Thursday, November 03, 2005

I've just started The Mystery of Capital, by Hernando de Soto, and so far I don't think it's a bad read. I confess that I don't know much about economics, so it's sometimes disorienting. The premise is that formal property systems in developing nations exclude the poor, who hold the vast majority of assets in those nations. The poor have no access to the formal property systems, because the assets they own are owned illegally or because the legal system is too cumbersome to use. Lacking an entry into the formal property system, there is no way to use these assets for collateral. The statistics de Soto and his team use to illustrate the massive impediment to property ownership in developing nations is enlightening. My biggest question so far is whether the "formal property" argument can explain conditions in inner-city slums, and I suspect the answer is that inner-city slums in developed nations are caused by fundamentally different forces than shanty towns on the outskirts of a sprawling third-world metropolis. The author notes that land value in shanty towns is sometimes as high or higher than land in the legally-owned areas of town and going up, whereas land value in inner-city slums is wretched and deteriorating quickly. Hopefully more reading will clear up some of my economic confusion.

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