The Mystery of Missing Information essay

Despite the appearance of abject poverty across the developing world, the poor actually possess assets of immense wealth. It is in fact the inability to adequately represent those assets which prevents the owners to fully unlock the potential capital that these assets can generate. The current situation in 3rd world countries is glaringly similar to the kind of environment that prevailed in 19th century United States, when squatters occupied land and built houses and farms on it, and claimed it as their own.

Land laws were not only poorly crafted but also badly implemented, making the state and the squatters lock horns. As time went by and mechanization started to emerge in the 1950s the need for labour in rural areas fell dramatically, forcing people to leave villages and head for the cities. As the number of immigrants began to rise rapidly, these urban centres unable to cope with the rising number of people, began to choke. Infrastructure began to crumble as densely populated shanty towns cropped up, litter lined the streets, sewage pipes overflowed and small vendors mushroomed.

Rising hostility against the immigrants expressed itself in many forms, one of which was to create an array of rules that prevented immigrants from establishing social and business units legally. The prospect of establishing a business or building a dwelling legally was wrapped in layers and layers of bureaucracy. As experiences in Peru, Egypt and Malaysia prove, just the registration of business of personal property is such as long, drawn out process that it actually encouraged people to conjure ways to circumvent the system rather than adhering to it.

Rather than be embroiled in paperwork and legal distractions, these migrants opted out of the system and created a parallel ‘extralegal’ system, which was based on informal and undocumented arrangements. The removal of bureaucratic hurdles was a major contributor to the rampant increase in cottage industries and the start-up economy. This gave birth to an entire economy which ran through unregistered industrial units, shops and other business units, in parallel to their legal counterparts.

Since the ‘extralegal’ economy is undocumented and lacks proper measures of valuation it is difficult to gauge its exact value. Property is often exchanged without any proper documentation, shanty towns emerge on government land, and agricultural land is illegally converted to housing estates and so on. The ownership of assets is difficult to determine and the lack of representation prevents them from generating the right economic value as they cannot be put through the kind, or number of transactions assets in a legal economy can be put through.

This produces immense dead capital, or capital that exists in value but cannot be realized due to its nature. It has been calculated that the total value of dead capital in the developing world stands at $9. 3 trillion, about twice the total circulating US money supply. This fact alone goes out to show the kind of power entrepreneurs in the developing world possess and the opportunity that the developing world is sitting on should it choose to do something about it.