The Right Coast

March 19, 2005
Economic Liberty
By Mike Rappaport

Democracy is good, but for there really to be a successful Middle East, economic liberty is also needed. Arnold Kling quotes this from an interview with Hernando De Soto:

it takes you 549 days to get a license to operate a bakery in Egypt and that is with a lawyer. Without a lawyer, it takes about 650 days. In Honduras, it costs an individual entrepreneur 3.765 dollar and 270 days to legally declare, register, and start up a business.

To create a mortgage in Mexico it takes 2 years. It takes 17 years to get a title on a house in Egypt; in Peru it used to be 21 years before we corrected that, and in the Philippines it’s 24 years.

...People in the so-called informal economy are the biggest entrepreneurial class in the world. There are more entrepreneurs in any Third World country than there are in the rich countries.
If it takes you nearly two years to open a bakery in Egypt, there will either be poverty or corruption, or both, even with democracy. Of course, democracy might cut back on some of this insanity, but by itself it seems unlikely to solve the problem.

Update: And also consider this from the interview:

To us the most important part of our work is that part that we call the diagnosis. When we are hired by heads of state, we form a team of maybe seven people from our side and a hundred from theirs. Then we draw a line and find out what’s inside the law and what’s outside the law. In the case of Egypt, we found that 92% of all the constructions and the land and 88% of all enterprises are outside the legal system. This means that the large majority of owners are not registered as such and are therefore not visible to councils, town planners, investors, banks, post offices, water companies, electricity providers, and other firms.