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Dead capital is an economic term related to property which is informally held that it is not legally recognized. The uncertainty of ownership decreases the value of the asset and/or the ability to lend or borrow against it. These lost forms of value are dead capital.
The term dead capital was coined by Peruvian Economist Hernando de Soto Polar.
De Soto estimates there is US$ 9.3 trillion in dead capital globally. The US$ 9.3 trillion are assets owned by poor or middle-class people in emerging economies which cannot be realized due to poor policies, procedures or bureaucracy.
If these assets in the informal sector were recognized and brought into the mainstream, market economy, they could become the key to fostering development.
Problems associated with dead capital
Local political instability, corruption, rational under investment.
The economic impacts of dead capital are immense, only well-connected people have the ability to use their capital, join it together with other assets and create surplus value for further investment. Only these people can get life, educational, medical or property and casualty insurance and thus shield themselves from any problems. Only they can obtain unsecured loans (or even secured loans) after presenting proper evidence of their property claims. The legal morass that complicates the property system disables them from being connected to the world. This then leaves a massive shadow economy which although very wealthy, does not fully contribute to the economy and does not help its participants fully achieve their potential.
Groups working to solve the dead capital problem
- World Bank (PSD initiative)
- Institute for Liberty and Democracy
- Center for Live Capital
- Free Market Foundation of South Africa