Indonesian dogs have the answer to the mystery of capitalism

As a cheerful postscript to the doomed Earth Summit, let's return to The Mystery of Capital ("Thrillingly subversive" – Donald Macintyre, The Independent). This astonishing book asks and convincingly answers the question: "Why does capitalism triumph in the West but fail everywhere else?"

It's a marvellously reassuring book for wealthy Westerners because it tells us that poverty in the Third World isn't our fault. For that reason, perhaps, its message hasn't been taken as seriously as it might have been.

The author, Hernando de Soto, is a poverty researcher from Peru. The key word is researcher. As he suggests, if economists wanted to study horses they wouldn't go and look at horses; they'd sit in a study and say to themselves, "What would I do if I were a horse?"

De Soto says he has collected facts and figures "block by block and farm by farm in Asia, Africa, the Middle East and Latin America" and his conclusions entirely undermine the assumptions underlying all fatuous targets set by the international community – as it is oxymoronically called – to abolish world poverty.

"Most of the poor already possess the assets they need to make a success of capitalism," De Soto says. Even in poor countries the poor save and their collective savings are immense. "In Egypt, the wealth that the poor have accumulated is worth 55 times as much as the sum of all direct foreign investment ever recorded there – including the Suez canal and the Aswan dam."

Same in Haiti: the total assets of the poor are 150 times greater than all the foreign investment received since its 1804 independence. If the richest country in the world (the US) were to give the UN-recommended level of foreign aid, it would take 150 years to transfer to the world's poor resources equal to those they already possess.

The problem? The assets owned by the poor aren't legally held. Ownership rights aren't documented. Titles aren't registered. Property can't be traded or used as security for a loan, or as a share for investment.

The informal property rights that exist don't connect with the legal system. And whose fault is that? The legislators'. Scratch the surface of an endemic problem – famine, illness, poverty – and you invariably find a politician at the source.

"I told ministers that Indonesian dogs had the basic information they needed to set up a formal property system," Mr de Soto says. "By travelling their city streets and countryside and listening to the barking dogs, they could gradually work upwards, through the vine of extra-legal representations dispersed through their country, until they made contact with the ruling social contract. 'Ah,' responded one of the ministers, 'jukum adat – the people's law!'"

And here we come to a problem that we all experience in our different ways, the "Bugger the People" tendency in modern life. Our upper class is drifting away from the rest of us, it's that powerful combination of commercial, political and administrative mandarins which runs the countries we live in.

In the West the symptom of this disconnection is voter apathy; in the Third World it is poverty, starvation and intergovernmental conferences that miss the fundamental point: they are the problem.

It takes an anarchist to understand the law

The law is something that has to be discovered rather than invented, De Soto quotes various philosophers and economists to this effect. It's an idea that's been around for thousands of years, but it's still wonderfully refreshing. In it, we see the difference between the Greek cosmos (the way living things naturally order themselves) and taxis (the military or academic way of organising things). Communities develop working relationships which the law is supposed to codify; it's not supposed to happen the other way round.

Wherever you travel in the economic fringes of the world, this sort of cosmic order is apparent. De Soto writes: "In the course of issuing formal title to hundreds and thousands of home and business owners in Peru my organisation never found an extra-legal group that did not comply with well-defined consensual rules." The idea that government is not the source of order should appeal to anarchists everywhere.

But how quickly the political class withdraws from the society that created it. As soon as it's elected it moves out of the squalor of its democratic origins and establishes itself in government offices suited to its dignity. And how quickly these absent officials start making a horlicks of their democratic inheritance. "My research team and I opened a small garment workshop on the outskirts of Lima. Our goal was to create a new and perfectly legal business. The team then began filling out the forms, standing in the queues and making the bus trips into central Lima to get all the certifications required to operate, according to the letter of the law, a small business in Peru. They spent six hours a day at it and finally registered the business 289 days later. Although the garment workshop was geared to operating with only one worker, the cost of legal registration was $1,231 – 31 times the monthly minimum wage.

"To obtain legal authorisation to build a house on state-owned land took six years and 11 months, requiring 207 administrative steps in 52 government offices. To obtain a legal title for that piece of land, it took 728 steps. We also found that a private bus, jitney or taxi driver who wanted to obtain official recognition of his route faced 26 months of red tape."

Any greater impediment to joining the legal, formal economy can hardly be imagined. Each of these regulations and formalities will be defended by the government, probably on the basis of restraining "the law of the jungle". Their own law remains no less impenetrable and no more humane.

"Governments must find out how and why local conventions work and how strong they are. The failure to do so explains why past attempts at legal change in developing and former communist countries have not worked," De Soto writes.

The social contract, then, is not some holy abstraction that springs from some social visionary but it is the expression of the way in which people actually get on with the business of living.

More pulp fiction on the art of advertising

A couple of advertising characters have come up with a plan to make money which deserves hoots of laughter, let alone the small fortune they must be hoping for.

They're pitching a novel-writing service to government departments. The core messages and ideas that these hapless organisations want to get across will be packaged into novels and then distributed to waste disposal centres all over Britain, pausing only briefly for display in bookshops.

The Independent on Sunday revealed this shameful trade in sponsored novels. It is wholly characteristic that the idea should have originated in the advertising industry, the vulgarity of which knows no limits. There was a creative director I knew who believed that he and his colleagues were artists, quite in the same way Leonardo da Vinci was. "We operate almost identically," he explained. "We have patrons, just like Leonardo had. We work for rich people whom we have to please, or lose the commission. We work in collaboration, just as Leonardo did. He had specialists to do the hands, or the hair or the drapery. We have specialists of our own to do the sound, or the concept board, or the music. We both sell products: his were paintings; ours, in this case, is butter. There is one difference. More people see my butter ad on a Saturday night than see the Mona Lisa in a year."

Of course I should have killed him. Perhaps I did; memories of the latter parts of the evening are blurred.

But advertising can't aspire to the condition of art. Art is there to reveal something of the mystery of life; advertising is there to put a brand name into your mind.

But good luck to Narration Ltd (though I can't help thinking Writers Inc. would have been a better name). Government departments are so stupid they may have made their fortune before they're found out.