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The informal sector in developing nations is richer than we think

When reporting on the inequality between the rich and the poor, Oxfam makes the mistake of thinking that the world’s “poor” own little to nothing.  What Oxfam ignores in its estimates is the informal sector; people who own “dead capital,” p

The informal sector in developing nations is richer than we think

We have tagged this article as propaganda as it imposes a serious spin on the topic.
If not more explanation provided, this article is included as propaganda because it shows clear manufacture from a government controlled dialectic, where a topic is misdirected by some actors in order to mislead people during early stages of a narrative.

When reporting on the inequality between the rich and the poor, Oxfam makes the mistake of thinking that the world’s “poor” own little to nothing.  What Oxfam ignores in its estimates is the informal sector; people who own “dead capital,” property that does not have formal recognition.

Dead capital is largely found in developing nations where property rights are poorly protected.  In 2000, dead capital was estimated to be around $9.3 trillion, representing 28% of global individual income.

Unlocking this “dead capital” by protecting property rights could generate significant economic growth, particularly in poor countries, Vincent Geloso writes.

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The following is paraphrased from ‘The Poor Are Richer Than We Think: Unlocking Dead Capital’ by Vincent Geloso as published by The Daily Economy.

The annual Oxfam report on world inequality consistently shows that a small number of extremely wealthy people own most of the world’s wealth, with the 2025 edition being no exception.  As usual, this year’s report highlights the surge in billionaire wealth and its perceived negative impact on the economy.

However, the report overlooks the concept of “missing wealth” or “dead capital,” a term coined by Peruvian economist Hernando De Soto in 2000. 

“Dead capital” refers to property or assets that are informally held and not legally recognised, making them unable to be exchanged for financial capital. This lack of formal recognition decreases the value of the asset and limits its use as collateral for loans or other financial transactions. 

The economic impact of dead capital is significant as preventing people from accessing financial services, such as loans and insurance, hinders their ability to invest in their assets.

Related: Beware Oxfam’s dodgy statistics on wealth inequality, International Energy Agency (IEA), 19 January 2015

De Soto’s Study on ‘Dead Capital’ and Its Potential

De Soto’s study estimated that the total amount of “dead capital” was around $9.3 trillion in 2000, approximately 28 per cent of global individual income.  Mobilising this stock of dead capital at a 5 per cent annual return, he said, could generate an additional $1.49 trillion in output per year, equivalent to roughly 1.4 per cent of world GDP at the time.

The potential gains from unlocking this dead capital would primarily benefit those at the very bottom of the global income distribution, with an estimated income boost of around $580 per head in regions such as Latin America, the Middle East and Africa, where incomes per head are relatively low.

The resulting income boost would not only raise the baseline from which these economies grow but also potentially increase the growth rate itself if part of this capital is channelled into research and innovation, which could help close the gap between rich and poor countries almost overnight.

The Persistence and Causes of ‘Dead Capital’

Despite the significance of De Soto’s calculation, it has never been updated or expanded, but the problem of dead capital is widely acknowledged among development economists, who recognise that the poorest segments of the world’s population actually hold much more wealth than is commonly believed due to the lack of legal recognition of their assets.

The reason for the existence of dead capital is the poor protection of property rights in many nations, which makes it difficult for owners to prove ownership and utilise their assets, highlighting the need for stronger property rights to unlock the potential of this dead capital.

The lack of formal property rights in developing countries limits the ability of individuals to use their assets as collateral, sell them or rent them to others, resulting in these assets being underutilised and staying in the informal economy.

This limitation prevents the poorest people from leveraging the resources they already own, thereby severely limiting the growth potential of developing countries and discouraging the creation of new capital.

Property Rights as a Key to Growth and Reducing Inequality

A recent paper studying China’s economic growth found that the introduction of the Property Law in 2007, which granted private property the same legal status as public property, led to the emergence and growth of new private firms, as they were able to utilise previously “dead capital” for productive uses.

The example of China illustrates the importance of protecting property rights in bringing “dead capital” to life and promoting economic growth, particularly in poor countries where there is a significant amount of underutilised assets.

The protection of property rights is essential for a well-functioning market economy, and embracing this concept would help address the issue of inequality, rather than contempt for markets or capitalism, as argued by Oxfam.

Legalising “dead capital” would lead to an acceleration of economic growth in poor countries, where the lack of formal property rights is a significant obstacle to development, and would help to unlock the full potential of existing assets.

Read the full article HERE.

Featured image: The Role of the Informal Economy in Africa’s Economic Resilience, African Leadership Magazine, 19 September 2024

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