The chips in the economic game today are not so much the physical goods and actual services that are most exclusively considered in economic text books, as they are that elaboration of legal relations which we call property... one is led, by studying its development, to conceive the social reality as a web of intangible bonds -  a cobweb of invisible filaments - which surround and engage the individual and which thereby organise society... And the process of coming to grips with the actual world we live in is the process of objectivising these relations.
C. Reinold Noyes

Having so far discussed the problem with Kenya's last decade economically and understood what capital is. It is now proper for us to really discuss the effects of "dead capital" or more conservatively undercapitalisation. The above quote is a good start, it implies that property and property systems are like a web of intangible bonds that connect people and create relationships. It thus stands to logic and reason that the more widespread and accepted are the property systems then web of intangible bonds or the cobweb of invisible filaments will be bigger and wider.

Having said this, then it is clear that property systems are connectors. One can imagine them like fibre optic cables, they go from the sea towards the mainland with the objective of connecting more and more people. The more terminals (buildings) that connect to the cables, the more connected and thus prosperous the country is. In Kenya, the problem is that the property systems are both unfair and scattered. Unlike the West where constitutionally the focus of land is on value addition, in Kenya the focus is on land ownership. There are very few other states where land can be given to foreigners and locals on a 999 year freehold basis. Added to this, when one visits a village or town, every land owner may have claim to his or her property. However, the claims may not be similar. Documents will vary and thus one cannot really lay claim or pledge his or her property in a standardised manner. Therefore as Hernando de Soto states; "what creates capital in the west, in other words, is an implicit process buried in the intricacies of its formal property systems".

One then begins to understand why the trade of property is buried in such a bureaucratic morass. If one is to sell his or her land, buildings, companies, mines and so on, how can one lay claim to his property? How can a trader in Turkana ascertain as to whether the fisherman in Kisumu really owns his buildings? How can the merchant from Machakos ascertain that the man in Embu really owns fifty percent of his company? With this, what happens is that trading is then done in closed and relatively small local circles. Circles in which at least there is a cultural understanding of the local intricacies and nuances of their property systems. This then leads to a case of minimal demand and thus low returns. Only in the Nairobi and especially the upper class areas and the CBD is there a semblance of standardised property systems where people are connected. 

This situation then leads to a disproportionate accumulation of capital and wealth. In a nutshell the rich keep getting richer not cause they have more capital, but rather cause their capital is better connected to the world and to larger markets due to formal property systems. In the capital city, a father can divide his wealth through  shareholding to his sons and daughters. By hiring his team of lawyers and sending them out to Sheria House, he can get past the bureaucracy and draft documents explicitly stating how his property will be held through shares. The same cannot be said of the dirt-toothed farmer in Murang'a who albeit owns hundreds of acres, will have to keep on subdividing his land to cater for his children. This as Hernando de Soto states can only lead to "starvation or stealing".

The consequences are immense, only the well connected (people who are in the bell jar) can access electricity as the power authority KPLC can ascertain their claims to their property and thus provide them with electricity, only the people in the bell jar can get life, educational, medical or property and casualty insurance and thus shield themselves from any eventuality. Only the people in the bell jar can stroll into the bank and obtain unsecured loans or even secured loans after presenting proper evidence of their claims to their property. The poor then are not poor because they are dumber or less shrewd than the rich, no, the poor are poor because the legal morass that complicates the property system disables them from being connected to the world. This then leaves a massive shadow economy which albeit is very wealthy, it is not fully contributing to the economy and also not helping it's participators fully achieve their potential.

I will leave you with this scenario of Bill Gates' wealth property articulated by Hernando de Soto. 

How many software innovations could he have made without patents to protect them? How many deals and long-term projects could he have carried out without enforceable contracts? How many risks could he have taken at the beginning without limited liability systems and insurance policies? How much capital could he have accumulated without property records to fix and store that capital? How many resources could he have pooled without fungible property representations? How many other people would he have made millionaires without being able to distribute stock options? How many economies of scale could he have benefited from if he had to operate on the basis of dispersed cottage industries that could not be combined? How would he pass on the rights to his empire to his children and colleagues without hereditary succession?

Once we digest this and internalise it, do we see that our problem is really deep and that we need to solve it, next week we discuss the political effects of dead capital.