ON THE OTHER PATH :

Q&A : Hernando de Soto on Mexico (Steve Sailer, May 6, 2002, UPI)

Q. What kind of reforms would you recommend for Mexico that would enable poor Mexicans to make a living at home and live with their families, rather than have to migrate to America?

A. We were called in by Vicente Fox in 1998 when he was still governor of Guanajuato. And he said, "I intend to be president of Mexico, but why don't we start off by doing the first stage of your program, which is a diagnostic: How much of Mexico is in the 'gray' or extra-legal economy?" So we did that, and he announced it as one of his five top programs when he was running for president. And now that he's won, we are now putting into place the whole organization that will now design the reforms.

We are working with him now. It's going to be a long haul. We have over 150 people working on it.

The assets which are now over in the gray side of the economy -- what we call the dead capital economy -- are over 11 million houses, 137 million hectares (338.4 acres), and 6 million unregistered micro, small, and medium-sized businesses. About 78 percent of the population is related to that side of the economy. We've estimated that all of these assets that I mentioned are worth about $315 billion, which is equivalent to 31 times all foreign direct investment in Mexico for all time now. That's seven times the size of the Mexican oil reserves. So, the poor are really the largest potential capital that Mexico has.

What we recommend is revamping the whole legal system stage by stage. It's a long process, you know. When the European Union told Spain that they were willing to bring it into the European Economic Commission, the process of legal reform took 10 to 15 years. We take about five years to do it.

But what do we have to modify? For example, creating a mortgage in Mexico takes 24 months, working eight hours a day. Foreclosing a mortgage takes 43 months. Selling a house if you're among the 78 percent of Mexicans that are poor takes, if you want to do it legally, 24 months working eight hours a day. Obtaining legal access for a business, that is to say, setting up a limited liability corporation, or whatever allows you to have shareholders, takes you 17 months working eight hours a day and 126 contacts with government.

So basically the whole system -- and if you go from country to country you can see that it's pretty much the same -- is made for a privileged elite that knows how to navigate within the existing laws, that's got access to the big-time law firms. But the country isn't safe for the enterprise of people who have low incomes.

So the recommendations would be varied but, essentially, we have a program. It'll take about three years from here on to look at just about all the laws, talking to poor people, finding out how they see the law, then proposing a strategy and legislation that helps take away some of the main obstacles and puts all the leverage points that are needed in place.

We'd like to think that all it requires to become a functional democracy is to hold a clean election every once in awhile. But to a remarkable extent, what is really necessary is to establish the rule of law, so that common people can have some faith in the system. There's obviously some tension between the desire to bring freedom and the need to establish order, but if we can be a little more patient with emerging democracies, the latter can lead to the former. Posted by Orrin Judd at May 16, 2002 8:11 AM