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A New Path to Development? The Significance and Impact of Hernando De Soto's Ideas on Underdevelopment, Production, and Reproduction Author(s): Ray Bromley Source: Economic Geography, Vol. 66, No. 4, Production and Reproduction in Latin American Cities: Concepts, Linkages, and Empirical Trends (Oct., 1990), pp. 328-348 Published by: Clark University Stable URL: http://www.jstor.org/stable/143968 . Accessed: 02/03/2011 22:55

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http://www.jstor.org A NEW PATH TO DEVELOPMENT? THE SIGNIFICANCE AND IMPACT OF HERNANDO DE SOTO'S IDEAS ON UNDERDEVELOPMENT, PRODUCTION, AND REPRODUCTION

RAY BROMLEY State University of New York at Albany

Hernando De Soto, a Peruvian economist and entrepreneur, is probably the most important contemporary Latin American writer on production and reproduction. His book The Other Path is an international best-seller, he has been extensively discussed in the world's news media, and he has strongly influenced Peruvian public policy and politics. His central concept of "informality" focuses on income-generating and expenditure-saving activities that contravene official regulations but do not break conventional moral codes. De Soto's ideas, which lead to deregulation, debureaucra- tization, and privatization, are contrasted with the International Labour Office's "informalsector" concept, which advocates increased state support for small manufac- turing and repair enterprises through credit, technical assistance, and training. Though conventionally portrayed as right-wing, his views are radically different from those of many conservatives and he has played a "maverick"role in Peruvian politics. Latin America is important not only as a Latin American theorists of development world region, but also as a major contribu- and underdevelopment such as Prebisch tor to the theory of development and un- and Cardoso have contributed substan- derdevelopment. Latin Americans such as tially to world systems thinking, and they Mariaitegui,Aguirre Beltran, Sunkel, Gon- have helped to inspire such leading global za'lez Casanova, and Quijano have made theorists as Frank, Wallerstein, and the prime contributions to our theories of Amin.3 internal colonialism, marginality, and de- Traditionally, Latin American theories pendency, and they have also played enor- of development and underdevelopment mously important roles in the formulation have generally fitted neo-Marxist, Third- of structuralist interpretations of economic World solidarity(tercermondiste), or Keynes- development and underdevelopment. 1 ian ideologies, and development debates Latin America has been the prime testing have revolved around the alternatives of ground-and a very unhappy one at that!- "revolution" and "reform." In reality, of for economic development based on import- course, true revolutions leading to dra- substitution industrialization, and it has matic socio-economic restructuring have also played a major pioneering role within been rare, and most countries have oscil- the Third World in such fields as national lated between fairly conservative demo- economic planning, regional planning, and cratic governments and even more conser- "strategies of deliberate urbanization."2 vative military regimes [47]. Development 'The work of the Latin American theorists men- debates have mainly focused on such refor- tioned here, and also of numerous others, is excel- mist issues as the feasibility of agrarian lently reviewed and summarized by Kay [43]. See also Chilcote [22], Kahl [42], Roxborough [63] and Seers 3World systems theories are outlined by Hopkins [69]. and Wallerstein [37]. Together with other neo- 2Latin American development problems and experi- Marxist approaches to development and under- ences are reviewed and summarized by Baer [4], development, they are reviewed by Corbridge [23], Cardoso and Faletto [20], Furtado [28], Kim and Hettne [36], Kay [43], Petras and Brill [58], and Ruccio [44], Prebisch [61], and Sheahan [71]. Roxborough [63]. HERNANDO DE SOTO 329 reform to convert large feudal estates and World nations in the area of food self- plantations into worker-managed coopera- sufficiency, Latin America has lost its at- tives or family farms, or the appropriate traction in International Development level of food and fuel subsidies to be Studies-it is an example no longer of "how applied in favor of urban low-income to do things," but rather of "what to avoid." consumers. Latin America vies with Africa for the title During the 1950s and 1960s, inspired by of "the most dismal continent"-the conti- the United Nations' first two Development nent of greatest frustration in the general Decades, the import-substitution indus- field of economic development. Most Latin trialization advocated by ECLAC (the American countries are still much more UN's most innovative regional advisory prosperous, urbanized, and "orderly"than body based in Santiago, Chile), and the those of Africa, and Latin American pov- wave of U.S. "aid" associated with the erty is more characterized by malnutrition Alliance for Progress as a hemispheric re- than by famine. With only around eight sponse to the Cuban Revolution, Latin percent of the world's population, how- America seemed to be emerging as a Third ever, Latin America accounts for over 40 World leader in economic development. percent of the total Third World foreign Compared to most of Africa and Asia, the debt [80, Tables 1, 21], and many Latin American countries had much longer countries-most notably El Salvador, records of political independence, higher Haiti, Nicaragua, and Peru-seem locked prevailing levels of education, more "de- in near-impossible situations of political velopment experts," somewhat higher and economic crisis. average per capita GNPs, more sophisti- In conservative and establishment politi- cated transportationsystems, and substan- cal circles, in major financial institutions tially higher levels of urbanization. Argen- like the World Bank and the International tina and Uruguay had seemed close to Monetary Fund, and in the large bilateral obtaining "developed country" status as "aid"organizations (most notably USAID), early as the 1930s, and Brazil achieved it is often argued that underdevelopment particularly high and sustained economic has been over-intellectualized and that growth rates in its "miracle" phase from Latin Americans have acquired passive and 1964 till 1973. Even by the late 1940s, pessimistic attitudes through excessive ex- however, the Argentine and Uruguayan posure to dependency theory and tercer- development experiences were beginning mondisme. Far Eastern "drive," "work- to turn sour, and by the mid-1970s the ethics," and "entrepreneurship" are con- Brazilian "miracle," based primarily on trasted with a wide range of supposed automobile-related industries and trans- cultural vices of Latin Americans and major port systems relying on cheap imported oil, defects in Latin American governmental had ground to a halt. systems. Harrison [31] and Rangel [62] Since the mid-1970s, most Latin Ameri- have written eloquent neo-conservative can countries have been locked into crises denunciations of dependency theory and of escalating foreign debt, massive capital tercermondisme, arguing that under- outflows, rising food imports, and rapid development is "a state of mind," an in- environmental deterioration, and many grained fatalism mixed with romanticized have also been plagued by political unrest, socialist aspirations. They claim that Latin vicious repression, narcotics-related cor- American governments are characterized ruption and violence, and seemingly- by unrealistic policies, an over-extended incurable hyperinflation. With the emer- state apparatus, and the incapacity to for- gence of "the four tigers" (South Korea, mulate and implement a viable national Taiwan, Hong Kong, and Singapore), the development strategy. They attribute accelerated industrializationof many of the these failings to outmoded Latin American poorest Asian countries, and the impres- cultural traits and impractical statist sive performance of many Asian Third ideologies. 330 ECONOMIC GEOGRAPHY In the midst of a wave of "LatinAmerica degree in economics and law from the In- bashing," both by foreign "experts"and by stitut Universitaire des Hautes Etudes in many Latin American politicians and ana- Geneva, and has worked for the General lysts, a new ideologue and self-styled "Pe- Agreement on Trade and Tariffs and as ruvian entrepreneur," Hernando De Soto, Managing Director of Peru's Central Re- has emerged as the potential savior. This serve Bank. He is fluently trilingual- article sets out to introduce De Soto to the English-French-Spanish-and his man- geographical literature, to identify re- ners and style are those of an elegant Swiss search themes relating to his work, and to finishing school. Since 1983, De Soto has analyze his ideas on production and repro- received extensive coverage in the interna- duction as contributions to the theory and tional press with over a thousand articles practice of international development. It published on his work, including articles in also discusses their ideological ramifica- such prestigious magazines and news- tions and their relationships to the specific papers as Fortune, Business Week, Forbes, socio-economic contexts of Latin America The Wall Street Journal, The New York in general and of Peru in particular.4 De Times, The Washington Post, and The Los Soto is certainly the most publicized and Angeles Times. He has been cited in widely-quoted Latin American writer on speeches by Ronald Reagan and George production and reproduction in the Bush, and his book El Otro Sendero (The post-1980 period, and he has gained con- Other Path), published in Spanish in 1986 siderable influence in Peruvian public pol- and in English in 1989 [25], is widely avail- icy. His ideas and writings lead us to ques- able and frequently extolled as a message of tion many of the traditional assumptions of optimism indicating how underdevelop- International Development Studies and ment and poverty can be overcome and Labor Studies, most notably on the role of how accelerated economic development the state, the concepts of informality and can be set in motion. De Soto stands with the informal sector, and the definition of United Nations Secretary General Javier the political right and left. Nevertheless, Perez de Cuellar, famous novelist and un- much of his writing seems just "old wine in successful right-wing Presidential candi- new bottles, " and so an additional objective date Mario Vargas Llosa, and past Presi- of this paper is to explain why De Soto has dents Fernando Belauindeand Alan Garcia received so much international attention as one of the five most renowned Peruvians when numerous other brilliant and charis- on the international scene. matic Latin Americans have gone virtually De Soto is usually viewed as a spokes- unnoticed. man for the political right, and his essential message is that underdevelopment results DE SOTO S IMAGE from excessive governmental bureaucracy and the persistence of a "mercantilist"sys- AND Focus ON INFORMALITY tem whereby business and governmental De Soto was born in Arequipa, the prin- elites manipulate the system to their own cipal provincial city in southern Peru, in narrow advantage. Despite the evils of bu- 1941. He is widely travelled, has a graduate reaucracy and mercantilism, however, he argues that most of the population shows 4Research for this paper is based on over three years tremendous initiative and entrepreneurial of residence in Peru, two visits to Lima in 1989-90 dynamism by finding "informal"means of focusing on De Soto's work, various interviews with ILD staff members, an interview with De Soto him- production and reproduction-establishing self, attendance at ILD public meetings, numerous enterprises, providing services, and ob- press clippings, and interviews with Peruvian, taining access to land, housing, utilities, Chilean, and North American scholars, politicians, and essential commodities through per- and civil servants interested in De Soto's career. I tried to balance positive and negative opinions, and in sonal, household, and community initia- many cases informants asked that their names not be tives that fall outside the government's revealed. "planned," "regulated," and "managed" HERNANDO DE SOTO 331 economy. His "informals"with their "in- procedures, privatization, the elimination formal economic activities" are depicted in of protectionism, subsidies, and market a very positive light as plucky entre- segmentation policies, and the opening up preneurs making a major contribution to of national economies to foreign competi- the national economy, and he avoids the tion. Superficially, at least, he is a Third more abstract and moralistic question of World version of Friedrich Hayek or whether what they do is "productive," de- Milton Friedman, advocating unbridled sirable, or the way in which things should capitalism as the solution to underdevelop- be done. His concern is very much to ment, and he sometimes describes himself study, understand, and improve the effi- as a disciple of Hayek. Most of the publicity ciency of the world as it is, rather than to fit he has received has come from conserva- externally derived concepts and models. tive groups in the United States, from U. S. In his view, production and reproduction business interests, and from USAID. are tightly intertwined because income- Many of De Soto's ideas are in harmony generation and expenditure-saving can be with World Bank and IMF "structuralad- substituted for one another in the satisfac- justment" prescriptions, following a classic tion of basic needs, and he develops various New Right or "monetarist"agenda. Struc- estimates of the contribution that informal tural adjustment stresses opening up the production and reproduction make to the economy to foreign investment and compe- economy as a whole. tition, abolishing exchange controls and For De Soto, "informality"is the key to multiple exchange rates, promoting ex- survival and success-ignoring or deliber- ports, deregulating the economy and open- ately breaking unreasonable official rules ing it up to market forces, selling off gov- and regulations in order to make a living ernmental assets and public corporations, and to satisfy basic needs. In his view, and dramatically cutting public sector sal- "informality"occupies an intermediateposi- aries and numbers of personnel. De Soto's tion between "formality/legality,"when all advocacy of market forces, free trade, and laws and regulations are complied with, privatization fits a classic right-wing pre- and "criminality,"when acts are performed scription, as does his emphasis on en- that are clearly against official laws, basic trepreneurship, technological innovation, morality, and the public interest. "Infor- and the inherent dynamism of the un- mality" is viewed as a mass response to planned economy. His work has often been mindless, pompous bureaucracyand to the attacked from the political left as unbridled manipulations of the economic system by neo-conservatism backed and promoted by corruptvested interest groups. Even though the international banking elites and the it may officially be "illegal," it is not "im- ideologues of the Reagan, Bush, and moral" because it breaks no basic moral Thatcher regimes. codes and it is a simple necessity for the In reality, however, De Soto's political poor in order to make a living and satisfy stance is far from clear. In The Other Path their basic needs. In short, informality ex- [25, pp. 239-42], he avoids labelling him- ists when the means are illicit but the ends self in ideological terms and merely states are licit. his opposition to "left- and right-wing mer- De Soto develops his arguments from cantilists." In Peru, he has acquired a repu- research on the organization of street and tation as a "political loose cannon" and a market trade, the workings of the bus sys- populist-supporting lower and middle- tem, and the growth of squatter settle- class causes, criticizing elite vested interest ments as self-help housing areas in Lima, groups, and flirtingwith right-wing,middle- Peru. His analyses emphasize effort, initia- of-the-road, technocratic, and left-wing tive, grass-roots organization, dynamism, groups. From a Peruvian elite viewpoint, and entrepreneurship. His prescriptions his interest in street and market vendors, focus on de-bureaucratization, deregula- para-transit operators, and squatters is tion, the simplification of administrative often viewed as a vicarious fascination with 332 ECONOMIc GEOGRAPHY the disreputable end of the social spec- lish those proceedings as a book [39]. This trum. De Soto advocates support for these second event involved a broader range of forms of production and reproduction be- scholars and politicians of different political cause he sees them as a path to economic leanings, but primarilyprovided a platform development, while many elite Peruvians for the participation of such right-wing lu- hold the opposite view, believing that such minaries as Milton Friedman and Elliot occupations are manifestations of under- Richardson, as well as most of the leading development and must be eradicated for Peruvian right-wing intellectuals and pol- economic development to be achieved. iticians. Nevertheless, De Soto also paid Where De Soto advocates deregulation, scrupulous attention to involving such key decriminalization, and accelerated legaliz- public figures as Javier Perez de Cuellar ation as the solutions to most illegal busi- and Fernando Belauinde(President of Peru ness operations and squatting, arguing that 1963-68 and 1980-85), and also a few the poor are the victims of an over-zealous scholars from the political center and bureaucracy and a hopelessly inefficient center-left, notably the senior statesman of legal system, many upper-class Peruvians the APRA Party, Luis Alberto Sanchez. would prefer increased repression. The ILD began as a very modest institu- tion, operating from De Soto's garage, with DE SOTO'S STYLE AND PATH TO FAME one research fellow, Enrique Ghersi, a secretary, and a stream of shorter-term Hernando De Soto appeared on the Pe- visiting researchers and associates. By the ruvian intellectual scene in November, mid-1980s, it had achieved significant 1979, in the midst of the transition from funding from USAID, the Inter-American military to civilian rule, as the principal Foundation, and such right-wing sources organizer of a major conference held in as the Liberty Fund. It graduallyexpanded Lima on "Democracy and the Market its staff and moved to a rented suite of Economy." The conference served as a offices and then to two adjacent mansions muscle-flexing exercise for the democratic in Lima's elite neighborhood of Miraflores. right wing in Peruvian politics and as a By mid-1990, it had grown to have a staff of platform to introduce Friedrich Hayek and around 75 full-time employees and an an- his Guatemalan disciple Manuel Ayau to nual budget of about U.S. $1.5 million. the Peruvian intelligentsia. It led directly Though clearly one of Peru's three most to the establishment in May, 1980 of the substantial social science research centers Liberty and Democracy Institute (ILD) in (the other two being DESCO and the In- Lima, directed by De Soto and involving stituto de Estudios Peruanos, IEP), the many of Peru's leading right-wing intellec- ILD has not emerged as a major producer tuals and politicians as directors, council of books and scholarly articles. It has pro- members, and founders.5 With support duced only two full-fledged books, The from Germany's Christian Democratic Other Path and a monograph on street Konrad Adenauer Foundation, the ILD trading in Lima [1], six slim books on vari- subsequently published the conference ous socio-legal issues in a "Working Docu- proceedings as a book [38], and went on to ments" series, and numerous pamphlets, organize a second major conference on posters, public announcements, proposals, "Dependency and Development in De- and pronouncements. With the exception bate" in November, 1981 and also to pub- of the two books, all ILD publications indi- cate on the cover that the ILD, rather 5The ILD was one of the first right-wing think-tanks than any single person or persons, is the to be establishedin LatinAmerica. At least 20 such author. The main aim of the ILD is to groupshave been foundedsince 1980, roughlyone develop an institutional perspective that percountry, including Chile's Center for Public Stud- ies andArgentina's Center for Studies in Liberty.The contributes to the climate of public opinion leadingcoordinator of the groupis Guatemala'sFran- and influences public policy, rather than to cisco MarroquinUniversity, founded in 1971. act as a repository of knowledge, to partici- HERNANDO DE SOTO 333 pate in academic debates, to generate a conversation piece or a recommendation scholarly projects, or to promote social ac- than an impeccably-trilingual, engaging, tion programs. and charismatic Peruvian with the same During the 1980s, De Soto emerged as a name as one of the great conquistadores major international public figure, fre- and with a message of hope from a land of quently invited as the lead speaker for despair? And what message could be more conferences, inaugurations, and banquets, attractive to a right-wing audience than an and sometimes funded by USAID on inter- exultant revindication of entrepreneurship national tours to diffuse his ideas and the combined with a call for deregulation, de- work of the ILD. He comes over as buoy- bureaucratization, and privatization? ant, optimistic, and full of "can-do spirit," Even a cursory reading of The Other constantly repeating the messages and ex- Path reveals that the De Soto approach amples of The Other Path. In Peru, also, breaks many of the conventions of classic his opinions are frequently sought by the social science writing. It runs to 271 pages news media, he is very willing to be inter- in its English edition and it quotes nu- viewed, and he is a major public figure merous statistics, generally "derived from whose reputation has not yet been tainted ILD research," but it uses no mathematical by the strains of holding public office or formulae, it has only one statistical table, playing a militant role in a political party. and it has no appendices. Its main form of In reality, De Soto is simply the senior illustration is the photograph, and it scru- author of The Other Path, with sections of pulously avoids the technical language and the text being written by Enrique Ghersi, conventionaljargon of social science. There with methodological inputs from numerous is no discussion of class structures, modes Peruvian and U. S. researchers, and with of production, ethnicity, or other funda- large-scale journalistic polishing by Mario mental pillars of academic analysis, and Ghibellini. The book was frequently an- even such classic expressions as capitalism nounced and discussed long before it was are replaced by less partisan terms like "a written or first published in Spanish, and market economy." Although a modest after publication it received a great deal of number of sources are cited in footnotes, publicity in the English-speaking world there is no bibliography, the Spanish- during the period when it was only avail- language version has no index, and there is able in Spanish. Cueva [24, p. 117] has virtually no reference to the broader inter- characterized it as "a prefabricated best- national literature of the social sciences. seller," and as "a multifaceted and multi- Links with theorists and ideological role functional work . . . [with a] globalizing models are strictly avoided, and hence the interpretation of Latin American reality," book comes over as uncomplicated and while Valencia [77] has called it "a forced apparently non-partisan. It is a book to best-seller." In part, the publicity it re- delight anti-intellectuals, deliberately tar- ceived resulted from De Soto's magnetic geted at a broader public that is unfamiliar personality, frequent speeches, wide trav- with previous analyses of production and els, influential friends, and love of press reproduction in Latin America. coverage. More importantly, however, it It is a fortuitous coincidence that the resulted from an international network and ILD began its public life in Peru in 1980, support system of the political right [8, pp. the year that the fanatical Maoist guerrilla 179-85].6 What could be more attractive as movement Sendero Luminoso, "The Shin- ing Path," launched its national armed in- 6Thisnetwork of supportis focusedon the Heritage surrection. To say the least, however, it is Foundationand the AmericanEnterprise Institute in no accident that "The Shining Path" and Washington,D.C., the LibertyFund in Indianapolis, The Other Path share two out of three the HooverInstitution at Stanford,the Institutefor EconomicAffairs and the Centerfor PolicyStudies in words. De Soto's book is written, in part, as London,the Mt. PerelinSociety in Switzerland,and a reply to Sendero Luminoso: a peaceful the FranciscoMarroquin University in Guatemala. route to economic development and im- 334 ECONOMIC GEOGRAPHY proved general welfare. The fact that Send- cesses as dysfunctional problems of under- ero comes from the extreme political left, development, and he usually ignores the even though they are condemned by most problems, delays, and legal costs that ordi- moderate left-wing politicians, tends to nary citizens may experience in advanced brand De Soto's book not only as a rightist capitalist countries. While his description response, but also as a voice of reason and criticism of Peru's "bad laws" and inef- facing up to fanatical extremism. ficient state apparatus is innovative and From an academic standpoint, De Soto's convincing, he goes too far in implying that most irritating tendency is to reinvent the these problems do not exist and that enter- wheel without acknowledgment. He scru- prise is always supported in the advanced pulously avoids mention of prior work by capitalist countries. Dealing with such in- other researchers or of models, ideas, and stitutions as the U. S. Internal Revenue policy recommendations previously de- Service and the U. S. Immigration and Nat- veloped by others. Thus, though John uralization Service (INS) is often just as Turner and William Mangin's 1960s work difficult and costly for the honest and law- on the self-help housing process in Lima abiding as for law-evaders and criminals, has been enormously influential in global yet De Soto generally avoids any mention housing policy debates [48; 49; 74; 75], De of these well-known cases.7 Soto does not mention them in The Other In The Other Path, De Soto develops an Path. He adds insult to injury by develop- extraordinarily wide-ranging and some- ing new labels for old phenomena. Squat- what superficial view of world history. He ter shacks, for example, generally built in posits a rather simple transition from barren sand and rock desert, are referred to feudalism to mercantilism, and then from as "igloos," a term that had never been mercantilism to "a market economy," and applied in this way before De Soto's re- he attributes underdevelopment to the in- search team descended on the barriadas! capacity of some countries to break away After the preface of The Other Path, when from mercantilist systems. De Soto [25, some colleagues and collaborators are pp. 189-229] does not follow the narrow named and thanked, they are always just social science interpretation of mercantil- referred to as "the ILD," an anonymity that ism as "the view that a government of a emphasizes De Soto's own significance and state should regulate the commercial trans- that of the institution over which he actions of its citizens who deal with foreign presides. businessmen so that a surplus of precious Though, in The Other Path and nu- metals is accumulated in the native coun- merous speeches and interviews, De Soto try" [34; 81, p. 205]. He views it instead as a calls for sweeping de-bureaucratization transitional phase between feudalism and ("administrative simplification") in Peru capitalism during which the state apparatus and other poor countries, he rarely ac- knowledges the pioneering work in this 7TheINS is perhapsthe world'sleading demonstra- field by administrativereformers in Peru or tionof the factthat bureaucratic delays can be efficient and necessaryaccording to specific administrative elsewhere [17; 51], and he often falsely principles.It habituallyemploys waiting lists and long implies that business goes virtually unreg- processingdelays as mechanismsto restraindemand, ulated in the advanced capitalist countries. to postponedifficult decisions and potential lawsuits, Peru's long-term attempts at "administra- and to keep withinbudgetary limits. The delaysand tive rationalization," Brazil's 1979-83 Na- costs that it imposes, however, force applicants and their families to bear considerable personal and finan- tional Debureaucratization Program, and cial costs. Its bureaucratic rationale may also damage such rich-country examples as the 1980 the U. S. economy by discouraging highly-skilled U.S. Paperwork Reduction Act and New workers, by forcing dependents to be unemployed, by York State's Office of Business Permits and losing tax revenues through illegal working, by reduc- ing the productivity and commitment of persons in Regulatory Assistance receive only passing prolonged uncertainty, and by increasing the proba- mention. De Soto depicts legalism, long bility of eventual welfare dependence because of the administrative delays, and bureaucraticex- costs and traumas of immigration. HERNANDO DE SOTO 335 and the economy are manipulated by because of deregulation, though most ana- powerful oligopolies and vested interest lysts point to an unprecedented concentra- groups ("redistributivecombines") in their tion into giant corporations and high rates own interest so that there is no "free mar- of small business failure over this same ket. " The abandonment of mercantilism in period [15, pp. 386-417; 16, pp. 80-116; 59, favor of capitalism ("a market economy") pp. 19-48]. In his treatment of the transi- is the crucial enlightenment that permits tion from mercantilism to market econo- a take-off into self-sustaining economic mies, De Soto is guilty of a form of "right- growth and the general improvement of wing romanticism"[12, pp. 323-29], biasing welfare. For De Soto, this transition is both historical and contemporary analy- the result not of new government policies ses to emphasize actual and potential and planning to stimulate growth, but success by small enterprises and depicting rather of the realization that government all private enterprises, small and large, as has played an excessive regulatory role and fair competitors in open markets. He must relax its controls so that entrepre- seems to overlook the importanceof vested neurship and free market competition can interest groups, private political funding, flourish. Once this realization is suffi- lobbying, "pork-barreling,"and "logrolling" ciently widely diffused, he believes that a in the U. S., and also the vital role played by new entrepreneurial class emerges, the state planning in the accelerated industrial- political balance of power is permanently ization of such countries as South Korea [2] changed in favor of small business, and and Singapore. there is a flowering of new enterprise and technological innovation. BEFORE DE SOTO: THE Cueva [24], Urriola [76], and Whitehead ILO INFORMAL SECTOR CONCEPT [79] have all pointed out serious historical errors in De Soto's analysis, most notably Perhaps the greatest problem in under- in his interpretations of mercantilism and standing De Soto's ideas and contributions of the transition to capitalism. De Soto to development theory and practice is the frequently implies that state intervention conceptual confusion that continually arises in the economic activity of advanced cap- between his ideas and the "informalsector" italist countries has continuously dimin- ideas that stem from the 1970s World Em- ished over the last century, when for most ployment Programof the International La- of the time government ownership, work- bour Office (ILO). From its origins in the forces, subcontracting, guarantees, and early 1970s, the concept of the informal bail-outs have been on the increase and sector has been beset by definitional government has played a particularly cru- problems. cial role in orchestrating and supporting The "invention" of the informal sector is the aerospace and defense sectors. He also generally attributed to Keith Hart in his fails to acknowledge the large expansion of seminal article "Informal Income Oppor- the public sector that accompanied the tunities and Urban Employment in Ghana," emergence of universal education, health first presented at a conference in Septem- care, social security, and utility provision, ber 1971 but not published until 1973 [33]. with massive government incursions into Hart spoke of income opportunities rather service areas that were previously covered than sectors, and he defined informality mainly by private enterprise and com- simply as "self-employment. For Hart, munity support. De Soto [25, pp. 210-29] informal income opportunities were ways goes even further in suggesting that there for the poor to get by when neither corpo- was a collapse of mercantilism and a defini- rations nor the government could provide tive rise of market economies in Western sufficient employment for the expanding Europe and the United States between population. Hart's "informal income op- 1870 and 1914. He describes this period as portunities" varied in terms of legality, one in which small enterprises proliferated official registration, skills required, and so 336 ECONOMic GEOGRAPHY on, but because he used only the criterion some in virtually every Third World coun- of self-employment for definitional pur- try and with substantial financial support poses, it was relatively easy to define a from the ILO, the World Bank, and sector using his definition. various other international and bilateral aid Hart's basic idea was massively changed organizations. Numerous refinements of by the ILO team that wrote the Kenya the ILO's initial multi-criterion definition Report [40], making governmental support of the informal sector were produced [70; for "the urban informal sector" a major 72], and the literature took an over- element in their recommended national whelmingly positivistic tone. Governmen- development strategy. The team divided tal support for the informal sector, and the economy into two sectors, "formal"and particularly small-scale industries, was in- "informal," effectively recreating and re- creasingly perceived as the key to Third naming W. Arthur Lewis's [45] dualistic World development, mobilizing grass- model of the interaction between the mod- roots entrepreneurship and harnessing the ern and traditional sectors in underde- potential of intermediate technologies. veloped countries. They defined the infor- Many radicals were co-opted onto the in- mal sector using seven different criteria, formal sector bandwagon, producing simi- and they recommended massive govern- lar multi-criterion definitions for two- mental support through technical assist- sector models of the economy, sometimes ance, training, credit, and simplified li- following the original formal/informaldivi- censing procedures. In general, the ILO sion and sometimes using more radical ter- team saw small-scale industrial, handicraft, minology, as in Santos' [67] "two circuits" and repair establishments as the core of the model of the urban economy. Even the informal sector and the priority for govern- neo-Marxist petty commodity production ment support. Thus, "informalsector pro- (PCP) literature of the late 1970s often motion"was effectively just a renaming and seemed to adopt a dualist analysis, con- intellectual rationale for a policy that had trasting "capitalist production" with PCP been widely advocated since the early along lines similar to the formal/informal 1950s-the promotion of small industries, division [54], and many observers con- both to supply the internal market and to cluded that the debates about the utility of contribute to exports, most notably as sub- the informal sector concept were largely contractees for larger national and transna- semantic. tional firms. Key assumptions underlying Scholarly analyses of the early informal this development strategy were that poor sector literature mainly focused on dis- countries must diversify from dependence cussing whether, and how, the formal and on primary production through manufac- informal sectors are related to one another. turing, rather than through the expansion Early works suggesting that the informal of services, and that small enterprises gen- sector is autonomous and an economy in its erate more jobs and require less capital own right were soon shown to be mislead- investment per job than larger firms. ing, and most authorsopted for a dominance- Because it was a pilot mission for the dependence type formulation showing the ILO's World Employment Program, be- formal and informal sectors to be closely cause it was closely associated with the interrelated and interdependent, but with prestigious Institute of Development Stud- the burden of risk and instability resting ies at the University of Sussex in England, squarely upon the informal sector [73]. and because of the reputation of such lead- Relatively early on, however, a few authors ing authors as Hans Singer and Richard [9; 11] began to question seriously the Jolly, the ILO Kenya Report became a utility of the formal/informal division and global trend-setter. Literally thousands of the viability of multi-criterion definitions positivistic informal sector studies were for the informal sector. Some refinements prepared between 1973 and 1983, with and alternatives were presented [14; 72], HERNANDO DE SOTO 337 but none caught on with the main body of Even among the so-called "developed" informal sector researchers and policy- countries, most notably Japan [10], Italy makers. [52; 53], and Spain [7], production systems The multi-criterion dualist division of rely heavily on functional interlinkages be- the economy and labor market into "formal tween large, medium, and small enter- and informal sectors" espoused by the ILO prises, impeding the successful application in its Kenya Report and subsequent Inter- of a dualist multi-criterion division into national Development literature is much formal and informal sectors. Even more more place-specific than its authors have frustrating for the positivist ILO approach generally cared to admit. In relatively is the persistence of thriving "black" or small and poor Third World countries, with "underground"economic activities in rich short histories of colonialism and of na- and poor countries [5; 41; 68]-difficult to tional independence and with low levels of quantify, often impossible to promote be- urbanization, it is quite easy to contrast a cause of their illegality, yet clearly of cru- modern corporate sector based on transna- cial importance to the functioning of the tional investment and technology transfers socio-economic system as a whole. This with a "traditional"small enterprise sector frustration soon strikes the reader of the based on household firms, self-employment, recent and widely-cited collection of essays and locally-developed technologies. Any- on The Informal Economy edited by one who has visited Kenya and a range of Portes, Castells, and Benton [60]. Like other Third World countries can bear wit- many others before it, this book begins by ness to the dramatic physical contrasts be- assuming ILO-style that dualist, multi- tween factories, international hotels, gov- criterion definitions of formal and informal ernment offices, and major institutions on sectors can be applied. During the course the one side, and "native"enterprise in the of the text, however, as numerous authors shanty towns, streets, and local markets on and countries are involved and as sub- the other. Just as there is a dramatic con- contracting and underground activities are trast of "ultra-modern"steel, concrete, and emphasized, the initial assumptions gradu- glass structures with "native"huts, shacks, ally lose credibility, leaving the reader con- and open spaces as locales of enterprise, fused as to what "the informalsector" is and there is also a contrast between sophisti- how it relates to "the informal economy" cated European, Asian, and European- and to "informality." educated Africanentrepreneurs and senior By the late 1970s, the debates about the bureaucratson the one side and indigenous utility of the informal sector concept had African small businesspersons on the already developed into a dialogue of the other. In other Third World countries, deaf in which more and more was written, however, with longer histories of colonial- but apparently very little was seriously ism and independence, with higher levels read. The informal sector concept was of urbanization,and with longer-established nebulous and virtually every user applied a and more diverse production systems, the slightly different definition, but it seemed contrast between modern/formal and to serve a purpose as a means of identifying traditional/informalis far less evident. In- small enterprises worthy of governmental stead of a polarization, more perceptive support. Some advocates of the concept authors emphasize a continuum with nu- referred briefly in their writings and merous overlaps, ambiguities, and func- speeches to the presence of disreputable tional interdependencies based on sub- and illegal occupations within the informal contracting, franchising, disguised wage sector, for example prostitution and narcot- labor, and dependent working, and this ics trafficking,and many alluded to occupa- view seems much more appropriate to tions of rather questionable social value, for countries such as India [9; 32], Peru [30; example shoe-shining and lottery ticket 46], and Mexico [6; 27]. selling. In general, however, they passed 338 ECONOMIc GEOGRAPHY over these occupations very quickly and advocated government support to small- without any reference to public policy, and scale manufacturing and repair establish- then they concentrated on artisans, small- ments. What is meant is that the Interna- scale industries, and the need for govern- tional Development community used and mental support. understood the term "informal sector" The attitude taken by most advocates of ILO-style, there was widespread research the informal sector concept who have fol- and policy analysis relating to the sector, lowed the ILO line is that definitional and it was conventional wisdom to build questions are unimportant, and the exis- government loans, training, and technical tence of the sector is just as obvious as the assistance to small-scale manufacturingand existence of a Third World or a middle repair establishments into "aid" projects. class. Analysts may vary in their defini- Thus, since the mid-1970s "supportfor the tions, but such differences of opinion cer- urban informal sector" has become one of tainly do not negate the existence of the several majorlines of multilateral and bilat- phenomenon and the utility of the concept. eral "aid," though never as significant in This line of argument has been brilliantly financial terms as military aid, debt relief analysed by Lisa Peattie [57] in a seminal ("structural adjustment"), or investments paper entitled "An Idea in Good Currency in infrastructure. It is variously justified in and How it Grew: The Informal Sector." at least five different ways: as employment The essence of Peattie's argument is that generation with relatively low capital in- such an ambiguous concept with so many vestment per job generated; as satisfying definitional problems can only grow in pop- basic needs and stimulating internal de- ularity if it is useful to many people and if it mand; as promoting local handicrafts to generates a genuine coalition of interests. stimulate tourism and exports; as develop- It seems clear that the ILO version of the ing intermediate technologies, recycling, concept has mainly served to promote a and repair to reduce the foreign exchange social democratic and reformist agenda for requirements for imports; and as creating a the Third World. It has provided encour- pool of skilled potential workers and sub- agement for appropriate technologies, in- contractees for big business. digenous enterprise, and local self-help, and it has advocated an increased govern- DE SOTO'S INFORMALITY AS A ment role in supporting and nurturing in- COUNTER AND COMPANION TO THE formal sector enterprises. ILO's INFORMAL SECTOR" The ILO informal sector approach pene- trated Latin America very soon after the De Soto's speeches and writings empha- publication of the Kenya Report. The main size the significance of "informality"rather office of the ILO in Geneva, the World than any rigid division of the economy and Employment Program'sRegional Program labor market into formal and informal sec- based in Santiago de Chile (PREALC), the tors. Nevertheless, ever since his work on World Bank, the Inter-American Develop- "informality" began to receive interna- ment Bank, Germany's Social Democratic tional publicity around 1983, he has tended Friedrich Ebert Foundation (ILDIS), and to be identified as an expert on "the infor- Canada's International Development Re- mal sector," and he has not directly op- search Center (IDRC) all supported pilot posed dualist divisions of the economy and studies, and for over a decade it seemed as labor market. Thus, his "informality"and if the dualist multi-criterion, positivist "informals" have tended to become la- view of the informal sector prevailed in belled by others as "the informal sector," Latin Americajust as it did in the rest of the and he has often used the terms "the infor- Third World. It is important to stress here mals" (i.e., those who practice informality) that it is not implied that all Third World virtually interchangeably with the term elites liked or even knew about the infor- "the informal sector." Thus, De Soto has mal sector concept or that they necessarily effectively adopted the term "informalsec- HERNANDO DE SOTO 339 tor," but he has completely ignored the about that research cannot somehow be positivistic ILO-linked literature and defi- eradicated. Over the last four years, a new nitions. Instead, he has defined the sector version of the dialogue of the deaf has in his own way and using one single occurred on numerous occasions where re- criterion-conomic activities that con- searchers and policy-makers using the De travene official regulations but that do not Soto definition converse with other re- involve murder, theft, violence, or other searchers and policy-makers using variants obviously criminal acts. He has idealized of the ILO definition, and the conversation his informal sector, creating an image of runs on as if both groups were talking about plucky entrepreneurs desperately strug- the same thing and recommending the gling to make a living in the face of stifling same policies. In reality, of course, the governmental regulation and the horrific universes being described are very dif- mismanagement of public enterprises, and ferent, and the objectives and means of he has depicted the informal sector as the informal sector promotion are likely to be real heart and human resource of the almost totally incompatible. Nevertheless, nation. "the informal sector" is such a vague term Despite his strongly right-wing connec- that it often encompasses different inter- tions in the U.S., his political positions pretations and assumes a universal positive have not been seen to be totally right-wing connotation rather like parenthood or by most Peruvian observers. De Soto has a friendship. powerful populist rhetoric, and he could The advocates of the ILO-style concept hardly have an easier victim to ridicule of the "informal sector" generally recom- than the bureaucracy. Most Peruvians mend increased public sector investment have long been deeply cynical about gov- and involvement in technical assistance, ernment, frequently accusing government training, and credit provision to small en- personnel of corruption, nepotism, incom- terprises. In contrast, the advocates of the petence, and laziness. In addition, the 12 De Soto approach recommend reduced years of military rule from 1968 till 1980 public sector investment and involvement, generated vast tomes of regulations to orga- deregulation, debureaucratization, and the nize the government, yet most of the civil- privatization of public enterprises so as to ian politicians who have held public office remove "unfair competition." In policy since the re-democratization in 1980 have terms, the fundamental differences center been patently incapable of understanding on the role of the state, with the ILO or reforming the way the government recommending an increased role and De works-or rather fails to work-in a debt- Soto recommending a reduced one. In ridden environment. some cases, the two sides have come closer While De Soto is certainly very influen- together through the ILO-style advocates tial in Peru and elsewhere in Latin America reorganizing their definitional criteria to with his particularversion of "the informal give primacy to the lack of appropriate sector," the ILO-style conception is still documents and permits and to treat the very widespread. As a Continental think- others as secondary supporting criteria. tank and research coordinatoron ILO-style The pursuit of such an approach, however, informal sector issues, PREALC remains leads them into a logical trap. Their ad- active; ILDIS and the IDRC continue to vocacy of increased governmental support fund studies; and numerous researchers all for the informal sector then means that the over the continent have embarked on stud- sector disappears as soon as appropriate ies using multi-criterion definitions along documents have been provided or the need ILO lines. The thousands of publications for such documents has been abolished. that have followed on from the ILO Kenya DE SOTO IN THE PERUVIAN CONTEXT Report and the tens of thousands of re- searchers, professors, and students who Some of De Soto's social philosophy, as have participated, discussed, or just learnt expressed in The Other Path, had been 340 ECONOMIc GEOGRAPHY anticipated by the renowned Peruvian an- regulating and over-controlling and for thropologist, Jose Matos Mar [50], in a widespread corruption and incompetence. book called Desborde Popular y Crisis del Garcia's populist style and rhetorical Estado (Popular "Overflow"and the Crisis speeches play brilliantly to the audience, of the State), in which he argued that the and his adoption of the anti-government old social conventions and order in Peru theme from Matos Mar and De Soto helped were collapsing and that the government win him great popularity in his first two was losing legitimacy and authority. Matos years as President. Nevertheless, it is Mar's widely-read book argues that grass- clearly somewhat contradictory for a head roots movements are gathering momen- of government to rant against government, tum, and that Peru's power structure is and as President, Garcia was notorious for becoming increasingly fractionalized and talking and promising too much without pluralistic. "Make out whatever way you clearly understanding how his promises can" has become an increasingly wide- could be fulfilled. Time and time again, he spread view in Peru over the last few years. publicly blamed the bureaucracy for not When confronted with the realities of the fulfilling his promises,8 and after two good country's massive and unpayable foreign initial years (1985-87), his government debt, many sections of the Peruvian left rapidly lost momentum and the country and right have come to see grass-roots regressed rapidly into its most serious initiatives and increased local autonomy as economic and political crisis since the the only means of progress. Such "neo- 1930s. anarchist" or "populist" views have been Garcia's greatest tactical mistake was in encouraged by the widespread belief that 1987, when he declared the nationalization Peru has a tradition of local self-sufficiency of the private sector's share in the Peruvian and of communal effort and organization banking system. Although most of the dating back to pre-Inca times. banking system already belonged to the De Soto's heroes include a wide range of government, this decree provoked a mas- entrepreneurs in all sectors of the econ- sive anti-government campaign from the omy, but the examples he uses most fre- Peruvian right, with Mario Vargas Llosa quently are the street vendors of Lima. His leading the campaign of opposition. Seeing persistence on this theme, advocating the Garcia trying to increase the scope and interests of an occupation that the Peruvian scale of government, De Soto sided imme- elites have long persecuted and derided, diately with Vargas Llosa and joined him in has won him the interest of some coopera- forming a new political movement, the tives, center-left politicians and trade Movimiento Libertad (Liberty Movement - unions, and most importantly of all, of ML). Initially, the ML seemed to embody former President Alan Garcia(1985-90) and De Soto's free-market, entrepreneurial, new President Alberto Fujimori (1990-). In and anti-bureaucraticphilosophy, embrac- his presidential inaugural speech in July ing his call for a "Country of Property 1985, Garcia took the unprecedented step, Owners" based on the mass legalization of before an audience of visiting heads of state small enterprises, squatter holdings, and and parliamentarians, and transmitting by de facto parcelizations of agrarian reform television and radio to the whole nation, of cooperatives (CAPs and SAIS). Subse- saluting the street vendor as the unsung quently, however, with increasing opposi- national hero. Street vendors were por- 8Ronald Reagan, of course, was a frequent critic of trayed as courageous people who struggle bureaucracy and his own government, and yet he is against the bureaucracy and the harsh con- generally viewed as a popular and successful presi- ditions of the open streets just to make a dent. His relative success and Garcia'sfailure should living so as to be able to feed, clothe, and not be attributed so much to his merits and Garcia's defects, however, as to the appallingly difficult situa- house their dependents. Past governments tion facing any government of Peru, making the presi- were blamed for not generating enough dent extremely vulnerable to international pressures jobs, but they were also blamed for over- and local boycotts. HERNANDO DE SOTO 341 tion from De Soto, Vargas Llosa took the portant issues were also at stake. De Soto ML into an electoral alliance with the clearly envisaged ML as a long-term move- older Accion Popular (AP)and Partido Pop- ment that should develop its own philoso- ular Cristiano (PPC) right-wing parties as phy, cadres, and think-tanks, perhaps tar- FREDEMO, the Democratic Front. geting the 1995 elections rather than those After the bank nationalization declara- scheduled for 1990. In contrast, Vargas tion, Garcia'spolitical fortunes plummeted Llosa preferred the political expediency of and he lost most of his credibility, even an alliance with AP and PPC, even though within his own APRA party. Peru is now in this associated ML with traditional politi- a state of grave economic and social crisis, cians, parties, and policies, most notably with hyperinflation, spiralling debt, a from the second Belautnde government of vibrant underground economy based on 1980-1985-figures whom De Soto had de- cocaine export, and a seemingly ever-rising rided in The Other Path as "right-wing tide of political violence, official repres- mercantilists." While Vargas Llosa fig- sion, and common crime. APRA suffered a ureheaded a FREDEMO intent on captur- crushing electoral defeat at the hands of ing power in 1990, with former President FREDEMO in the November, 1989 muni- Belautndeand his AP clique often appear- cipal elections, and again at the hands of ing in the driving seat, De Soto appar- the new Cambio 90 (Change 90) Movement ently "radicalized" by moving towards and FREDEMO in the 1990 presidential the political center. To die-hard rightists, and parliamentary elections. De Soto betrayed his class interests and old Not surprisingly, the most striking "con- allies, and so he helped the centrist Alberto tradiction"between definitions and analy- Fujimori and his newly-founded Cambio ses of the informalsector has arisen in Peru 90 Movement defeat Vargas Llosa and since the Garcia government came to FREDEMO. To the majorityof Peruvians, power in 1985. De Soto's The Other Path however, De Soto merely refused to back came on to the market at about the same an opportunistic right-wing candidature time as various other books on urban labor that promised to polarize class conflicts and and poverty issues and on small enterprises accentuate the suffering of most of the in Peru, some following De Soto [78], some nation's poor. Nevertheless, the awkward using ILO-style criteria [18; 19], others question remains as to whether De Soto is a following Bromley, Gerry, and Birkbeck's rightist in centrist clothing, or a true cen- line [13; 14] in deliberately avoiding infor- trist who was once unfairly branded as a mal sector terminology and dualistic divi- rightist. sions of the economy and labor market and De Soto's new "radicalism" has been instead focusing on the social relations of manifested in five main ways. First, he has production [29; 30], and others trying to changed the company he keeps in the review the various alternative definitions United States, shifting from an almost con- [56]. The Garcia government even estab- stant association with the Heritage Foun- lished an Institute for the Development of dation and the far right to meetings with the InformalSector (IDESI), which adopted middle-of-the-road Democrats such as the ILO line and exists primarily to facili- Joseph Biden and Bill Bradley. Second, he tate credit to small enterprises. has provided moral support and advice to De Soto and the ILD have shifted signifi- the new President, Alberto Fujimori, and cantly in political alignments since the during the electoral run-ups of 1989-90 he heady days of 1987 when the ML was expressed willingness to collaborate with founded in the aftermath of the bank na- various political leaders and parties, most tionalization. The ML's involvement in notably the Independent Socialist leader, FREDEMO alienated De Soto and led him former presidential candidate, and former to quarrel with Vargas Llosa. Some ob- Mayor of Lima, Alfonso Barrantes. Third, servers attributed this quarrel simply to with the personal approval of ex-President "two large egos in conflict," but more im- Garcia, he has involved the ILD in two 342 ECONOMIc GEOGRAPHY joint projects with the APRA and Cambio will seek increasingly international roles, 90 governments: the Registro Predial, a distancing themselves more and more from simplified registrationprocedure for squat- the rocky terrain of Peruvian politics. ter holdings, and the Law of Administra- tive Simplification, ongoing legislation and CONCLUSION: THE DE SOTO reforms to cut the volume of paperwork, VIEW IN BROADER PERSPECTIVE documents, and declarations required for ordinarycitizens to obtain permits, credits, De Soto's work illustrates the crucial and titles from government. Fourth, the interlinkage between ideas, local condi- ILD has prepared draft legislation to de- tions, intellectual environment, and global mocratize decision-making in local, re- support-a microcosm of geography in the gional, and national government through broader context of social science. Without the prior publication and public discussion international financial support for re- of potential new laws, and in his presiden- search, travel, and publication, given tial inaugural speech in July, 1990, Presi- largely on ideological grounds, his work on dent Fujimori indicated his government's Peru would have been smaller in scope and desire to work with the ILD on this. Fifth, virtually unknown. If he were not from he has publicly attacked the Goodyear Tire Peru, however, he might well not have Company, other multinational corpora- undertaken such research and campaign- tions, local Peruvian businessmen, and also ing, and even if he had his work might not successive Peruvian governments for es- have had such an impact because the cases tablishing and supporting uneconomic of most other countries are less extreme import-substitution industries in Peru. and dramatic. These industriesare protected from cheaper Even by Latin American standards, Peru and better-quality foreign competition by has an unusually strong bureaucratic heri- import tariff barriers, and hence they can tage and highly stratified society because yield substantial profits to the investors Lima was the administrative capital of most involved while supplying overpriced, low- of South America for over two hundred quality goods to the Peruvian public. De years. Of all the South American countries, Soto's attack on Goodyear was certainly Peru has undergone the most dramatic true to his free-market philosophies, but it economic collapse over the last sixteen has caused considerable concern to some of years, and since 1980 it has rivalled Colom- his patrons and supporters in the U. S., and bia as the country most torn by crime, it has alienatedmany Peruvianindustrialists. repression, and subversion. Furthermore, De Soto seems to have assumed a of course, the early successes and popu- "maverick"role in Peruvian politics, pro- larity of the 1968-75 military government of voking debate and winning headlines, but General Juan Velasco, followed by the au- not identifying clearly with any political thoritarian military regime of General party or coalition. He is rumored to have Francisco Morales Bermudez (1975-80), declined numerous invitations to high of- gave Peru an unusually deep-rooted mili- fices: FREDEMO's candidature for Mayor tary penetration of government, producing of Lima, Alan Garcia'slast Prime Minister, numerous bureaucratic codes known as Barrantes' First Vice Presidential running "administrative systems." These systems mate, and most recently, Fujimori's first made the bureaucracymuch more complex Prime Minister. Most observers character- and highly sophisticated, and during the ize him as ambitious, and a few see Velasco period their introduction paral- him as building alliances for 1995 or leled an unprecedented expansion in gov- later, after the expected failure of the ernmental functions, budget, and person- weak and ill-prepared Cambio 90 govern- nel. Since the current trend to economic ment, a possible military coup, and a "re- crisis and austerity began in the mid-1970s, democratization" 1-3 years later. More however, the "administrative systems," probably, however, De Soto and the ILD the unionization of an extremely low-paid HERNANDO DE SOTO 343 public sector workforce, and the lack of cal parties seek the votes of street vendors, technological modernization in govern- para-transit operators, and squatters, but ment have produced a Kafkaesque "Catch between elections a policy of selective re- 22" situation: a governmental system that pression and benign neglect prevails. New desperately needs reform and moderniza- incursions by street vendors and para- tion, but that faces enormous internal and transit operators onto congested central external obstacles to change. Successive streets and major junctions and axes are civilian governments since 1980 have con- resisted by the authorities, often using wa- tinued to increase the public sector work- ter cannons, truncheons, arbitrary arrest, force, mainly through political patronage, and confiscation of merchandise and equip- while being forced to cut real wages dra- ment. Similarly, new squatter invasions matically because of the national economic onto strategicallylocated private and muni- crisis and external pressure from the Inter- cipal holdings are likely to be dislodged by national Monetary Fund. the police or military. Away from con- De Soto's socio-legal focus is highly inno- gested, high-value, and elite areas and vative and pertinent to Peru, but socio- from key axes and junctions, however, new legal changes alone cannot guarantee eco- incursions by vendors, transporters, and nomic development and resolve all major squatters are likely to go unopposed and societal problems. The ILD has an impor- will eventually be legalized. The ILD has tant role to play in the division of labor not injected many new ideas or policy pro- among Peruvian research centers and posals into this situation, and its research think-tanks, but even in its central arena of has paid insufficient attention to land socio-legal studies, the institution's cover- values, traffic densities, and congestion age is still very patchy. Its majorprojects- costs. Thus, for example, in criticizing a the registration of properties in well- 1985 MunicipalOrdinance regulating street established squatter settlements, the sim- vending in Lima, De Soto [25, p. 240] plification of administrative procedures suggests that: "if, instead of overregulating and paperwork, and the proposals for de- the street vendors, the authorities had re- mocratizing decision-making-are directly moved the obstacles to their activities and influencing public policy, but they cover made it easier for them to form business only a small proportion of the nation's organizations and obtain formal credit so socio-legal problems. The ILD's work is that they could build more markets, by heavily focused on Lima and its impact on 1993 all of today's street vendors would be the remainder of the country is less signifi- off the streets." Even if this highly dubious cant. It has shown little interest in human assertion were true, he neglects to point rights issues relating to arbitrary arrest, out that a new generation of vendors would habeas corpus, torture, and disappearance, be on the streets because street locations in the long delays and inefficiency of the are vital for some forms of retailing, most courts, or in the appalling conditions and notably for frequent needs and impulse human rights record of the prisons. Sim- purchases like cigarettes, ice cream, news- ilarly, it has failed to get involved in the papers, and candy. Increased congestion programming and management of public stimulates demand for such goods in three expenditure, a critical problem area for main ways: first, because it attracts cus- national economic recovery and the effi- tomers seeking agglomeration, centrality, cient functioning of government. and competitive prices; second, because it The early work of the ILD on street keeps more people within selling distance; vendors, para-transit operators, and new and third, because bored motorists, pas- squatter invasions provided most of the sengers, and queue-standers will use the material for The Other Path, but it has not delays to make purchases. generated major policy changes and it has A crucial intellectual link that remains to only a limited relation to the current areas be traced is between the European and of ILD activity. At election time, all politi- North American work over the last fifteen 344 EcONOMIc GEOGRAPHY years that has analyzed the "black," "un- vative anarchismor even "guerrillacapital- derground," "subterranean,"or "parallel" ism" [21]. By ridiculing official procedures economy [5; 26; 41; 68], and the evolution and idealizing those who dodge regulations of Hernando De Soto's ideas. In a 1981 and avoid paying taxes, he helps to justify edited book called Informal Institutions the widespreadcynicism and apathytowards [35], for example, the British sociologist government that are found in Peru. In Stuart Henry returns to the pre-ILO sense turn, cynicism and apathy encourage boy- of informality, not in terms of sectors, but cotts and default from official programs- rather in terms of unconventional or alter- an "informalization"of the socioeconomic native ways of doing things. He and his system-and they contribute to govern- collaboratorscover a wide range of themes, ment inefficiency and the demoralization of from moonlighting to tipping and from the public sector workforce. They could squatting to extra-marital affairs, and if provoke decisive policy shifts towards pri- there is any generalized "policy" to be vatization, deregulation, administrative derived from these writings, it is simply the simplification, and reductions in the public importance of community self-help and in- sector workforce, but they are equally dividual initiative. "Informal" plays two likely to lead to a virtual collapse of the roles in such a conception: first, as a new state apparatus without any prior reforms. euphemism to avoid the negative connota- In the event of such a collapse-which tions of words like "black"and "subterra- many feel has already taken place in Peru- nean," and second, as a means to empha- the country is plunged into economic and size the contrast between two different political chaos and the government has styles of activity. A further interweaving of neither the will nor the means to pay even informality with the black economy is the interest on the country's foreign debts. effected by Sanchis and Minana in their The collapse of the state is certainly not the edited collection La Otra Economia (The outcome the IMF and the World Bank Other Economy), subtitled Black Work would desire, but it is a likely end result of and the Informal Sector and focused the "guerrilla capitalist" perspective! mainly on Spain [64]. Despite the fact that The initial policy declarations of the new the ILO is located in Europe and most of its government of President Alberto Fuji- senior staff are European or North Ameri- mori, which took office in July, 1990, treat can, its positivistic informal sector concept the promotion of small enterprises and the has always been applied to the Third democratization of decision-making as key World. The idea of informality being elements in a national development strat- equivalent to illegality or law evasion is far egy to revive Peru's collapsing national more widely accepted in Europe and North economy. The ILD was the only non- America than it is in most of the Third governmental organization to be men- World. Nevertheless, of course, De Soto is tioned by name in Fujimori's presidential busily diffusing a variant of that idea in inaugural speech, and it was specifically Latin America, but suggesting that the designated to work with the new govern- state rather than the lawbreaker is at fault. ment on these policies. Whether good in- Though De Soto may superficially be tentions and rhetoric will be converted to characterized as an apologist for the World reality, however, and how much the Fu- Bank, the IMF, and the interests of inter- jimori administration will rely on De Soto national capitalism, his position may well and the ILD, is still in doubt. It is unclear prove profoundly contradictory to theirs. how well De Soto and the ILD will adapt to His recent political radicalism and immer- the pragmatic tasks of day-to-day admin- sion in Peruvian politics, combined with istration, policy formulation, and political his strong beliefs in the redundancy of state compromise. Furthermore, of course, many bureaucracies, regulation, and enterprises, of the policies that they recommend may bring some of his positions close to conser- only bring long-term benefits, while the HERNANDO DE SOTO 345 current crisis of violence, accentuated pov- [65; 66], some advocate a focus on credit erty, and hyperinflation requires immedi- and solidarity groups as pioneered by the ate amelioration in order to establish and U.S. consultancy firm AITEC [3; 55] and maintaina political coalition capable of gov- by the Garcia Government's IDESI, and erning the country. Cambio 90 won the some advocate a thin spread of resources Presidency and a modest parliamentary among all of these and other lines of policy representation, but unless positive bene- intervention. There is ample need for ap- fits are generated for the majority of the plied research on the relative efficacy of Peruvian population within their first year different types of small enterprise promo- in office, they are likely to face overwhelm- tion and on the appropriate levels and ing parliamentary and armed opposition types of state involvement. On a broader from both left and right. More of De Soto's scale, it is crucial to determine whether ideas are likely to be tried out in Peru than small enterprise promotion can be the anywhere else, and yet because of the se- prime element and driving force in a na- verity of the national crisis, Peru is perhaps tional development strategy, or whether it the least fruitful potential terrain for the must always be part of a much larger pack- gradual long-term changes and institu- age of policies because it focuses on a tional reforms that he advocates. As he said "dependent" or "lagging"sub-sector of the on numerous occasions during the 1989-90 economy that cannot function effectively election campaigns, "whoever wins, they unless the country has a stable currency, won't be able to govern this country be- thriving foreign trade, and numerous suc- cause the whole system and apparatus of cessful large enterprises. government is outmoded." In a separate but related arena, De In the uncertain political and economic Soto's writings and policy recommenda- context of Peru, and with a great shortage tions have major implications for the dis- of resources to implement policy, it is very tribution and characteristics of settlement, unclear how much attention should be transport, and commerce. Judging from given to the ILD's socio-legal concerns. The Other Path and numerous subsequent Are they focusing on key problems that are pronouncements, De Soto's ideal city uniquely grave and preeminent in Peru, or would be low-rise, low-density, and multi- are they simply focusing on one of many nuclear, with large numbers of small enter- problem areas?Should resourcesbe focused prises, a proliferation of private markets, a on socio-legal issues of debureaucratization heavy reliance on para-transit, and little and deregulation to the neglect of other governmental activity beyond law, order, fields: a sort of "leading sector policy," and the construction and maintenance of focusing on the area where greatest posi- streets, parks, and some utility networks. tive change can be achieved? Alternatively, As Peru continues its economic and politi- should resources be spread across many cal collapse, however, and as Lima ad- different policy areas because only an inte- vances towards mega-city status, with a grated policy intervention on several re- population rising to over ten million in the lated fronts can work effectively? Finally, is first decade of the twenty-first century, some other policy focus more urgent and many would question the low profile he operable? assigns to government and the laissez-faire Even among small enterprise promotion attitude that he advocates towards urban specialists and international development management. If they are heeded in Peru agencies, there are major differences of and elsewhere, his ideas will have enor- opinion on the most appropriate policies. mous implications for the socioeconomic Some see De Soto's socio-legal focus as the functioning and spatial organization of na- key, some advocate a concentration on tions and cities. 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