While pundits bicker about Obama’s response to Egypt, economist Hernando De Soto identifies one source of Egypt’s problems: weak property rights and absurd regulations. Bad law has forced most of Egypt’s private-sector workers into the black market. That keeps them in poverty. DeSoto writes in an op-ed last week about what he learned when his think tank was hired by Egypt:
Egypt's underground economy was the nation's biggest employer...
Why work under-the-table? DeSoto and his colleagues interviewed thousands of Egyptians in 2004 and found:
To open a small bakery… would take more than 500 days. To get legal title to a vacant piece of land would take more than 10 years of dealing with red tape. To do business in Egypt, an aspiring poor entrepreneur would have to deal with 56 government agencies and repetitive government inspections.
So most operate outside the legal system, and property rights and contracts are hardly enforced.
Because such enterprises are not tied to standard contractual and enforcement rules, outsiders cannot trust that their owners can be held to their promises or contracts. This makes it difficult or impossible to employ the best technicians and professional managers—and the owners of these businesses cannot issue bonds or IOUs to obtain credit.
So Egypt stays poor. About half the population lives on $2 a day or less. It’s one reason why people are upset. But do the protesters understand that too much rule-making helps explain the lack of opportunities in Egypt? I doubt it.
We barely understand it here.