How Missing Information Keeps Valuable Company and Nation Assets Dormant

Originally written for Microcosm. Subscribe for free for vignettes on education reform by an economist and Chief Product Officer at an alternative school.

I'm fascinated by how hidden potential can remain unseen when proper systems are absent. While studying capitalism, I discovered Hernando de Soto’s theory grounded in extensive, empirical research. He argues that many developing nations never catch up to countries like the US because they fail to convert their abundant resources into productive capital.

For de Soto, capital is not merely a pile of assets—it is the engine that boosts labor productivity, drives economic growth, and supports progress. Yet people in poorer regions struggle to harness that potential because their assets exist only in “defective forms” (houses without titles, businesses without incorporation). Without a strong legal framework to formalize these resources, even plentiful assets remain locked away, leaving economies stuck.

I see a clear parallel in modern organizations: valuable human talent remains dormant when informal processes and undocumented knowledge block its use. At many schools, every teacher brings unique value to students, parents, and society—but no system captures the full depth of their skills. In my experience advising 53 companies making $1M–$300M annually, most lack a central repository for knowledge, processes, and past successes. This consistent underuse of human potential mirrors the dormant assets de Soto describes on a national scale.

The Theory of Dead Capital: How Defective Forms Block Economic Growth

De Soto’s research shows that the failure to create productive capital does not come from a shortage of resources. His studies—done “block by block and farm by farm” across Asia, Africa, the Middle East, and Latin America—reveal that people in these regions hold savings equal to forty times all the foreign aid given worldwide. He even states that “five?sixths of humanity” already owns significant assets. Yet these resources remain unproductive because they exist in what he calls “defective forms.”

In poor nations, houses sit on land without deeds, crops lack recognized titles, and businesses remain unincorporated. Even though these societies use every Western invention—from the humble paper clip to the powerful nuclear reactor—they cannot transform their assets into capital that drives economic change. By contrast, developed nations document every parcel of land, every building, and every piece of equipment rigorously; this formalization ties each asset to an accountable address, a credit history, and a robust tax system. Once documented, these assets are the basis for mortgage-backed bonds, which are rediscounted and sold in secondary markets.

To illustrate the difference between dead capital and active capital, de Soto offers a vivid analogy:

Imagine a quiet mountain lake valued only for fishing or canoeing—only a fraction of its potential is used. But if the state formally recognizes the lake’s ownership, an engineer can build a hydroelectric facility to convert its latent energy into kinetic energy that drives turbines and produces electricity across long distances. This analogy, supported by detailed case studies, suggests that capital is not the asset itself but the potential unlocked through formal processes. Without such systems, even the best resources remain reservoirs of unrealized value.

Informational Deficiency: The Common Denominator Across Nation and Company Underdogs

De Soto teaches that the true barrier to unlocking capital is not a lack of assets but the failure to record and standardize information about them. Imagine a country where no one can reliably say who owns what, addresses cannot be checked, and no system exists for dividing ownership or enforcing debts. In such a country—where, in de Soto’s words, “five?sixths of humanity” live—even the most valuable assets become useless.

He vividly describes cities like Cairo as “cities of the dead,” flooded with assets that never become active capital because no institutions connect individual property to broader markets. I see the same dysfunction in organizations when employee knowledge and creative workflows go undocumented. Without a consistent system to record and verify contributions, both physical and human assets remain unrecognized—stifled by an informational gap.

In many businesses I've worked with, each salesperson, manager, or recruiter follows their own framework, yet none is formally recorded. I have often started projects with new companies and spent weeks on calls or informal chats just to determine who does what and who can do what. Even though everyone works hard, overlapping efforts, lost collaboration, and stalled projects persist because individual skills remain hidden.'

Moreover, many people guard their successful methods out of fear that sharing their process might hurt their position; as a result, even effective techniques remain siloed, preventing iterative improvement and robust exchange. These observations, drawn from multiple independent cases, support de Soto’s claim that poor record-keeping stifles the use of valuable resources.

Formalization for Physical and Human Capital: Making Hidden Potential Visible

Formal documentation and legal recognition enable properties to serve as collateral, generate credit, and support advanced financial instruments. Likewise, systematically recording each employee’s skills—coupled with a structured framework for collaboration—unleashes hidden expertise. By integrating skill inventories, process documentation, and knowledge-sharing platforms, organizations can do for human capital what property deeds and credit histories do for physical assets: they make potential visible and usable.

Since my first day as Chief Product Officer at The Socratic Experience—a high-touch virtual school—I have sought ways to leverage underused knowledge. For example, if a teacher delivers a class that students love, why not pay them to host an extra one-hour public class each week? If our head of school has worked with Montessori schools in China, Norway, and Canada, why not have them share how they applied those lessons to improve our student experience? And if our founder has spent 35 years refining an educational model that meets elite academic standards while giving students a strong sense of purpose—a rarity in a K-12 system troubled by student depression—why not encourage him to document his insights?

As with any time you train your mind to find new ways to do something, new ways to use underutilized capital will emerge.

For instance, Bruno Casanovas —a Creative Director of the $30M/year fashion brand Nude Project—carries a camera guy who records office happenings, his real-time thoughts, and the chaos of product launches; at the far extreme, entrepreneurs like Gary Vaynerchuk have spent decades documenting themselves building their businesses. These examples, supported by both anecdotal and systematic evidence, show that even modest formal efforts can transform single-time activities into drivers of exponential benefits.

达尼尔达伦 , an entrepreneur who films himself as he builds ecomflow, an 8-figure company

I firmly believe that companies must build strong institutional frameworks for human resources, just as de Soto calls for formal property systems. Identifying who can do what, recording proven processes, and continuously refining these insights would prevent redundant work, foster collaboration, and drive steady improvement. As an action-oriented leader, I derive immense satisfaction from directing projects where every employee’s skill is stored in a central knowledge base—allowing immediate access to documented expertise instead of wasting time rediscovering solutions.

A Call to Action for Leaders and Policymakers: Unleashing Hidden Wealth

I reflect on de Soto’s arguments and my own experiences, and I see that capital is not merely a collection of physical assets—it is the surplus value unlocked when assets are formally recognized. Classical economists like Adam Smith and Karl Marx showed that growth depends on converting raw resources into recognized, tradable entities. Smith warned that without fixing and formalizing labor-invested assets, they would "leave no trace" of their value—a truth that captures de Soto’s thesis.

We have seen that tangible or intangible assets must be processed and documented to unleash their full potential, much like harnessing the energy stored in a single brick. At the national level, strong property laws, accessible registries, and reliable financial systems are essential; within companies, recording talent, setting clear processes, and making every contribution visible is crucial.

When we step back and look at the big picture, a clear message emerges. Our collective resources—dormant property and hidden human expertise—can become a dynamic engine of progress if we formalize what we already possess. In my school, for instance, capturing and sharing every teacher’s methods could spark collaboration, innovation, and real growth. This is our chance to transform what is unrecognized into true wealth.

Formalize. Recognize. Unleash.

Originally written for Microcosm. Subscribe for free for vignettes on education reform by an economist and Chief Product Officer at an alternative school.