What does Hernando de Soto say about poverty? Well, one of his main points is that its not lack of entrepreneurship that is a problem in many developing countries — rather, it is the inability of people to access property mechanisms that allow them to use their assets to participate in the market economy. Here are the property effects that allow democratic market economies to succeed and are lacking in many developing countries:
- Property Effect #1 – Fixing the Economic Potential of Assets
- Property Effect #2 – Integrating Dispersed Information into One System
- Property Effect #3 – Making People Accountable
- Property Effect #4 – Making Assets Fungible
- Property Effect #5 – Networking People
- Property Effect #6 – Protecting Transactions
What do you have if you lack these property effects? De Soto calls it “dead capital” – capital, which is worthless because it can’t be used to drive productive activities.
It is a world where ownership of assets is difficult to trace and validate and is governed by no legally recognizable set of rules; where the assets’ potentially useful economic attributes have not been described or organized; where they cannot be used to obtain surplus value through multiple transactions because their unfixed nature and uncertainty leave too much room for misunderstanding, faulty recollection, and reversal of agreement – where most assets, in short, are dead capital.
You can read more in the Mystery of Capital.
Published Date: October 27, 2006