Mystery of Capital Daniel Dominik Ross Rubel Mike Alles Aaron Knox Andrew Lee

Overview Mystery Of Missing Information Mystery Of Capitol Mystery Of Political Awareness Mystery Of Legal Failure

The Mystery of Missing Information Definition of Ownership Unpaid Debts Non-standardized Descriptions of Assets Variable Property Rules

Coase Theorem Ronald Coase (Nobel Prize 1991) Well-defined Property Rights Coase’s Example: Radio Frequencies Private Bargains to correct externalities

Third World Property Rights Meteoric Rise in Urban Population Opening a Legal Business  Peru (289 days, 207 steps)  Philippines (13-25 years, 168 steps)  Egypt (5-14 years, 77 steps)  Haiti (19 years, 111 steps) Staying Legal

Dead Capital Large amounts of unrealized capital Mostly due to discriminatory laws Lost accessible Capital  Haiti ($5.2 billion)  Peru ($74 billion)  Philippines ($133 billion)  Egypt ($240 billion) Total illegally owned real estate in Third World and former communist nations ($9.3 trillion)

Classical View of Capital Smith  Capital represents economic potential Marx  “transcendence” of commodities Both believe capital was engine driving market

Property Effects Fixing the Economic Potential of Assets Integrating Dispersed Information into One System Making People Accountable Making Assets Fungible Networking People Protecting Transactions

Braudel’s Bell Jar “…[why is it that] a significant rate of capital formation was possible only in certain sectors and not the whole market economy?” No access to formal property systems Few realize bell jar’s existence

What is the mystery of political awareness? When governments fail to understand and deal with the changes in their own society Specifically, when governments do not see the growth of extralegality Brought on by Urban vs. Rural

– Department of Economic and Social Affairs – Population Division

Blind Spot 1: Current Situation Don't see the processes & forces by which the situation arose Not understanding the origins of the problem, they don't see that "the extralegals are here to stay". Seeing the extralegals as a transitory nuisance, policymakers don't see the wealth and potential of extralegals. *Talking points from Dr. Stephen Chilton’s course, “Third World and Development,” at the University of Minnesota.

Blind Spot 2: Historical Parallels "Those who don't study history are doomed to repeat it." Policymakers don't understand that this situation has happened in many other societies in the past. As a consequence, policymakers unable to take heart and/or direction from this historical perspective. *Talking points from Dr. Stephen Chilton’s course, “Third World and Development,” at the University of Minnesota.

Five misconceptions All people who live outside the law do so to avoid taxes Real estate is not held legally do to lack of information Governments can ignore the costs to enacting these laws Existing arrangements can be ignored You can easily change peoples fundamental views on assets.

Ethiopia GDP (purchasing power parity): $54.89 Billion  Agriculture:47%  Industry:12.4%  Services:40.6% Labor force:  Agriculture:80%  Industry:8%  Services:12% Population below poverty line: 50% (2004)

Peru GDP (purchasing power parity): $155.3 Billion  Agriculture:8%  Industry:27%  Services:65% Labor force:  Agriculture:9%  Industry:18%  Services:73% Population below poverty line: 54% (2004)

Attributes of Effective Property Rights Reform Emphasizes rights and responsibilities of ownership Build reputation of respecting rights Respect currently established “social contracts” Keep costs of legal rights low Eliminate government corruption

Examples of Successful Reform Botswana  Respected property rights of women and minorities  Encouraged foreign investors with a reputation of respect of property rights

Examples of Successful Reform Peru  Land titles given to squatters  Businesses encouraged to become legal Estonia  Kept Judiciary insulated from government

Questions?