A case for simple laws

I start with de Soto’s thesis that the poor of the world would prefer capitalism if they could obtain it at a reasonable price. De Soto points out that poor countries lack the institutions to convert their wealth into working capital. The laws are in place in nearly all countries: there are laws defining ownership in land, land registration, and mortgages. These laws are just not used. Why? The laws are in place but that is not enough to allow their usage; multiple cooperating participants are necessary to create capital from valuable assets. When we focus on land, we find that capitalization requires a cooperation of land registration, banking system and courts of law. For effective utilization of the opportunities afforded by the law a general understanding of legal issues is necessary; the legal system must correspond in complexity to general education and specialized legal knowledge available. I argue that the concentration on technical issues when advising countries of the third world is misguided; the question is not whether the legal organization is in place, but whether it can be effectively used and at what cost. It seems that some of the legal institutions in the world carry a very high price tag and make them inaccessible to the poor. These institutions create inequality and limit freedom of action which is considered by Amartya Sen as the most important agent to development. The history of European saving and loan cooperatives in the late 18 and first half of the 19 century provide instructive models how to convert wealth into capital. Following these models the creation of capitalization methods should be achieved in the informal sector of the third world.