Government rules that make property ownership impossible
But assume that you are a poor person who somehow gets a title to some land, which gives you a legal basis for borrowing money to start a small business. You still might not get any money. Borrowing money requires filling out numerous government forms and getting permissions and permits from government bureaus. Poor treatment can be expected. But that is just the start. You must show proof that you meet numerous qualifications to afford a loan. This procedure alone could take weeks, even months. Then you must show tax records, at least three years of income earned, credit records (oh, you haven’t borrowed before?), a driver’s license, and anything else government officials can think of.
The nastiness of the process resembles a person pleading innocence while everyone presumes he is guilty. Even when you do pass muster, officials may still refuse your application unless you are willing to pay a bribe. It is humiliating and embarrassing, and it breaks most people. In free countries, the entire process of getting a legal title for a business takes only days or weeks. In countries that are not free, the process might take years or even decades.
The research team headed by de Soto tried opening a small garment workshop (with one worker) on the outskirts of Lima, Peru. The team members worked at the registration process six hours a day, and it took 289 days! The cost was $1,231, or thirty-one times the monthly minimum wage (approximately three years’ salary). De Soto writes: “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.” According to De Soto:
[The procedure to formalize urban property in the Philippines] could necessitate 168 steps, involving fifty-three public and private agencies and taking thirteen to twenty-five years. . . . 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. . . . Total time to gain lawful land in Haiti: nineteen years. . . . Yet even this long ordeal will not ensure that the property remains legal.
Developing countries create such a maze of procedures that drain both time and money that most citizens choose to go underground and deal in the informal, illegal economy. They do not want to break the rules, but the rules break them. De Soto writes:
Imagine a country where nobody can identify who owns what, addresses cannot be easily verified, people cannot be made to pay their debts, resources cannot conveniently be turned into money, ownership cannot be divided into shares, descriptions of assets are not standardized and cannot be easily compared, and the rules that govern property vary from neighborhood to neighborhood or even from street to street. You have just put yourself into the life of a developing country or a former communist nation.
When this bogus kind of “capitalism” cannot be made to work (bogus, for it is surely not a “free-market” system), people keep beating on the dead horse of a “third way” (between capitalism and socialism) until they sadly learn that the third way is a trip to the third world. Meanwhile, a majority of the adults on the planet are caught in the morass of inability to own, title, or securitize property.