The Mystery of Capital - Reading Today
Whatever I read so far, it makes a very interesting point. The research and observations are aimed at answering that never-ending question - why poor countries are so poor - and attempt to develop a rather unique thesis. It rubbishes the claim that poor countries are poor because of its culture, lack of entrepreneurship etc. Mr. De Soto, rightly, points to those thousands of entrepreneurs driving a taxi, selling food on roadside stalls, vending titbits on the street corner - and challenges the proposition that people in the 'developing' countries lack the enterprise to develop themselves.
Also, he challenges the proposition that these countries do not have resources. By his estimate, the locked up resources - capital - in the hands of world’s poor is enormous, many times the size of financial assistance that can be ever be given to them. But, as he points out, this capital is locked up because the poor countries does not have proper systems of property rights, systems and awareness make this capital useable. And, also, most rightly, points out the enormous bureaucratic hassle involved in getting a property registered [77 steps with 31 entities in Egypt], to get a five-year lease contract on land [111 steps over 4112 days in Haiti] or formalize an urban property[168 steps over 13 to 25 years in Manila]. The book recounts the stories of how it takes 269 days to start a business - and clearly points out the waste that prevents developing countries from developing.
A rough estimate of this 'locked up' capital comes to $9.3 Trillion, many times the total foreign investment these countries are going to receive. Mr. De Soto draws on the history of now developed countries, and how their recognition of property and sophisticated financial and property recognition system helped accelerate their development. This is a powerful argument - in fact, most of Marxist friends will accept the core of the argument to be correct, though they may have a different view of desirability of such a system.
Do I agree with this position? Yes, I do. I do believe that overhauling the property laws and making it easy for people to access and use capital will stop an enormous, bleeding waste in our economy. Also, this book - in its spirit - corresponds to one of my key faith that an economy like India can become truly and sustain-ably prosperous when its own internal enterprise is unlocked. It is painful to see that our governments are leaving no stones unturned for getting foreign investment, but have done little - so far - in making it easy for local businesses to get started, access capital and get their rights recognized.