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Politics : Foreign Affairs Discussion Group -- Ignore unavailable to you. Want to Upgrade?

To: paul_philp who wrote (59695)	12/3/2002 5:51:30 PM
From: frankw1900	Read Replies (2) \| Respond to of 281500

It is not lack of law that is the typical problem. It is over beaurocracy or corruption that is the problem. In some countries it can take decades to get the paperwork done to demonstrate ownership. This is a tricky thing. A friend and I were discussing left and right wing nutters the other night. There was actually (surprisingly) an insight. "Not everything can be left to the market," he said. "Law enforcement for example. Lord! Every policeman in Mexico is in business for himself." That, of course, was an unfair exaggeration but did lead to an interesting discussion. If there is no reliable system of recording property ownership, especially land, then how can people go into debt and make money? The land can't be pledged, the improvements can't be pledged, even inventory can't be pledged satisfactorily because there's no guarantee of access to property. Customary procedures are unreliable if ownership or custody can be jeopardized at any time. This difficulty leads directly to corruption and poverty. Under such circumstances a government position is an attractive alternative. It has security of tenure. It probably has more security than legally unsecured ownership or occupation of property. It certainly has more opportunities for entrepreneurship than operating a small business. Capital cost is negligable and operating costs are predictable. And because the country is poor anyway the government pays a very low wage and thus there is incentive to make the position pay. Thus much of a country's talent, energy and capital goes into utterly unproductive services. And the incentive to be corrupt is great. So it takes six months to two years, and half a person's capital to get the necessary permits and licences to open a small business legally. So lots of small businesses are "illegal" and open to mordita. And of course because a person is not able to pledge property her capital is tiny to start with. So the very small capital base available for the market economy is further reduced. (By contrast, the last time I started a business in Canada my legal and permitting costs were a tiny fraction of my capital and and total working time was maybe a week. I paid no bribes to expedite any of these things.) There is a historical legacy as well. Many countries having the kind of difficulty described have a mercantailist inheritance from the time when business activity was permitted on the basis of patronage and sovereign licenses. What was allowed was at the sovereign's pleasure. This, in modern terms means what is not permitted is not allowed. In contrast, in modern countries, generally, the custom is what is not forbidden is allowed. This distinction is an over generalization but is sometimes useful nonetheless. DeSotos' argument at the end boils down to property rights, doesn't it? Legal formality is not enough, property rights have to be established unambiguously for reasonable economic growth. Russians are going through a similar lot of problems right now.