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With such a piece of paper, you can buy 30,000 head of cattle in one fell swoop. You can trade large quantities with great specificity; you can even take a factory and sell it in ten or a hundred different pieces by dividing it into ten or a hundred different packages of shares. In other words, you can combine and re-combine and add assets to produce additional wealth.
This is precisely what Adam Smith had in mind when he talked about "the division of labor in a wider market." But to do that you need this legal paper, which assures you that the assets you're getting are as they have been represented, and that your transaction will be conducted according to specific rules which can be imposed by courts and police systems. Well, how many people in the world among those five billion people who are not in the so-called "West" have got some kind of documentation of their assets? How many are surrounded by the framework of rules that provide the necessary security to make such transactions? Only 500 million or at most one billion of those five billion have the vehicles needed to accumulate capital and engage in transactions in the larger market. That's why capitalism is failing outside the West. And we had not realized until now that the possibility of getting represented on paper and being guided by rules was a fundamental instrument of capitalism.
In other words, what we have missed about capitalism is nothing more or less than the rules of the game. It's like a soccer match. You can put up goals if you want to and you can put some white lines on the turf, but if there are no rules, you can kick your opponent, you can make a goal with your fist, one team can have 24 members and the other one only eight members. If there are no rules, there is no game. The game of capitalism collapses without the rules.
You argue that a majority of the population of the Third World possesses considerable assets—"dead capital"—which they are not able to use. Explain what you mean by that.
Even the poor have assets. You've got a cow, you've got a pig, you've got a bicycle, you've got a motorcycle, a bus, a truck, a small factory, a house. Most of them have something. If they didn't, they would be starving. And most people in developing countries are not starving. I'm not saying that there are not some people in terrible situations—the poorest of the poor, who are in terrible misery. But most people are building cities, are carrying out economic activities, and are more or less surviving.
"Dead capital" is all the assets these people possess that cannot be brought to life—or to a parallel life, one might say, where the assets are transformed into financial capital or investment capital. For most Peruvians and Egyptians and Russians and Chinese, a house is a shelter from the cold and the rain. It has a physical value. But to you Americans, a house is many other things. It is, for example, collateral for a mortgage. So while you are living in your house, it is working for you in the financial markets at the same time. It's got a parallel life. You can bring it out in paper and guarantee an investment against it, so it actually produces investment.
And your house is your address. If you know that de Soto lives here, you can collect rates and therefore you can supply him with energy and water. Or you can collect taxes, or you can make him a business partner. Today, 80 to 90 percent of Egyptians and Peruvians lack legal addresses, so how can they have that parallel life?
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