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The Mystery of Missing Information

80% of the world’s population lives in countries where it is extremely difficult to track the ownership of property. Because of this difficulty, it is difficult to establish the value of assets in these countries, and the citizens are incapable of using their property in productive ways. The current situation facing Third World countries has historic parallels with the West. Pre-1950 Third World societies were largely agricultural in nature and are similar to eighteenth-century European societies.

The economic revolution that hit the Third World after 1950 is similar to the process that affected Europe in the nineteenth century. Since 1950, new machines have been introduced, public health has been improved, and millions of people have moved into urban areas. The rate of population growth in the cities has made it almost impossible to keep up with the rise in demands on the sewage system and property development. De Soto and his team conducted research to determine how difficult it was to set up legal businesses and private housing in Peru, the Philippines, Egypt, and Haiti.

They found that it took numerous administrative steps in numerous offices and took many years in order to obtain the necessary documentation and permits to establish legal recognition. For example, in Peru, it required 207 administrative acts in 52 government offices and almost 7 years in order to build a private dwelling legally. They also found that once the difficult process to attain legality has been completed, citizens in these countries must work even harder to retain the legality of their homes and businesses.

Because the difficulty to establish and maintain legality, citizens in Third World countries have largely decided to become extralegal, i. e. to live outside the bounds of the law. These extralegal businesses are numerous and fill important functions in Third World countries. It has been estimated that in Mexico, there are 2. 65 million of these extralegal businesses. In Third World countries, the vast majority or real estate and business transactions are extralegal – this is the normal way of operating in these countries.

De Soto and his team conducted extensive surveys in Cairo, Lima, Manila, Mexico City, and Port-au-Prince in order to quantify the value of extralegal real estate holdings. They found, first, that citizens of these citizens have developed numerous ways of circumventing the law. The author refers to these undocumented real estate holdings as dead capital because they cannot be used to gain additional value. The amount of this dead capital is enormous. In Haiti, extralegal real estate is valued at $5. 2 billion; in Peru, $74 billion; in the Philippines, $133 billion; in Egypt, $240 billion.

When the author took the data obtained from surveys in these countries and projected values for the entire Third World, he found that the value of extralegal real estate totalled at least $9. 3 trillion. If leaders of former communist nations and Third World countries could transform administrative processes to make it easier to establish and maintain legality for real estate holdings, there were be trillions of dollars of capital that could be productively used to increase the wealth of these nations.

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