Unraveling the Mystery of Capital in Argentina
Argentina's economic puzzle: a personal exploration of the mystery of capital and the path to prosperity.
I recently read Hernando de Soto's book "The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else." It’s a fascinating read for all of us who are trying to understand why developing countries never make the leap,
I was born and raised in Argentina. I still live here. And my country is not improving. It’s getting worse by the minute
The Structure of Capitalism
De Soto argues that the key difference lies in the legal structure of property and property rights. In Western nations, property is not just a physical entity but also a complex legal structure that allows owners to generate capital. This legal structure, which includes property rights, titles, deeds, and the system that identifies and records ownership and transactions, is what transforms assets into active capital. It's this "invisible" infrastructure of capitalism that allows individuals to leverage their property to create wealth.
In developed nations, the structures of capitalism are often taken for granted. Property rights, mortgages, and the ability to leverage assets to generate wealth are woven into the fabric of everyday life. But here in Argentina, and indeed across much of Latin America, the story is starkly different.
Take, for instance, the case of our grandmothers. In a world where bank accounts and financial instruments are the norm, our abuelas keep their life savings in tin cans, carefully hidden away in nooks and crannies around the house. This isn't a quaint tradition or a charming idiosyncrasy; it's a survival strategy in an economy where informality is the rule rather than the exception.
And it’s not just abuelas. You’d be surprised by how many young people do the same thing.
Informal Economy
In Argentina, the formal economy is a minefield. Attempt to declare your assets, and you're hit with a barrage of taxes that can leave you reeling. The government, in its quest for revenue, often stifles the very entrepreneurial spirit it should be nurturing. The result? A thriving shadow economy where transactions are conducted out of sight, and assets remain "dead,” unable to be leveraged to create wealth.
Owning a House: Impossible Mission
The housing market is another arena where the mystery of capital plays out. Mortgages, a cornerstone of wealth creation in developed economies, are virtually non-existent here. With average earnings hovering around $500 a month and poverty rates at a staggering 50%, property ownership remains an elusive dream for many. The few who can save are often priced out of the market, leading to a mass exodus of young, productive individuals seeking better opportunities abroad.
The only ones who can buy new properties then, are the lucky ones that were born into elite families. Which, of course, further exacerbates wealth inequality.
Education? Savings? Non-existent
Education, too, is a casualty of this system. Half of our children don't complete their schooling, a statistic that bodes ill for the future of a country that desperately needs an educated workforce to break the chains of economic stagnation.
And then there's the issue of savings. In Argentina, buying dollars – a common strategy for preserving wealth in a volatile economy – is heavily restricted. This has given rise to a bustling black market, another symptom of the systemic issues plaguing our economy.
De Soto’s Lens
Through de Soto's lens, the root of these problems becomes clear: the lack of formal property rights (or at least, one of them. Don’t get me started with corruption, sheer incompetence, and political turmoil). Without these, assets remain "dead", unable to be leveraged to generate capital. The solution, according to de Soto would lie in legal reform that allows Argentines to unlock the potential of their assets and stimulate economic growth.
The mystery of capital, then, is not so much a mystery as it is a challenge. It's a call to action for policymakers and citizens alike to reimagine our economic structures and create a system where capital is accessible to all.
Ps:
This book is the greatest bull case for real estate tokenization. We need to bring real-world assets into the blockchain. Guaranteed property rights, by technology.