The mystery of capital, (and why economies contract)

Just finished an interesting book (The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, by Hernando de Soto) on why the wealth gap between Western countries and Emerging markets will continue to widen. He makes a very good argument on the fact that the lack of capital creation capabilities (largely due to large percentage of extralegal businesses, which has arisen from the absence of practical and economically sound legal framework) cripples the ability for the enterpreneur to raise capital and therefore fund the growth for his business. Based on Hernando's estimates, the 'wealth of the poor' in these markets are larger than several times the size of market capitalisation, deposits and certainly wealth of the rich of these countries but the inability of the poor to use these assets to raise capital (largely because a squatter living in his home is unlikely to be able to go to get a mortgage from the bank against his home to raise capital to startup or boost his business) means they remain stuck in a vicious cycle.

The most interesting point, in my view, was that because lawyers tend to uphold the law (whether it is perhaps economically the right thing for the country or not) means that the legal system tends to act against, rather than recognise these extralegal rights, resulting in the inability for the country (and the majority of its population) to pull itself out of the poverty cycle. When a couple of professors did some research into this fact, they noticed that data from 52 countries showed that for every 0.5-1% increase in size of labour force of lawyers, the rate of GDP growth tended to contract by 3.7-4.7%. Now isn't that proof enough...