Many communists like to point to the supposed capitalism of third world countries as the cause of their very unequal distribution of wealth. Why is wealth in Western first world nations more evenly distributed than in third world nations? Afterall, families in 3rd world countries have been land owners for generations yet remain subject to abject poverty. Why? What is it we have that they don’t?
Quite simply, they have little means to convert their wealth into capital. They lack titles, deeds, and other financial instruments that reflect the value of their wealth. Essentially, they don’t have a legal system that protects their private property.
Hernando De Soto, author of The Mystery of Capital; Why Capitalism Triumphs in the West and Fails Everywhere Else, writes:
Imagine a country, where nobody can identify who owns what, addresses cannot be verified, people cannot be made to pay their debts, resources cannot be conveniently turned into money, ownership cannot be divided into shares, descriptions of assets are not standardized and cannot be easily compared, and the rules that govern property vary from neighborhood to neighborhood or even from street to street.
This is not a recipe for growth, but one of exploitation. Such an economic environment cannot be properly defined as capitalism. “Private ownership of the means of production” is the most colloquially acceptable definition of capitalism. Since this is a critique of the communist argument against capitalism, we’ll use their definition. Land owners can’t really be said to have private ownership. Private ownership is a legal descriptor. Otherwise, it’s relegated to mere current possession”. Land owners don’t have *legal title to their homes or deeds to their farms as representations of that capital. Even where they do, it’s not standardized. Their ownership is merely a consequence of their current possession.
The capitalism that does exist in these countries has provided them with: tv’s, fax machines, computers, air conditioning, modern household amenities, and a higher standard of living than they otherwise would have without capitalism, but they don’t have legal title to any of those things nor the land they inhabit. I encourage anyone to read The Mystery of Capital; Why Capitalism Triumphs in the West and Fails Everywhere Else if they are at all interested in investigating this matter more deeply.