Modern fintech is going to create formal, standard records about economies where none existed before.
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A relatively commonplace occurrence — credit card fraud — made me reconsider the long-term impact of financial technology outside the Western world. I’ll get to it, but first, we need to talk about developing economies.
I’m halfway through Hernand de Soto’s The Mystery of Capital on the advice of the WSJ’s Michael Casey. Its core argument is that capitalism succeeds in the Western world and fails everywhere else because in the West, property can be turned into capital (you can mortgage a house and use that money to do something). The book uses the analogy of a hydroelectric dam as a means of unlocking the hidden, potential value of the lake.
But in much of the world, it is unclear who owns what, and as a result, the value of assets can’t be put to work in markets. In the West, we take concepts like title and lien and identity for granted; yet, these systems are relatively new and don’t exist around the world. As de Soto noted in his book, in the Soviet Union, unofficial economic activity rose from 12% in 1989 to 37% in 1994. Read more…