Chapter 1: The Five Mysteries of Capital
I. Capitalism
a. An economic and political system in which a country's trade and industry are controlled by private owners for profit
b. Government has little control, but provides enough guidance so that all laws are abided by
c. Why has Capitalism triumphed in the West and failed everywhere else?
i. Wealth gap: There is a great difference between the West and the rest of the world in regards to distribution of wealth. ii. Inability to produce capital:
a. Resources exist, but are in defective forms
a. Ownership of houses are not clearly identified
b. Unincorporated business with undefined liability
b. Assets are considered dead capital since there is not representation
II. Five Mysteries of Capital
a. The Mystery of the Missing Information - There is no formal documentation of the world’s poor capacity to accumulate assets. They have the ability to save a lot; most of it is dead capital, which are assets that are not used to their fullest.
b. The Mystery of Capital - Central to this book is the exploration of what is capital, how is it produced, and how is it related to money?
c. The Mystery of Political Awareness - Within the past forty years, globalization brought governments to the realization of the untapped wealth of dead capital held by so many poor people.
d. The Missing Lesson of U.S. History - The lesson of the past can be found in the history books and applied with what is going on in the Third World and former communist countries today.
e. The Mystery of Legal Failure - Why Property Law Does Not Work Outside the West - As stated in the book, since the 19th century, nations have unsuccessfully tried to implement the laws of the West to give their citizens the institutional framework to produce wealth. An example of this mystery is the difficulty most citizens still face when using the law to convert their savings into capital.
III. Relevance to Business Decision Making
a. Understanding the norms of the countries you are doing business in
b. Allowing individuals to produce goods or services and retain the profits
c. Other countries are very much like the US of a century ago
i. Understanding the development process of a country is vital to business decision making
d. Since many countries do not have the Rule of Law, relationships are based off of trust and can be frustrating for a Westerner
Chapter 2: The Mystery of Missing Information
1. The Obstacles to Legality: a. Legal businesses in Lima, Peru: i. Registering a business took 289 days. Obtaining a title for a piece of land took 728 steps. ii. Legal registration fee was $1,231, which was 31 times the monthly minimum wage. b. Obtaining land in the Philippines: i. A person wanting to legally purchase a dwelling they have built had to form an association with neighbors to even qualify. ii. Furthermore, they would have to go through an additional 168 steps through 53 agencies. iii. Process took 13 to 25 years. c. Acquiring desert land in Egypt:
i. Process took 77 bureaucratic steps taking 5 to 14 years. ii. 4.7 million Egyptians chose to build dwelling illegally. d. Buying government land in Haiti: i. Needs to be leased for 5 years before it can be purchased. Overall process took 19 years. e. Staying legal is just as hard as becoming legal in Venezuela: i. Legally renting property is extremely difficult ii. Majority of property rental is done “extralegally” outside of the regulated formal economy iii. These outside cities, called favelas, do not have rent controls iv. Inhabitants of these cities have “quit the system” by living and working outside of official law
2. The Undercapitalized Sector:
a. Extralegality in Third World countries filling the the gaps in the legal economy by street-side shops, vendor-carts and transportation services (microbusiness, cash only).
b. Post Soviet Russia shown increase in illegal activities from 12 to 37 percent 4 years after becoming independent country; slow to privatize land and manufacturing. Legality is marginal and unapealing to local “private sector”. It is government’s decision whether to legalize/integrate micro economies or continue to live in anarchy
3. How Much Dead Capital:
a. Survey of uncapitalized properties and infrastructures in 5 Third World cities indicated magnitude of dead capital. Due to legal obstacles and lack ownership records people either find loophole in laws or simply disobey the law by selling and buying land without proper documentation
b. Locked housing rates in 1950’s are now $1/year due to inflation
c. Lack of records makes it impossible to estimate commercial and financial value of country’s estate
d. Government does not have proper recording system thus making undercapitalized sector larger every day
4. How Much Is This Dead Capital Worth:
a. In developing and former communist countries the majority of citizens, either living in the city or countryside, live in housing that is dead capital
b. Although these extralegal dwellings are not worth that much individually, collectively the value of these housing establishments outweigh the values of legally operating businesses, local government holdings, foreign investments, and local stock exchanges
c. It is estimated that the value of the real estates not held legally in Third World and former communist countries is “at least 9.3 trillion.” It was estimated that a high percentage of the rural and urban parcels cannot be used to create capital
d. Within these countries, there are trillions of dollars worth of resources to put to use if only to unravel the mystery of how to convert these assets into working capital
5. Paints the picture of an underdeveloped nation with no laws and regulations:
a. People having no identity. Addresses unable to be verified
b. Property rights rules varied by each neighborhood
c. Description is about former Communist nation, Cairo
2. The absence of legally enforceable transactions to generate additional wealth is the biggest issue:
a. Compares nation to the U.S. in the 19th century and the days of the “Wild West,” where:
i. Pioneers insisted that their labor, NOT formal paper titles, gave land value and ownership rights ii. Believed if they occupied land and improved it, it was theirs iii. Officials would sent out troops to burn farms but the settlers fought back
3. This past is Cairo’s present:
a. Before 1950, most 3rd world countries were agricultural societies
b. After 1950, there was an economic revolution. New machines reduced demand for labor
c. Biggest challenge was the impenetrable wall that barred them from legally established social and econ activities
d. Difficult to purchase legal housing, enter formal business, or find a legal job

Relevance to Business Decision Making
Globalization is a two-way street.
a. If the Third World and former communist nations cannot escape the influence of the West, neither can the West disentangle itself from them.
b. In the business community of the West, there is a growing concern that the failure of most of the rest of the world to implement capitalism will eventually drive the rich economies into recession.
c. As the prosperity of the moment yields to the crisis that is sure to come. The question that always arises in international crises: Whose money will be used to solve the problem?