1. The Mystery Of Capital By: HERNANDO DE SOTO

2. Hernando de Soto Polar

3. THE 5 MYSTERIES OF CAPITAL i.The Mystery of Missing Information ii.Mystery of Capital iii.Mystery of Political Awareness iv.Missing Lessons of US History, and v.The Mystery of Legal Failure

4. ABOUT THE AUTHOR A Peruvian economist Born on 3 rd June 1941 in Arequipa, Peru Known for his work on the informal economy and the importance of business and property rights. After a military coup in Peru in 1948, his father chose exile in Europe with his family. He was educated in Switzerland where he attended the International Studies in Geneva. Also did a post graduate at the graduate institute of International Studies in Geneva. Worked as an economist, corporate executive and consultant President of the institute of liberty and democracy located in Lima, Peru Some notable prizes he won include;  Freedom Prize in 2002 (Switzerland)  The Milton Friedman Prize for Advancing Liberty in 2004. (USA)  The 2006 Innovation Award (social and economic innovation) from the economist magazine on the 2 nd of December for the promotion of property rights and economic development  Other Books written include Realizing Property Rights and The Other Path: The Economic Answer

5. MAIN MESSAGE OF THE BOOK Strong market economies cannot be built without active participation in the information framework that records ownership of property and other economic information. Keywords Dead Capital Extralegal activities/capital. Bell Jar

6. THE MYSTERY OF MISSING INFORMATION In spite of the obvious poverty of majority of people in Third World and former communist nations, these people possess a lot. Their possessions are not represented in a way to produce additional value (dead Capital) Capital possessed by the poor is mostly “dead capital” Why Extralegal activities? It is hard to get and maintain legal title or right. Help the poor and enrich the nation. Estimated value of dead capital is $9.3 Trillion

7. THE MYSTERY OF CAPITAL The reason capitalism works in the west and nowhere else is because only western countries have the tool needed to create capital What is capitalism at all? Why does it matter? And what is this tool that only the west has to produce it? Capital is the potential in an item has to produce surplus value Assets – Capital – Legal Property He identified six effects of a formal property right system 1. Fixing the Economic Potential of Assets 2. Integrating Dispersed Information into One System 3. Making People Accountable 4. Making Assets Fungible 5. Networking People 6. Protecting Transactions

8. THE MYSTERY OF POLITICAL AWARENESS Political awareness as a mystery why capitalism succeeds in the west Migration, the development of extra-legals and the legalization of their activities. ‘Blind spots’ as main problem of non-westernized nations. Blind Spot I :- This talks about how governments fail to recognize the flow of extra-legal activity that has created a new class of entrepreneurs with their own legal laws Blind spot II :- This touches on the inability of governments of developing countries to learn from experiences of countries who have already passed through this stage. Stating that laws and policy reforms to promote division of labour are the ways to speedily eradicate poverty.

9. THE MISSING LESSONS OF US HISTORY -The author views the US from a different angle and strives to show what people do not see. -He researched on the history of how the property rights were established and discusses the process and noted that it was formed over centuries hence it is practically unknown. -Instead of criminalising people who settle on land or form businesses without permission rather bring them in and respect their informal ownership, allow them to raise capital- essence of capitalism. -US introduced pre-emption which allowed squatters to regain the value of the improvements they brought to the land and to purchase land at market price. -This boasted the system of property rights and improved the US. -Formal system of property rights brings prosperity to ordinary people.

10. THE MYSTERY OF LEGAL FAILURE FIVE BASIC MISCONCEPTIONS All people who take cover in the extralegal or underground sectors do so to avoid paying of taxes. Real estate assets are not held legally because they have not been properly surveyed, mapped and recorded. Enacting mandatory laws on property is sufficient, and government can ignore the cost of compliance with that law. Existing extralegal arrangement or social contracts can be ignored You can change something as fundamental as people’s conventions on how they can hold their assets, both legal and extralegal, without high-level political leadership.

11. CONTRIBUTION TO THE GOOD SOCIETY COMMUNITY EFFICIENCY LIBERTY EQUALITY Mystery Of Capital touched on all the four coordinates of a good society. However, De Soto was strong on efficiency and equality but weak on community and liberty. For efficiency he believed in capitalism. For equality, he believed that, the bell jar should be opened to consider the poor. For community, he believed in the peaceful co-existence between people. For liberty, he believed that, if people have the right to their property, they would have the freedom to do anything legal with it.

12. CRITIQUES Positive He acknowledges availability of wealth in developing countries and suggests ways of improving it He is not redistributing capital but rather encouraging development of capital Negative He emphasized property formalisation as the only reason behind economic growth of us Makes it seem as though Extralegal did not exist in the US He gives abstract applications Poverty is not homogeneous, therefore a single solution can't work He didn't consider the negative side of property rights.

13. IMPLICATION FOR CONTEMPORARY LEADERS The informal sector is with us, and may for long continue to be with us. Therefore, borrowing from De Soto’s work, today’s leaders and the leaders of tomorrow need to reconsider their orientation towards the informal sector. It is about time we considered, and responded to the informal sector as one of value and not of menace, making sure to incorporate it into the economic mainstream by a formal property system.

14. CONCLUSION De Soto’s 5 mysteries provide a pathway to the creation of capital in the developing world, by which developing countries may inch closer to developed ones in economic prosperity.