Several years ago, I was invited to deliver a lecture in Porto
Alegre, a beautiful city in southern Brazil. Before my lecture, I did a bit
of window-shopping and visited a couple of computer supply stores.
Everything in the store sold for two and three times the prices for the same
items in the United States -- computers, printer cartridges, fax machines,
In a dinner conversation with friends from Venezuela, I was told
that it was cheaper to make a call from Caracas to Maracaibo, roughly 400
miles away, by using a credit card to call a telephone number in New York
that would route the call through to Maracaibo. In the case of Brazil, the
ordinary citizen was being ripped off through tariff restrictions written to
protect local suppliers from competition. In the case of Venezuela, it was
the state telephone monopoly that was ripping off the ordinary citizen.
Prompted by these and similar observations, I felt compelled to
comment to my lecture audience in Porto Alegre that the stifling economic
measures imposed on Brazilian citizens couldn't happen by random; it must be
design. There had to be a government office in Brasilia, the capital, whose
members met at least once a week to figure out ways to deliberately make the
Hernando de Soto, in his "The Mystery of Capital," documents
government-created barriers to upward mobility in poor countries. Clark S.
Judge reported on de Soto's findings in "Cultural Power," printed in the
December 2001 issue of Policy Review. It takes 168 steps and 13 to 25 years
to gain a formal title to urban property in the Philippines; 77 steps and 6
to 14 years to do the same in the desert lands in Egypt; and 111 steps and
19 years in Haiti. If you wanted to open a one-worker garment shop legally
in Lima, Peru, it would take you 289 days, working 6 hours a day, to obtain
the business license.
One result of these government restrictions is the development
of a large, illegal underground economy, or what's sometimes called the
"informal sector." In Venezuela, over 50 percent of the workforce is
employed in the underground economy. In Brazil, 60 percent of new rental
housing is in the underground economy. In Egypt, 92 percent of urban
dwellers and 83 percent of rural dwellers live in homes without clear legal
This large informal sector is good news in the sense that people
are going out and earning an honest, albeit an illegal, living and consumers
are being provided with valuable goods and services. Those goods and
services come at a stifling cost, however. The very fact that people are
engaged in illegal activity makes them subject to bribes and extortion by
government officials. It makes it all but impossible for them to obtain
insurance and hence increases the overall risk of capital formation.
The fact that people go to such lengths to earn a living, in the
face of oppressive government regulations, proves something that I've always
said: If left to their own devices, people's natural tendency is to truck
and barter, and become capitalists. Hernando de Soto estimates that the
informal sector real-estate market alone in the Third World and former
communist countries has a value of at least $9.3 trillion, or "very nearly
as much as the value of all the companies listed on the main stock exchange
of the world's 20 most developed countries."
Once again, it's that same old tune: Governments are not only
the enemy of personal liberty but economic prosperity, as well.