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Uncovering the Mystery of Capital Review Essay

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Nigeria post independence has aimed to develop an economic system in which investment and ownership of the means of production, distribution and exchange of wealth is made and maintained chiefly by private individuals or corporations. Sadly she suffers the same fate most developing countries and former communist nations that trend the same path encounter: Abject Failure.

Hernando De Soto in his book; The Mystery of Capital, studies the effect of capitalism in the west and tries to analyse why such a strategy is so successful there, but fails to make an impact every other place it is being introduced, Nigeria inclusive.

Capitalism entails among other things foreign investments, stable currencies, transparent banking practices, free trade and also privatisation of state owned industries. However, Hernando describes the major ingredient that is missing in countries trying to adopt capitalism as “Ability to produce Capital”.

Capital is a force that raises the productivity of labour and creates the wealth of nations. It is the lifeblood of the capitalist system, the foundation of progress and the one thing that poor countries of the world fail to produce.

Nigeria is a typical example of a country with vast potential that has tried and failed to adopt capitalism system of governance and this is due to the fact that she has failed to produce enough capital to propel her growth. Nigeria has adapted all the western inventions that support capitalism system but has failed to set up the necessary structure required to take off the system.

In the west, every asset is represented in a property document that is the visible sign of a vast hidden process that connects all these assets to the rest of the economy. Effective documentation of such asset can lead to the becoming source of capital. The west has effectively implemented such a system and as such draw capital out of the assets documented. In America for instance, mortgage on the entrepreneur’s asset is the easiest source of fund.

This is due to the fact that the assets are registered and well documented, can be proven to belong to the said entrepreneur, has a documented value that covers the credit amount he needs, and can be sold off legally to recover the credit if it crystallises. The same cannot be said of Nigeria, where assets are poorly registered, documentation outdated and exchange of assets from one owner to another is largely untraceable. Trade within the country is usually focused on local buyers who usually have a long friendship with the property owner and a certain level of comfort in the transaction.

Most capitalist nations suffered similar problems before finally perfecting the implementation of the capitalist system. The United States in 1783 had to deal with illegal squatters and settlers who occupied land that legally did not belong to them. This was as a result of no one legal system acceptable in all parts of the country that indicated the various processes that had to be used to legally acquire such lands and document the transaction. Nigeria also suffers similar problems presently as a flaw legal system is implemented and fails to check the various transactions that involve acquisition of assets that can lead to capital generation for the nation.

Hernando De Soto analysed that capital is the most essential component of western economic advancement and is also the most neglected by developing including Nigeria. He explained that for any nation to successfully implement capitalism, certain areas of the transition had to be conquered. They are:

1. Mystery of Missing Information

2. Mystery of Capital

3. Mystery of Political Awareness

4. Mystery of Lessons of the West

5. Mystery of the Legal failure

Nigeria is a country that suffers from poor record keeping and this has often lead to problems where identification of owners of various asset, verification of addresses, description of assets, and imposition of charges and regulation becomes necessary. Identifying the proper owner of a particular asset becomes a cumbersome problem as records are usually not updated and such assets might have changed ownership more than once in the last couple of years. Cases of illegal acquisitions become common place with complaints being logged in courts and other legal bodies for a resolution of such conflicts.

Poor documentation and recording processes often leads to the emergence of an illegal trade that often tends to cripple the conversion of assets into capital. The high demand of the legal system in the country makes it difficult for the average citizen to fulfil all the required criteria under law to acquire such assets. The high fees and charges coupled with the often times prolonged delays encountered before completion of the legal documentation acts as obstacles of legality to citizens, who opt out of such a legal system and prefer to take part in illegal trade transactions that are not documented by the government and as such leads to a loss of potential capital that asset could generate. Such illegal transactions are governed by the laws the trade merchants implement to suit them and not those of the government.

Illegal businesses have become the norm in the Nigerian economy. They are not registered or recognized by the government, and this is due to the negligence of the government concerning the importance of having a registration system that will be responsible for keeping details of all businesses that are running in the country and therefore improve the capital generating capacity of such a country. Various sectors of the Nigerian economy have been attacked by such businesses, be it transportation, real estate etc. The conversion of such assets into capital can only be achieved when such black marketers are properly registered and guided by the law of the government. The sectors of the economy that are classified as undercapitalized is a world where ownership of assets is difficult to trace and validate, governed by no legally recognized set of rules.

Hernando De Soto states in his book that about 80 percent of the world is undercapitalized. This means that there is mass failure in drawing economic life from their assets to generate capital. People own assets as security and do not have the required know how to convert such assets into capital for their businesses. This leads to such assets categorised as dead capital, as there is no conversion process available to generate the said capital.

Capital is responsible for two things, namely;

1. Capturing the physical dimension of assets

2. Generate surplus value

Every country requires capital, as that is the part of the country that initiates surplus production and increases productivity of the nation. Every asset requires an external man made process that allows the identity of the potential of the asset and also to convert this potential into capital. The process is setup not to create capital, but to protect the ownership of such property. The west for example creates such wealth from the formal property system which has over the years been streamlined to a credible system, guided by the rule of the government and registered and recognised by the said government.

Adam Smith states that the division of labour and subsequent exchange of products in the market was the source of increasing productivity. This was made possible by capital which is the stock of assets accumulated for productive purposes. This accumulated resource was used to support specialised enterprises until they could exchange their products for other things they needed. The more the capital means more specialization and thus, the higher the society’s productivity. However, assets must be fixed and realised to become active capital and put additional production in motion.

Every asset must be registered to a particular person or group of persons to be considered to be productive. This helps to confirm the existence of the said asset as well as the processes required to convert them into capital generating transactions. The introduction of a formal property system is necessary to provide the process, forms and rules that fix assets in a condition that allows the realization of such assets as active capital. These assets have to be described and organised according to their economic values.

The record is updated into a recording system and a title for the assets now is given to enable easy identification. This should be guided by a set of legal rules. This describes the creation of a formal property system where capital is born. Nigeria still finds it difficult to identify the owners of certain assets as the recording system is outdated and there is no formal property system being developed. This often leads to lengthy and cumbersome procedures for sale or lease of property.

The majority of citizens who are classified as the poor of the economy usually do not have access to the property mechanism that could be used to produce, secure or guarantee greater value in the expanded market as against the lack of entrepreneurial knowledge that the west assumes is the cause of failure of the capitalism system in such countries.

Upon examination, it can be drawn that the west cannot paint a broad picture of their formal property system used as a means for generation of capital. This is as a result of the system being hidden in thousands of pieces of legislation, statues, regulations and instructions that govern such a system. This formal property system produces as a side effect various consequences that lead to capital generation.

They are:

1. Fixing the economic potential of assets: This is as a result of the proper and effective registration and description of property that help in tracking changes in ownership of such property as well as their value generating capacity.

2. Integrating dispersed information into one system: The development of a single legal system to govern the property system is a necessary control measure used in ensuring up to date records of all registered property in the government’s records.

3. Making people accountable: Registration of owners of property meant people no longer are anonymous and could be easily located. This formal system encourages people to respect title, contracts and obey the laid out laws. Failure to adhere to such laws lead to the offence being recorded in the system and this poses a reputation risk with other parties for the defaulting citizen. The unavailability of such laws is the major reason for the inability of citizens to make profitable contracts with strangers; they cannot also get credit facility, insurance and utility services.

4. Making assets fungible: Assets become more accessible and are able to do additional work to generate capital. Registered assets are easily combined, divided, mobilized and used to stimulate business deals. Such assets are able to be fashioned to suit practically any transaction.

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