Why Capitalism Triumphs in the West and Fails Everywhere Else, Basic Books, 2000.

Why are some people rich and others poor? And more significantly why are some nations more prosperous than others?

This is the great mystery of capitalism, an enigma that’s become even more dramatic since the fall of the Communist regime, when the market economy seemed to be the only remaining way to organize a modern economy.

Hernando de Soto, a Peruvian economist, free trader, founder and president of the Instituto Libertad y Democracia (ILD), provocative and well documented, reflects on the reasons for economic inequality and overturns many commonplaces.
In his view, already expressed in El otro sendero (The Other Path), the informal economy (“black”, “hidden” or “illegal”) is the result of inadequate legislation and rules that are impossible for much of the world’s population to respect. So the informal economy shouldn’t be seen as a cancer to be removed but “dead capital” merely waiting to be brought back to life.
For Hernando de Soto, the Third World doesn’t suffer the lack of a Calvinist revolution or entrepreneurial spirit, let alone intelligence or creativity. All over the world there are poor people with talent, enthusiasm, a willingness to risk and an extraordinary capacity to wring profit out of exiguous resources.

De Soto shows how such resources can’t be used because there is no accessible legal representation of property rights, making it impossible to defend certain rights and, consequently, obtain credit. The challenge is thus to activate this “latent” capital , which exists even in the poorest countries.
The history of capitalism in the West, according to de Soto, explains how. For it is the history of formal recognition of property. Property is represented using recognized and recognizable forms. Even intangible assets are covered by rights of ownership.
So de Soto can affirm that “most of the teeming masses in developing nations aren’t oppressed legal proletarians but oppressed and illegal small business people with an appreciable quantity of assets.”
Further reading: http://www.ild.org.pe