developed countries have integrated their assets into one formal, representational system. However, this is not the case for the developing world.

Migrants who squat in shantytowns face tremendous challenges in legalizing ownership rights. Complying with regulations and licensing requirements is time-consuming and expensive, making it difficult to run legal businesses. Without a legal system to protect their rights, migrants opt-out of the system. They become extralegal and use local, informal, community-based rules to form an alternative economic system. This extralegal sector thrives in many countries, where extralegal jitney drivers provide public transportation, hawkers’ markets sell interesting goods, and extralegal mechanics keep delivery trucks running.

In conclusion, capitalism flourishes in countries with an integrated system of ownership. However, the lack of legal systems to legalize ownership rights in the developing world leads to the rise of alternative systems such as the extralegal sector. This sector thrives because migrants who move to the cities opt-out of the legal system.

Unlocking the Value of “Dead Capital”

A significant amount of the world’s real estate is undocumented and considered “dead capital,” with its economic worth being unrecognized. Property systems in developed countries are crucial in unlocking the value of real estate by establishing ownership, providing titles, gathering information, ensuring accountability, supporting fungibility and creating networking opportunities, and offering protection. These systems allow properties to become a form of capital, with their potential to create value going beyond merely being a place of shelter. Developing countries with a high percentage of undocumented housing have trillions of dollars of dead capital, which could be transformed into valuable assets if the property system were in place.

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