Thursday, December 08, 2011

Bureaucratic Red Tape is Killing the World's Poor.

An interesting article on how structures that keep the poor from owning private property are keeping the world's poor in a cycle of poverty by burdening them with bureaucratic red tape.

The Poor Strangled by Red Tape—Hernando de Soto (1941 – )

Peruvian economist, Hernando de Soto, founder and president of the Institute of Liberty and Democracy in Lima,1 was listed by Time magazine as one of the five leading Latin American innovators of the 20th century. His first book, The Other Path,2 published in 1989, has been translated into more than ten languages and was a bestseller throughout Latin America. His latest bestseller, The Mystery of Capital, from which the quotation below is taken, further develops the central thesis of his first book: that the chief obstacles to wealth-creation in the Third World are the barriers to legal property ownership erected by defective administrative and legal systems. As a result, the poor of the Third World cannot use their savings and assets to raise the capital they need to expand their economic activities.

To get an idea of just how difficult the migrant’s life was, my research team and I opened a small garment workshop on the outskirts of Lima, Peru. Our goal was to create a new and perfectly legal business. The team then began filling out the forms, standing in the lines 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—thirty-one times the monthly minimum wage. To obtain legal authorization to build a house on state-owned land took six years and eleven months—requiring 207 administrative steps in fifty-two government offices. To obtain a legal title for that piece of land took 728 steps. We also found that a private bus, jitney, or taxi driver who wanted to obtain official recognition of his route faced twenty-six months of red tape. . . .

In Egypt, the person who wants to acquire and legally register a lot on state-owned desert land must wend his way through at least 77 bureaucratic procedures at thirty-one public and private agencies. This can take anywhere from five to fourteen years. To build a legal dwelling on former agricultural land would require six to eleven years of bureaucratic wrangling, maybe longer. This explains why 4.7 million Egyptians have chosen to build their dwellings illegally. If after building his home, a settler decides he would now like to be a law-abiding citizen and purchase the rights to his dwelling, he risks having it demolished, paying a steep fine, and serving up to ten years in prison.

In Haiti, one way an ordinary citizen can settle legally on government land is first to lease it from the government for five years and then buy it. Working with associates in Haiti, our researchers found that to obtain such a lease took 65 bureaucratic steps—requiring, on average, a little more than two years—all for the privilege of merely leasing the land for five years. To buy the land required another 111 bureaucratic hurdles—and 12 more years. Total time to gain lawful land in Haiti: nineteen years. Yet even this long ordeal will not ensure that the property remains legal.3


For more information see Institute of Liberty and Democracy Website, (accessed February 23, 2006).


Hernando de Soto, The Other Path: The Invisible Revolution in the Third World (London: I. B. Tauris, 1989).


Hernando de Soto, The Mystery of Capital (New York: Basic Books, 2001), 18-21.

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