The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else

Consider what happens when you are to buy a house in a Western country. In my case, I saw an offer in a picture. Then, I got in contact with the owner. When we agreed on the price, he issued a legal contract. By accepting it he sold to me the house, and I bought it. The house was not yet finished. My wife and I had to wait for a few months prior going there. After some time and changes in the local office, water, telephone and electricity suppliers, we receive all the correspondence and the service, as well taxes, requirements, etc. The local authorities have no problem to contact us.Now, consider what happens in a country in the Third World. First they have to discover an empty spot of land, and that is not easy in the overcrowded cities. Then they have to occupy it physically, as there is no known owner to whom buy it. It is probable they will have to defend it from other potential occupiers. Then, they collect what they can and try to build something as a house. With time, they will make their home stronger with more solid materials. It is likely they will have to steal the electricity and will not have water supply. The local administration will not have notice about the new neighbours in town. If the newcomers are to produce any document to protect their new house, they will do it relying on their neighbours and probably mafias.De Soto books is about these differences. It is a challenging and realistic book. After reading it, I am convinced that changing the Third World poverty is not impossible and not necessary in a very far future. If governments only assured legal protection to their citizens, is very plausible they become rich people soon. They don't lack assets, imaginations, companies, good ideas. They have all of that. What they miss is legal protection.This is a book for people who thinks things are not necessarily to be like they are. This is a book for non conformist people.

It’s like he’s taking apart a race car, piece by piece, and putting it back together, better, and with improved parts! Capitalism can seem difficult to grasp, but De Soto, who has actually built capitalist economies in developing countries, breaks it down into six parts1) Document the economic potential of all assets“Capital is born by representing in writing-in a title, a security, a contract, and in other such records- the most economically and socially useful qualities about the asset as opposed to the visually more striking aspects of the asset. The moment you focus your attention on the title of the house, for example, and not the house itself, you have automatically stepped from the material world into the conceptual world where capital lives”2) Integrate Asset Documentation into one System that Anyone Can Access“The reason capitalism triumphed in the West and sputtered in the rest of the world is because most of the assets in Western nations have been integrated into one formal representational system. Developing and former communist nations have not done this. In all countries I have studied, I have never found just one legal system but dozens or even hundreds managed by all sorts of organizations. Consequently what people in those countries can do with their property is limited to the imagination of the owners and their acquaintances. In western countries where property information is standardized and universally available what owners can do with their assets benefits from the collective imagination of a larger network of people”3) Hold People Accountable to the System“Once inside a formal property system, owners lost their anonymity. By becoming inextricably linked to real estate and business that could be easily identified and located. People who do not pay for goods or services they have consumed can be identified, charged interests penalties, fined, embargoed and have their credit ratings downgraded”4) Make Use of the Systems Liquidity“Representations also enable the division of assets without touching them. Whereas an asset such as a factory may be an indivisible unit in the real world, in the conceptual universe of formal property representation it can be subdivided into any number of portions. Citizens of advanced nations are thus able to split most of their assets into shares, each of which can be owned by different persons, with different rights, to carry out different functions. Thanks to formal property, a single factory can be held by countless investors, who can divest themselves of their property without affecting the integrity of the physical asset. Farmers in many developing countries have no such option and must continually subdivide their farms for each generation until the parcels are too small to farm profitably, leaving the descendants with two alternatives: starving or stealing”5) Use the System to Network the Business Community“Property’s real breakthrough is that it radically improved the flow of communications about assets and their potential. Without knowing who has the rights to what, and without an integrated legal system where the ability to enforce obligations has been transferred from extralegal groups to government, utilities would be hard pressed to deliver services properly. On what other basis could they identify subscribers, create utility subscription contracts, establish service connections and ensure access to parcels and buildings? How would they implement billing systems, meter readings, collection mechanisms, loss control, fraud control, delinquent charging procedures and enforcement services such as meter shut offs?”6) Use the System to Encourage Trade“Although they are established to protect both the security of ownership and that of transactions, it is obvious that western systems emphasize the latter. Security is principally focused on producing trust. The Western emphasis on the security of transactions allows citizens to move large amounts of assets with very few transactions. How else can we explain that in developing and former communist nations people are still taking their pigs to market and trading them one at a time as they have done for thousands of years, whereas in the West traders take representations of their rights over pigs to the market? Traders at the Chicago Commodities Exchange for example deal through representations which give them more information about the pigs they are trading than if they could physically examine each pig. They are able to make deals for huge quantities of pigs with little concerned about the security of transactions.”I reworded the titles for simplicity but you get my drift.His driving theory is that the majority of the world poverty exists because the governments of developing nations haven’t taken these steps.

Me gustó en análisis profundo que hace sobre la importancia del derecho de propiedad y sus instituciones que lo legitiman.

Ce livre est un classique de la "non-gouvernementalité" avant la lettre. de Soto y montre comment le secteur informel où l'Etat ne livre pas beaucoup de biens publics est capable de produire de beaux succès économiques portés par des entrepreneurs informels. En termes simples, ces études de cas montrent que le développement économique est le résultat normal quand l'Etat n'interfère pas trop de façon contre productive. Un classique, qui mérite encore d'être lu.

Harman de Soto clearly outlined the cause of developing economies ' backwardness by leadership intent to maintain status quo. He had not spared world leaders for the benefit of common man in the world.I had thought Piketty was the last man to explore economic truth with century old data. But Soto added lot of value in telling the world " that poor countries are not poor @# by knowledge deficit or endowment deficit "-but are poor by the "deficit of proper rules and property systems # the globe"!

when I was about to purchase this book, it was described as "Used - Very good" however, the book arrived absolutely smooth without any mark or scratch just like a new untouched book, better than described or I expected.

This book will explain, why Western economic growth has been so strong. The book also sorts out, the reason why so many non-developed countries have economically lagged the West. It really boils down to one basic principle; private property. In the developed Western World, citizens have legal protection and legal entitlement to their private property. The legal title enables the owner, to leverage their property into usable capital. The capital generated is then used, by various segments of the society. This is what propels economic growth, in the industrialized world. This is in complete contrast, to the Third and former Communist World. In these countries, most citizens do not have access to private property laws. They may live in a house of their own construction, but they have no legal title on their home. This also shuts off a vital supply of capital, to the entire society. This shortage of available capital, acts as a drag on any potential economic growth. De Soto also lists many other examples of economic barriers, in the developing world. He also offers several suggestions, to help transform these countries into growing economies. This book brings home, the importance of private property and the rule of law. An issue that is largely forgotten, in many parts of the world. Private property laws are the dividing line between prosperity and living in an economic backwater. Until more people realize this fact, progress in the developing world will be impossible.