The Elites and the Underground: No Law vs. Rule of Law vs. Excessive Law

“Rule of law” is an unquestioned prerequisite today for any free society and growing economy. Unfortunately, there is too little rule of law for 80-95% of the world’s population and too much for the rest.

The former population are what Hernando de Soto calls “extralegal” poor who want and need to be able to join the middle classes and thrive in those segments of the developed world that are now a decided minority (1, 2).

The latter are the political and economic elites who live in varying degrees, depending on country, officially under the rule of law but are facing, year after year, increasing erosion of that protection with the growth of dictatorship by excessive law.

The extralegals, as de Soto’s research has found at his Institute for Liberty and Democracy in Lima, Peru, have no legal existence in most third-world countries. They have no titles to their property, no legal descriptions of its location and other public records, and therefore no way to accumulate and protect assets—also known as capital. Yet most of these productive and innovative black-market entrepreneurs want to join the rest of their societies and be just as prosperous as everyone else.

The problem is that most of the ruling elites don’t want them to prosper. The solution is property rights and the rule of law.