PREPARATION

• Read de Soto, Chapter Two

NOTES

Even though some of the poor are in misery, most of the poor are hard-working, innovative, creative, and entrepreneurial.  (This is not a judgment on the ones in misery, whose condition is generally out of their control and who deserve our concern and help.)

As a result, the poor collectively possess large amounts of capital, in various forms.  (Houses, businesses, customers & their "good will", knowledge, equipment, and so on.)  This paradoxical statement -- the poor having lots of wealth -- is the start of de Soto's analysis.

The poor's capital is invisible because it has disappeared below the radar of the formal/legal system, so to speak.  The mystery of missing information.

What's the proper language to help us analyze this situation:  "illegal" or "informal"?  De Soto argues for "informal", to look at the situation from a "Stage 5" / "law-creating" [Kohlberg], or "participant" [Almond & Verba] perspective.  We aren't examining the morality of the people breaking the law (the "subject" political culture or the "law-maintaining" perspective);  we're examining whether the legal structures are good ones to begin with (the "participant" political culture or the "law-creating" perspective).  It's a waste of time -- not to mention oppressive -- to blame people for breaking the law if its very structure prevents them from following it.  "Cops" vs. "Law & Order".

Why has this capital disappeared from the legal radar?  Three reasons:

• It's hard to get legal title;  getting it requires enormous amounts of time and money.
• Even if you finally "have" legal title, it is not secure, since even formally acknowledged claims can be set aside.  (And there may well be conflicting claims, each with some merit.)  This is of course more of a problem for the poor than the rich, because the rich can afford to defend their claims both legally and practically and who can get the government to back up those claims with force if necessary.
• Even if one has legal title, it is hard to maintain it.  De Soto doesn't go into a lot of detail here, but I assume he's talking about such things as:
• taxes:  once you're on the radar, you can be taxed.
• you have to obey ongoing regulations (e.g., getting building permits for renovation) and meet shifting and perhaps onerous requirements (e.g., building codes;  assessments for street improvements or sewers)

As a result of its informal status, the capital possessed by the poor is more or less "dead capital".  Making use of it involves enormous transaction costs.  One such cost is the cost of "risk" -- without clear title, one cannot count on the security of the transaction.  Another such cost is the geographical/social limitation of trade:  one can only trade with people sharing the social network that gives one whatever ownership in the property one has.

To aid the poor and to enrich their countries, the leaders of those countries need to find a way to enliven this dead capital.  Showing ways to do so is the task of the remainder of the book.