Enterpreneurship in Peru
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Enterpreneurship in Peru



State abuse against entrepreneuship in Peru

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Enterpreneurship in Peru Enterpreneurship in Peru Document Transcript

  • ENTREPRENEURSHIP IN PERU: HOW DOES THE IDEOLOGY AFFECT IT? José Luis Tapia Rocha  ―If we want to defend Capitalism and save the free enterprise system, it has to be by means of morals and philosophy. In one word, economics are not enough‖. R.A.Childs, Jr. 1Do socially prevalent concepts and values promote or jeopardize entrepreneurship,productivity, competition and the creation of wealth? The economic results of nationalbusinesses depend on finding an answer to this question. It should not be surprising thatcontinued efforts to give entrepreneurship a greater freedom in the market have foundopposition in values and ideologies contrary to free enterprise. Moreover, these values andideologies are quite ancient, they remain in our midst and seemingly, day after day theyfind greater acceptance in Peru. If they were harmless we should not worry much, but whatwe face is actually more serious than what we imagine with respect to the attempt topermanently attack our moral right to attain to benefits from entrepreneurial activity as themean to productively live in a civilized society. This work purposes to spotlight the role ofideology in the exercise of entrepreneurship in Peru.1.- VALUESValues are guiding principles which function as premises for human behavior.2 As AynRand would say “it is that for which one acts, to obtain it and/or to preserve it”.3 Valuesappear to be implied in norms and patterns of conduct and they crystallize in institutions,and even in laws and constitutions. The best known, most popular, more spread out andmost practiced values are accepted by the majority of the population. For the economicsuccess or failure depend from laws and judicial and administrative decisions, but all thesein turn depend on the correlation of political trends. And likewise, politics critically dependon values and ideological influences prevailing in schools, research institutes, universitiesand press titles, on the comments of political analysts, who finally dominate in the globalsociety.Collective ValuesIn a small society, the authority or tribal chief rules on the basis of implicit rules or itsequivalent: obedience to what he says. Anyone who pretended to disturb the peace ofothersby a different behavior was expelled. It is a scarcely tolerant society with a few differentcustoms. In exchange, an open society or extended order –as Friedrich Hayek calls it- is notlike the tribe where everyone knows each other, but better, being conformed by millions ofindividuals the place where it is difficult to efficiently articulate the millions of needs andpreferences without obviating its individualities. Some type of a harsh and chasing state-control would be needed to keep the cohesion like in a tribal society. Of course, that wouldnegatively affect the members of the society as it would hinder the development and Founder and General Director of Instituto de Libre Empresa (ILE). Professor of Economics at UniversidadSan Martin de Porres, in Lima, Peru.
  • exposure of its individual talents –including the entrepreneurial- to the best bidder with nopermission from the state authority (paternal) and the subsequent benefit for the progress ofcivilization. As Hayek says in his book “Fatal Arrogance”:―If we would pretend to apply the rigid norms of conduct of the microcosmos (meaning thecharacteristic order of community living in the small gang, or even of the family unit) to themacrocosmos (meaning the order proper to a civilized society in all its complexity andextension) – as so repeatedly recommend to us our deep inclinations-, we would endangerthis second type of order” 4Chart 1 shows a summary of the main values which distinguish tribal societies fromextended or open societies. CHART 1 Values of the Society Tribals Open or Free Colectivismo, Comunitarismo Individualism People Citizenship Altruism Benevolence Solidarity Self love Communitarian Private Property Cooperation Competititon Public Moral Private Moral Social Interest Private Interest Colective Freedom Individual Freedom Social Corporate Individual Responsability Responsability Social Rights Individual Rights Social Justice Restitution Justice Elaboration: ILECollective values are attractive to any individual who favors safety, estability, and what isknown, and it is comprehensible that small communities will oppose to the change of anopen society, as the Ashaninkas would, and so would oppose change other Andean andAmazonic communities of Peru.Precisely, as part of the cultural involution, the greater Peruvian enterprises today lift upcollectivist concepts such as “social responsability” that stands against the spirit with whichwas created by the shreholders. Milton Friedman and Tibor Machan have afformed that it isenough for a company to be profitable to be morally recognized as a contributor to theindividuals in a society.5But some proffesional altruists pretend to blame enterpreneurs6 if they do not work for theircommunity in areas of health, environment, education, culture, indigenous peoples,
  • democracy and other issues as a sort of enterpreneurial paternalism meant to replace estatepaternalism.Chart 2 shows collectives and their corresponding ideologies, although there are moreupdated versions of modern times, like eco-feminism-indigenism, new age, postmodernthinking, among others.7 Chart 2 Ideologies of Colectives Colectives Ideology Ethnic Racism, Tribalism Nation Nacionalism People Populism Proletarian Socialism Vanguard Comunism Majority Democracy Planet Ecologism Elaboration: ILEValues and IdeologiesValues are rooted in our customs and ways of reasoning, some of them are inherited andothers are learned from our culture 8. Values can also be found in ideologies which are – asDouglas North explains- those subjective concepts individuals structure on the basis ofvalues culturally inherited which explain what the world is and how it should be. If it is truethat scientific knowledge can change people’s perceptions of the world, this is not enoughas people always grab certain myths9, beliefs, religion, whatever sort of cultural inheritancethat may explain what the world is and how it should be.10Graphic 1 shows the interrelation in between ideologies and the efficiency of Economics.The process starts with ideologies influencing the political sphere through public debate ofideas, arguments and opinions. But the world of Politics is the world of opinions,subjectivism and values. As Constitutionalist Dr. Jorge Astete Virhuez points:―It is the world of personal emotion, of ideologies, and also of individual prejudice. It is theflame of passion and also of action; as such, if it is true that it feeds on reason, its sphere ismore the world of esthetics and of the irrational.‖ 11 Graphic 1 Ideología Política Leyes Economía Elaboration: ILE
  • The third step is about the laws flowing from political power. The pretension is to enhancereality through laws, but the results are precisely the opposite. They are the cause toconflicts between entrepreneurs and workers, informal and formal entrepreneurs, it turnsinto legal action the plunder of wealth generated by productive individuals and the whole ofsociety is harmed with more violence, poverty and injustice. In this respect Dr. Virhuezpoints:“It is true however, that every new law is an obstacle to economic and civil freedom of thecitizens. Laws do not enhance reality, they worsen it. They mean one more procedure, anobstacle to display my freedom, a new obstacle, more and more thorns in the way, adeceitful shortcut. The only ones who obtain a benefit from more and more laws and rulesare the estate bureaucracy, regional and local and those professionals in confusion,lawyers, architects, engineers, accountants, etc. who live either legally or illegally thanksto those obstacles.‖ 12Hayek manifested that for an extended order to evolve, very abstract and general normsinspired in non-tribal societies are needed, so that individuals can pursue concrete purposes.As it comes out, the “law” of societies where collective values prevails becomes aninstrument of power to plunder the profits of productive individuals, business companiesamong them. Frederic Bastiat wrote in 1850 the following:“Thus, when plunder is organized by law for the benefit of those who dictate it, all thoseplundered aspire to partake in the making of those laws, by means of pacific orrevolutionary.” 13Pioneer works became interested in researching how state laws 14 affected entrepreneurialperformance in Peru creating behind it a whole illegal or “underground” economicsystem15, far from the moral purpose every law must, according to Bastiat, uphold, andwhich must irganize collectively the individual right of legitimate defense against theplunder of a collective.16 But the truth is that in Peru, laws are born from political powerwith value content (jusnatural), and from there, all kind of consequences can be observed,as Dr. Astete describes it:―As every right is born from the political womb, the whole of society is pending on politics:whether in permanent anxiety with respect of their individual or commercial rights,whether to obtain an advantage. It is not known whether they will be preserved, violated ordiminished for such or such ideological faction assuming political power. When whatworries citizens is not anxiety, but any labor, trade or corporate issue, they also know thatrunning to the estate (political power) they can get their laws‖ 17
  • As Socialism invades the political arena, it starts producing the unwanted consequenceswhich can be proved by the existent corruption, informal economics, social, economic,technological and cultural underdevelopment, and moreover, moral perversion of the law.18In this respect, it is accurate to point at the reason of the agression of the State toentrepreneurship. According to the estatement of Spanish economist Jorge Valin, it is theaxiom of unilateral agression of the State itself which produces those unwantedconsequences:“Thus, the State acts in a condition of anarchy where it does not explain anything toanybody, not even to its sociaslists partisans (pressure groups), therefore, it can act as itpleases.‖19The State is not like the entrepreneur, who needs the decisions of the customers to act. Bythe contrary the State can continue acting with no political nor ideological counterbalanceuntil it becomes a tyrant political regime. It is not enough, not even pertinent thatdemocratic mechansms will take care of coming to an end with this despotic tyrannythrough elections. The Republican History of Peru shows the opposite. Peruvians haverather elected socialist and populist regimes which ended up assaulting entrepreneurship, aswe will see later, but I doubt it that people will be able to elect another different reality ifthere is no massive spreading of values and ideology opposite to estatism, and which willbe carried out by citizens that will get organized to produce that cultural change.Institutionalists sustain the valid criteria that it is enough to modify the incentives behindthe political structure of the state so that authorities, one installed in the government, willbecome discouraged in their desire to plunder entrepreneurship. Here, the issue is not onlychoosing an institutional or cultural change. Both can be carried out by means of theproposal we expose further on.But what is important is to spotlight the great economic lesson left by statism of the IronCurtain. As Canadian Philosopher Pierre Lemieux estates:“The study of economics teaches a lesson, maybe the only lesson: That individual libertyserves efficiently individual designs and that it functions alone (it regulatess itself by itsefficiency)” 20It is amazing that Austrian economist Ludwig von Mises foreviewed the fall of the socialistregime 69 years before and that humankind would not beware of it21 . Nobody understoodthat free market was an expression of individual liberty22. But alter this great historiclesson we should ask, what kind of political ideology incorporates values opposite tocollectivism and at the same time allows the spontaneous and efficient rise of the marketand institutions of free enterprise? Doubtlessly that ideology is Liberalism, whoseconception of government and economics is the one which guaranties individual rights tofreedom and private property, among them entrepreneurial freedom. As Lemieux estates:―Thus, the spontaneous order or freedom, by one hand, and individual rights by the other,constitute both, the pillars of contemporary Liberalism.‖ 23
  • It is necessary to point that liberalism is in agreement with the individual and free nature ofman. It allows every man the search of personal fulfillment by means of responsible actionwithin the limits required by respect to life, property and the freedom of others. Liberalismis the political conception of freedom for government and economics. In a liberal context,individuals can structure trade relations of cooperation to enhance their standards of livingby means of creation of wealth.24 Free enterprise capitalism leads to the improvement ofthe living standard of the people25.However, according to the principle of unilateral agression, the state pretends toinstitutionally constrain individuals for the sake of a collective and so as to plan economicsaccording to the judgements, ideas, feelings, emotions and values determined by estateauthorities. Being Socialism a popular ideology, vindicated and accepted by majorities inour society,26 the state is used to impose by force values determined by a few enlightenedsocialists. In this respect, the Spanish professor Jesús Huerta de Soto defines socialism thisway:“.....a system of institutional aggression to the free exercise of the entrepreneurial role. Byaggression or constraint, we may understand any physical force or threat initiated andexecuted upon the actor by other human being or group of them.” 27Once an institution, aggression affects all entrepreneurial performance via commands 28which make unviable the the self-regulating market efficiency. 29 It must be clear then, thatevery “command” is an instruction issued from the political power in any judicial formwhich commands, prohibits and orders the execution of certain specific actions against thefree exercise of the entrepreeneurial function.2.- Ideology and EntrepreneurshipIdeology expresses itself through the conduction of the state. Statism is the politicalexpression of collectivism. Statism is contrary to liberalism.30 Its values are governmentsunlimited in functions and expenses; repressed of the market and free initiatives suffocatedunder taxes and limitations; a mixture of private institutions with political power. In legalmatters it is the opposite of the law. As Friedrich Hayek suggests, laws should not inhibitthe creative processes which naturally and spontaneously unchain in liberty; for society tobenefit plentifully from its fruits, people must submit more to covenant than to legalrelationships.31With the statist mode however, norms are more rules than laws, and the Estate monopolizesthe creation of compulsory rules. Today, all rights, benefits and obligations must beestablished by law, not by private contract. And also, they must be supervised by regulatinginstitutions not by ordinary judges. But that is an open way to the granting on unjustbenefits and legal privileges. That perverted process by which certain special interests areestablished is called “concertation”, and they enjoy the following benefits:  Subsidies or aids with specific names on account of the fiscal cash-flow;  Imposition of absurd and individualistic obligations, designed in such a way that only a few can fulfill the requirements;
  •  Other restrictions to the free enterprise, i.e. discriminatory taxes, overtaxing, generous exemptions, discriminatory rules, by which some are exempted and others are not.Under the statist pattern laws get to be numerous and oriented not by a justice criteria forall but to satisfy special interests, at the expense of public resources or the consumer’swallet, or some other opposite interests. For that reason, they are not clear but complicated,costly and obscure. And they are not stable, permanent nor foreseeable, but very unstableand very difficult to anticipate, as they cannot bear with the pressures and counter-pressuresthat bring continued change. They are rewritten once and again, at the rhythm of thepolitical moves.32Ideology, Politics and Entrepreneurship GRÁFICO 2 Clima Político- Ideológico R,E = RN + Ti + K + L DP = IF IC Elaboración: ILEIn Graphic 2 (Grafico 2) we can see how the politic-economic climate (Clima PoliticoIdeologico) makes impact on the entrepreneurial function. The equation shows that theentrepreneur creates wealth and employment (R,E) in conditions where he can combine thefollowing factors: Natural resources (Rn), intelligent working force (Ti), capital (K) andliberty (L). We must point, however, that this last factor is in great manner necessary forthe entrepreneur, so that it is granted enough priority. On what does liberty depend? Itdepends on respect to private property (DP), and in turn, private property depends onfavorable ideological influences (IF), or those in opposition (IC) to the free market. If in thepolitical-ideological IF is greater than IC, then the results are higher than one, that meaningthat evident respect for right to property maximizes N times the creation of wealth andemployment. Likewise, if socialism prevails, then IC is greater than IF, thus there will notbe respect for rights to property, and in consequence, the lack of freedom will put to riskcompetitiveness and wealth created by entrepreneurs.
  • In what way are entrepreneurs and economics in general affected by collective valuesopposite to free market? Graphic 3 (Grafico 3) explains how a political-ideologicalclimate, hostile to free enterprise makes use of taxes (I) and regulations (R). If that climateis in opposition to private initiative, we will soon see how that negative environment willaffect savings (A) and private Investment (I). The same thing happens when institutions andparties defend liberal values. In this way, in order to guarantee the creation of wealth it isnecessary to promote internal savings with the purpose of creating enough offer of moneyto supply national investors with capital. Unless the private sector finds foreign credit, longterm growth will no be possible if we are depending on foreign investment only. Also,these kind of investment is more sensitive that local investments to the increase of risk inthe country. We should just observe that in spite of the diversity of economic experiments,from state-corporation to neo-liberal reforms, the national entrepreneurship has beencontributing with small but valuable investments. But as Peru is conformed by millions ofpoor citizens, it is difficult for consumption (C) to be important enough to reactivate theeconomy without recurring to state Keynesian experiments. And this will be even moreevident if we think that the exceeding results of the enterprise (E) will serve to add capitaland grow continually in the medium term. GRÁFICO 3 CLIMA POLÍTICO IDEOLÓGICO I R Impuestos Regulaciones - -  Creación de Riqueza CONSUMO  Generación, A I Multiplicación y EXCEDENTE Enriquecimiento de Ahorro Inversiones Empleo Elaboración: ILEWe think it is pertinent to point that the state is the only sector which benefits from theclimate against free enterprise, and that it monopolizes a good portion of capital andfreedom unjustly taken from the private sector. Unfortunately, taxes and regulations de-capitalize small and micro-enterprises in such a way that they cannot grow. Graphic 4shows the three sectors of economics: State, formal and informal. While the formal sector isdeprived of freedom because of state regulations, high taxes, by the other hand, it inhibitsinvestment decisions. Likewise, the informal sector does not have any other way thanfleeing from regulations, and thus, it enjoys freedom but lacks capital resources as theymust bear with the greater costs of state aggression in the form of taxes. The effectivetributary burdens of all taxes are carried down as prices, throughout productive channels,
  • and this process affects those who are at the bottom in the social pyramid. Those at thebottom do not have a place to transfer costs, and for that reason, consumers and companiesin the informal sector continue in poverty. In this way, socialism incarnated in statismmanifests itself in regulations and excessive taxes which hinder the creation of wealth ofthe entrepreneurial class. GRAPHIC 4 1) STATE: Regulations 2) FORMAL PRIVATE (GE) K, no F. Absorbs major Cost part of K 3)PRIVATE INFORMAL and W. taxes (Mype) F, no K Elaboration: ILE3.- LIBERALISM AND ENTREPRENEURSHIPThe Austrian school of Economics is catalogued as one of the schools which has confrontedsocialism with success. It has also contributed to deepen the study of free makrket withunconventional mental tools as methodological individualism.33 The School has providedfoundations for an understanding of market proccesses which neo-classic paradigm couldnot introduce, limiting itself to an understanding of entrepreneurship within a productiverole.34 It also demonstrated to socialists like Oskar Lange that finding competitive priceswas not enough to make a socialist viable and that this needed private property as Misesdemonstrated. However, and beyond the epistemological problem that could arise and be anissue to those who pursue a legitimate interest to estate certain scientific considerationsabout the Black Box35, we have to stress the fact that the real magnitude of the problemdoes not lay in methodologies, but in a proper and realistic perspective, consistent with theideological defense of the entrepreneurial role. Some authors 36 sustain that the AustrianSchool vindicates the market against the centralized socialist planning. But ProfessorRaimondo Cubeddu goes beyond that and estates the following:“About this issue, we measure not only the significance of the Austrian School in the realmof political philosophy and classical neo-liberalism, but also its contribution to solve theproblem of constraint and holding of power.” 37
  • Professor Krizner, a disciple of Mises, points also that those who hold the Austrian Schoolas the intelectual backing of liberalism make no mistake:“And it is precisely because of the perception of this intelectual backing that thosecommitted to the cause of free market are completely right to be interested in the positionand progress of Austrian radition in economics.‖ 38EntrepreneurshipThe well-known volume of economics of Mises39 pointed that entrepreneurship is ,ptoperly, human action itself, as an individual must save time, efforts and all kind ofresources with the purpose of obtaining a benefit at the lowest cost. It is the individual whoexercises the entrepreneurial function in pursuing and enhancement of living standards bymeans of creation of wealth. But it is professor Israel M. Kirzner who deepened theanalysis of the entrepreneurial role in his book Competition and Entrepreneurship goingbeyond the prevalent trend:―.....is present an element that, although crucial to the economic activity, cannot beanalyzed in terms of economics, maximization or efficiency. I will entitle this element,because of reasons that I will describe, as the entrepreneurial element‖.40The competitive theory of entrepreneurial function elaborated from these concepts servedand serves now to explain the coordinating trend of disproportions originated in the freemarket, and that can only be understood by the economist and finally can be anticipated inthe market by the entrepreneur. The Austrian Focus perceives the free market as a processpromoted by entrepreneurs who discover profitable opportunities. Once they discovermeans and goals they change the guide to action they previously had. 41 It s good to pointthat this kind of knowledge is of the subjective kind, not articulate, created from nothingand transferable through repetitive behavior, and it is learned and copied by otherentrepreneurs, and that the state cannot formalize it and even less will the state be able tocoordinate it by means of regulations and interventions. This entrepreneurial dynamicsmakes of the collectivist plan of redistribution of wealth a failure in its attempt to enhancethe living standards of people.42When this pattern of behavior of entrepreneurs is kept free throughout the time and they arefed by complex and irresistible circumstances experimented by other actors in the market,they become customs, traditions, rights, institutions, and judicial norms which make itpossible to build a free and productive order known as Capitalism. 43LiberalismCapitalism is the economic face of liberalism, and as such, it functions based in thefreedom of individuals, so much in his consumer’s role as in his productive role. Economicliberalism is equivalent to free market, but this is also a consequence of a state limited infunctions, power, resources and expenses. As it was said, the Austrian School teachesclassical liberalism, stressing the role of free markets and of entrepreneurship in thespontaneous coordination of productive factors, and of private property in the fixation ofprices, within a natural economic order.
  • According to Marx and Engels, communism combines Classical English Economics,French Socialism and the German Idealist Philosophy. Likewise, classical liberalismcombines The Austrian School of Economics, the School of Natural Law and RealisticPhilosophy, all of them in a political doctrine, of whose most brilliant exponent has beenthe French Frederic Bastiat (XIXth century).In his volume “The Law”, Bastiat –maybe the Marx of classical liberalism-, presented asummary of is most important lessons. He focused on the concept that the law can be aninstrument for civilization and a lever for wellbeing, or it can become an instrument forplunder, the “legalized plunder”. It is in this way that all respect for laws, including thegood ones is lost. Around the same time, Englishmen Cobden and Bright promoted in theircountry the Anti-corn League, with the purpose of allowing the importation of cheap foodfrom the European continent. That League initiated the liberal era that made Englandstronger going the way of free trade.Another volume written by Bastiat is entitled ―Economic Harmonies‖, and stresses thenatural order of economics. “Paris come!”, writes Bastiat, and it is no government thatcommands that to farmers, transport business, street-vendors, restaurant-owners and manyother who intervene in the productive chain. Legislators cannot enhance natural processesby laws, rather, that attempt can hinder them. Classical Liberalism should no be confusedwith Classic English Economics, (Adam Smith, David Ricardo, Mill), which so clearlydiffers from the Austrian School. The first does not trust markets and it is oriented to stateinterventions. The second is originated in French Fisiocracy, and the first one from theSpanish School of Salamanca, and it is thus called “continental” (European), the line thatsticks towards free markets and free entrepreneurship.The jusnaturalist doctrine describes a concept of natural order which laws must not harm. Itopposes judicial positivism (Kelsen), for which there is no more law than the positive orsanctioned by the state. Realistic Philosophy teaches that realities have their own nature, asspecific as the operations possible for it, meant to fulfill the functions required for theachievement of its goals.4.- SOCIALISM AND ENTREPRENEUTRSHIPLabor does not make a difference between left nor right, but between aggression or noaggression, thus in between socialism and liberalism, as the right can use the state for itstrading objectives, where a entrepreneurial collective can plunder other entrepreneurs notconnected with political power, as the millions of small informal entrepreneurs in Perucould be. Virgina Postrel has pointed that socialism is dead as ideal and also as politicalpractice44 but we sustain that such affirmation is true until certain point in the standardclssification of the political spectrum. However, our work takes that which is substantial intheir concern which considers as the new attack of the “estatics” opposing to all marketdynamics melting the unifying criteria about the future of a society. Therefore, in its terms,the “estatic” -control and estability- is what this work has endorsed in its first part, ascollective values bring a predictable future in a small community and about this Hayekanticipated saying that individuals always prefer what is known, safe and estable. Then,when we worry about the “estatic” expoliation of taxes and regulations upon
  • entrepreneurship, we are actually agreeing that the dynamics prompted by entrepreneursare what causes the “greatest ideological opposition today”. 45In this sense, socialism seeks to benefit from the law to legally plunder enterprises andconfiscate the benefits of their private ownership.46 It does not matter if the one wholegislates is the Congress or a commission, what matters is to never miss the fact thatsocialism uses the law for its redistribution purposes. As it was pointed, there is no way tobattle socialism without liberalism.47It is usual that socialism generates an overflowing of the functions of the estate which is thecause for statism. Statism assumes non natural functions which go beyond security, justiceand works of public infrastructure. When the estate takes false roles its performance isillegitimate, and so are illegitimate the taxes to finance its Works and the norms issued tointerfere, prohibit and constrain the action of enterprise.It is no accident that until today the opinion of entrepreneurs constitutes the opinion of theminority against the public opinion which sanctions as just the legal plundering carried bysocialism. Frederic Bastiat wrote in 1850:―All of us have the strong inclination to consider that which is legal as legitimate, to thepoint that there are many who falsely consider that every just act flows from the law. It isenough for the law to command and consecrate plundering, for this late one to appear justand sacred to many consciences...‖48.Socialism turned into political action requires of a legal monopoly of the estate to achieveits redistributive goals of wealth. It wants to plunder some, to benefit others violating therights to private property. As it is known, taxes confiscate wealth while regulationsconfiscate the entrepreneurs’ right to property. In his essay, David Kelley, “Altruism andCapitalism‖ pointed the altruist argument that every “need creates a right”, which attemptsto legitimize the violation of the right to obtain profits by law.49 In this respect, Argentinianeconomist Alberto Benegas-Lynch (h) points:“A right that requires that the rights of others be violated cannot exist”.50Socialism can not justly claim for taxes to distribute wealth to the needy. It is unmoral touse entrepreneurs as “means” to supply for the needs of others. The values of socialismalways place others over the entrepreneurs. And the altruist ethics of socialism dictates thatentrepreneurs must be taken to the altar of sacrifice for the well being of others. And fromthat perspective, to be concerned for oneself before being concerned by others is the sameas saying “the rights are theirs, yours is the obligation.‖ Kelley affirms the followingabout the “Estate of well-being”:―...those who are successful creating wealth, must do it with the only condition that othersmay make use of it. The objective is not as much to benefit the needy as to tie the capable.The implicit assumption is that a person‘s ability and initiative are social advantages, to beexercised with the only condition that they may be to the service of others.‖ 51
  • True entrepreneurial ethics consist in recognizing that thinking and working productivelyfor oneself is a virtue. An entrepreneur must get profits from his achievements, not from hismistakes, “he wins what he receives and he does not take it undeservedly.” 52 If someindividuals wantonly take by force the wealth of entrepreneurs by plundering or stealing,they are destroying those who are capable of living for themselves, and they are usingmethods used by animals according to the need in the moment.53 Socialism teaches thatcertain individuals have a right to live at the expense of others, without workingproductively, in dependence of what entrepreneurs do, and it grants them a moral statusover the entrepreneur, pretending to qualify all human action for the benefits of others as“good” and all human action for one’s own benefit as “bad”. However, socialistshortsightedness does not get to see that the entrepreneur Works like any other to surviveserving others and pursuing a profit. As Catholic priest Robert Sirico says, theentrepreneurs’ act of creating wealth is like God’s creating act. Both are of benefit tohumankind.54It is important to point that socialism reduces its ideology to a re-distribution theory; as asMises affirms:―Socialism isn‘t but a ―just‖ distribution theory, and the socialist movement does not havebut that objective of the realization of an ideal (...) For Socialism, the problem ofdistribution is in itself the economic.‖ 55The fact that such socialism, obsessed about plundering the wealth of those “alien to thetribe” may exist, can be understood as a psychological issue. From there, Mises qualifies aspathological the anti-liberal roots of socialists:―The root of anti-liberalism cannot be comprehended by pure reason, for that is not thenature of such opposition; it is rather a fruit of a mental attitude flowing from resentment, aneurotic condition, that could be called the Fourier complex, in memory of the well knownFrench.” 56This socialist mentality originates from tribal values by means of which many philosophers,politicians, ideologists and even intellectuals denigrate profit to the point of turning privateenterprise in a pitcher.575.-AGRESSIONS AGAINST ENTREPRENEURSHIP IN PERÚIn the recent republican history, socialism has achieved the institutionalization of stateaggression against entrepreneurship via the issuing of laws, decrees and other norms whichprohibit, obligate and command to execute economic actions. In itself, all that legislation isan instrument to legally suppress and plunder all the wealth produced by private enterprise.These acts of statism are not recent. We have similar acts of even greater politicalconnotation in the two periods of military dictatorship from 1968 to 1979, and fivegovernments in democracy from 1980 to 2004, where deprivation, regulation andprohibition and the issuing of all kind of state decrees have exercised constraint; fromsocialism corresponding to the velascato to the moderated socialism of the 90s and thebeginning of the century. If there is something at which to point of the decade of the 90s is
  • that, in the best case we had a mercantilism responsible for the balanced management offinances, but nothing proximate to a liberal government.58 As we can see, someaggressions have been already institutionalized under the form of rights, social interest,public and national, and always referred to collectivist values which interfere with thefreedom to run enterprises and distribute wealth through taxes and other payments. Let uslook at some of the aggressions that have been carried out and continue being carried out inon behalf of community values and the socialist ideology.Tributary, Labor and Local Government legislationLegislation is the manifestation of prevailing statism, which is in turn, the aggressor to allentrepreneurial exercise with the purpose of redistribution, thus twisting the structures ofentrepreneurial population and negatively affecting the local competitiveness of enterprises.In the majority of cases it discourages the initiative to carry new private investments. GRAPHIC 5 Structure of Entrepreneurial Population Normal Distorted Amost there is not GE GE GE ME GE M ME ME E SE PE MypeIn Graphic 5 the structures of the normal and distorted entrepreneurial population in Peruare represented. The normal pattern responds to an economy with no statism but with andEstate where the Great Enterprise (GE) is the locomotive to entrepreneurial progress andmodernity. Likewise, the GE is connected to all the other medium enterprises (ME) and thesmall (SE) through outsourcing. To go from one size to other is part of the normalentrepreneurial cycle, they can go up and down with no difficulty. However, in thedistorted structure, big companies are a few, the medium size companies are not many, andmicro and small enterprises (SE) are a characteristic. While in the normal pattern the GE isabout a 5% of the entrepreneurial population, the ME and SE reach about 15% and 70%respectively. But what the graphic is saying is that Peruvian Economy suffers of an illnessthat could be called “entrepreneurial dwarfism”, as three million one hundred 100 thousandof economic unities59 conform 98% of the total of companies which provide jobs to 70% ofthe Economically Active Population. This critical condition is a civilized response fromindividuals who chose to be entrepreneurs not because of a vocation as it would happen in afree economy, but by the “necessity” created in an economy hindered by high taxes andregulations. But what is real is that these companies never grow, they keep that size and thecases that reach other scales are very rare. False myths have been built around thisdistortion, among them, the affirmation that a country can successfully develop on the basis
  • of Pymes, and for that reason Latin American governments hold credit and estatepurchasing credit programs. The Mype are in essence poor. At the lowest decrease of statepurchase operations, thousands of them disappear.Following are some of the laws and norms that affected and continue to affectcompetitiveness, freedom and specially the structure of entrepreneurial:  Organic Law of Municipalities - Law 27972. Date: 27 of May, 2003  Municipal tax law – Legislativo Decree. 776. Date: 31st of December, 1993  Tributary Code – Supreme decree. 135-99-EF. Date: 19 of August, 1999  Income tax law – Legislative Decree 774.  Law of Promotion and Formalization of Micro and Small Enterprise – Law 28015. Date: 3rd of July, 2003  Law of General Administrative Procedure – Law 27444. date: 11 of April, 2001.  Modifier to the Law of Collective Work Relations –Law 27912. Date: 6 of January, 2004  Law of Ordinary and Extraordinary journal. – Decree 26136. Date: 29 of December, 1992  Procedure Law of Labor – Law 26636. date: 21 of June, 1996  Law of Replacement of work shares for investment shares – Law 27028. date: 29 of December, 1998.  Law of delegation of faculties to the Executive Power so as to legislate on Inspections on behalf of the laborers. - Law 27426. Date: 16 of February, 2001.  Law of Nurse work – Law 27669. Date: 15 of February, 2002.  Modifier of Law of journal, schedule and extra time– Law 27671. Date: 20 of February, 2002  Law of midwives labor – Law 27853. Date: 22 of October, 2002  Law of harbour labor – Law 27866. Date: 14 of November, 2002  Law of Odontist work – Law 27878. Date: 13 of December, 2002  Law of the Chemist/Pharmacist work -Law 28173. Date: 16 of February, 2004Competitiveness, Entrepreneurial and Economic FreedomThe World Economic Forum elaborates the business rates of competitiveness for eachnation every year. In chart 3 we can observe how Peru has gone down in the Word rank onthe basis of a sample of 80 countries. It is no surprise that Peru is placed in position 71 inyear 2003, when it was placed in position 46 in1999. The lack of economic andentrepreneurial freedom explains the causes for the low competitiveness in the area ofbusiness. Chart 3 Índex of Entrepreneurial Competiviness l - Perú - Year Ranking 1998 47 1999 46 2000 49 2001 63 2002 66 2003 71 Source: World Economic Forum. See at http://www.weforum.org Elaboration: ILE
  • The explanation sustains that estate regulations are becoming costs –some of them hidden-and they are transferred to the final prices to consumers. That can be observed in twolevels: one is the macro level, where economic freedom60 is not a characteristic of ourmarket, and the other level is at “doing business” (“Doing Business” as the World Bankcalls it) where specific regulations which discourage productivity, investment and growthof businesses can be observed.Graphic 6 shows the case of economic freedom for Peru. It shows how freedom hasdecreased in Peru since year 2000, after having positively evolved since 1,995. Theindicator shows that the index 5 is the one responding to repressed economics like Cuba,Libya, and North Korea and index 1 shows free economics like Singapore, Hong Kong, andthe USA, among others. What this indicator tries to say is that we are for the most part afree country. The greater the economic freedom the more we have growth and countries areprosperous. In other words, if a country wants to be poor and economically stagnant, theonly thing needed is the repression of economic freedom for businesses. GRAPHIC 6 Índice de Libertad Económica Source: Heritage Foundation. http://cf.heritage.org/indetest/country.cfm?id=PeruOne of the ways to repress business is by taxes, labor regulations and local governmentregulations. The web page “Doing Business” of the World Bank Group, estimates severalindicators showing the reality of doing business in different countries. On the basis of thisinformation, the “Ciudadanos Al Dia”61 organization has elaborated a chart comparing Peruand other countries of the same region:Chart 4 shows the number of procedures to open up a business, the length of the procedureand the cost in US dollars. The data shows that Peru has some of the highest costs, stilllower that in Argentina, Brasil and Chile, but over Venezuela. In the same web page“Doing Business” it is pointed that for year 2003, the Peruvian labor market is highly rigid.In order to analyze it, an Index of Labor Legislation was elaborated. The conditionscovered were availability of part time contracts, contract requirements, minimum wagesalaries, and minimum employment conditions. Chart 5 spots the social burdens theentrepreneur must assume to hire a stable worker. Going back to the Index, the measure is ascale from 1 to 100 where high values represent rigid labor regulations. Peru bears 74,
  • compared to the regional index which reaches 61 and that of developed countries where theaverage is 45. Chart 4 C4One of the regulations which directly affect business is that about functioning permits. Aresearch in the local Municipalities of the several districts shows that these permits are forthe most part expensive, the procedure to obtain them is too long and they are economicallyharmful, an assailment to the free enterprise function. Permits are another state tool seekingthat any individual asks for permission to a bureaucrat so as to exercise his right to make itfor a living as a businessman. According to “Ciudadanos al Día” permits seek to ―....defendthe rights of the citizens to have legal and safe businesses in their districts....”.62 Why nottaking this measure to the extreme and ask that every worker of a district, includingdomestic employees get their permits to work from the municipality officers? For nobodywould oppose a measure for a district to count with legal workers so as to be safe fromdishonest acts. Functioning permits are a pernicious way to impose a requirement which isobviously unmoral, for it harms the right to self-supporting by exercising entrepreneurship.A graphic within of the report elaborated by “Ciudadanos Al Día” 63 spots those districtswhich are allied of entrepreneurship and those which are serious obstacle to do business.Municipalities like Los Olivos, La Punta, El Agustino, Miraflores, Surco, Santa Maria delMar, and San Martin de Porres are not as agressive against entrepreneurs. The districtswhere procedures are the most complicated and expensive are San Bartolo, Punta Hermosa,San Luis, Surquillo, San Borja, La Victoria, Ancon and Punta Negra. The Jesus Mariadistrict reaches S/.960, the highest amount charged for a functioning permit, while thelowest charge is S/.169 in La Punta district. And those who illegally charge for the formsto obtain the permits are the municipalities of Jesús Maria, Ate, Barranco, Punta Negra,Surquillo, Santa Maria del Mar, La Molina, Puente Piedra, among others. How is that, thatthe professional altruists can require that entrepreneurs fulfill their “social responsibility” ifat the same time socialism impede them of fulfilling their profitable mission of socialbenefit?In chart 6 all taxes and other payments that businessmen must make to honestly dobusiness in Peru can be seen. It is enough for one of these taxes not to be paid for abusiness to be withheld or in the worst case, for the estate to chase after a businessman, forhim to fulfill his tax obligations before the estate. One of the more eroding taxes is the oneupon the rent of third category of which its rates increase progressively from 15%, to 21%and 30% depending on the wealth of a businessman to the economy. Upon the basis of upto 27 UIT (Tributary Impositive Unity), he pays 15%, an excess among 27 UIT and 54 UITpays 21%; and for amounts exceeding 54 UIT the payment is of 30%. The progression is anaggression against efficiency, quality costumer service, and a discouraging measure against
  • production and accumulation of capital.64 According to “Ciudadanos Al Día”, the taxpressure65 reported by SUNAT does not show all the costs business must face, for there areother extra-budget incomes for municipalities and independent organizations whichsupervise and regulate, and in that case the pressure bore by the businessman is of 17.3%and not of 12% as it is usually said. In other words, with this new calculation thechastisement is real and greater to the one who produces more and better contributes tosociety with the necessary goods and services. That explains that entrepreneurs avoidpaying the high taxes imposed fleeing via informality. It must not surprise us that oureconomy is becoming more informal year after year, and that the rate has reached the57.9% after Bolivia with 65.6%.66 Chart 6 Social Benefits That is Charged to Businessmen  Weekly Vacations  Pre and Post Pregnant Vacations  Paid Vacations  Bonifications on July & December  Health care Payment (Essalud)  Retirment Payment  Work and Risk insurance  Bonification of Labor Time Elaboration: ILEMore aggressions: Some plundering lawsLaw 6634 “Creating the National Foundation of Archeology‖. Date: 13 of June 1929Since the issuance of this law, a real agony started for Julio Zavaleta Flores and Rosa MariaZavaleta Alvarez de Zavaleta. They are the legitimate owners of the Machu Picchu ruinslocated in their farm Santa Rita de Q’ente in the province of Urubamba in Cusco. From thebeginning of the past century until today, the State prohibited by laws, decrees, norms, andalso actions by estate organizations, that the Zavaleta family exercises their rights to dobusiness in the Inca City, while the National Institute of Culture does it charging theentrance to visiting tourists. Besides, they are not allowed to invest in the agriculturallandscape nor receive foreign investments for the constructions of hotels and otherinfrastructure works in the area of their property of 22,000 acres of extension.The 6634 Law states: ―Article 1º- Historic monuments in existence in the national territory previously to the Vice-Kingdom are State property. The right to the nation over those monuments is unapplicable and non-prescriptible.‖ ―Article 5º- If the archaeological sites to which the previous articles refer are situated in private fields, the State may expropriate those fields according to the law, in the extension needed to preserve the sites and so as to facilitate the scientific research required.‖The State’s illegitimate history of appropriation begins when the Nadal family registers theland of their possession at the end of the XIXth century, once the Public Records Office
  • started operating at the time Peru becomes an independent nation. From there, the propertyrights on the monument were of private dominion and registered under the 1852 civil codewhich facilitated the successive purchasing by lots by Doña Tomasa FerroVizcarra whopurchased the lots from the Nadal family. Don Emilio Abril inherited the land as thehusband and he sells it to the Zavaleta family. The owners at this point are Julio ZavaletaFlores and Rosa Maria Zavaleta Alvarez de Zavaleta, according to records in the RegionalRecords Office Inka, entries 166 and 167 of card 9603. In a legal report it is pointed that thecontract of sale-purchase of Mr. Vizcarra “estated that the city of Machupicchu was notincluded in the purchasing-sale operation for it would be expropriated and the vendorreserved for himself the future indemnification to be paid by the Estate” 67. Likewise, itconcludes that “The 6 of December of 1944 the government issued the Supreme ResolutionNr.3975 by which the National Park of Ollantaytambo was created and the NationalPatronage of Archeology was authorized to act on behalf of the Supreme Government tocontinue with the expropriation procedure, according to Laws 6634 and 9125, for thetotality of the Primavera farm (old name of the original farm to which the Q’ente farmbelonged), located in the district of Ollantaytantambo, previous measurements.”68The State never expropriated the farm or the historic site from Mr. Emilio Abril Vizcarra orfrom the Zavaleta family. In spite of the fact that in 1974 and 1975 the expropriation wasinitiated with the purpose of carrying an Agricultural reform, however, by SupremeDecree.036-91-AG this mistake was corrected as the land could not be destined to thosepurposes as the city was considered national patrimony. The expropriation process was thenleft without effect, returning to the owners the rights to property on the farm and of courseall further sale contracts. It is good to point that Machupicchu was formally discovered byHiram Bingham in 1911 when the Nadal family was owner of the land where the city waslocated, and the fact. The existence of the city was already known by many. The estateissued the 6634 and 9125 laws alter all that.By the other hand, the National Institute of Culture made attempts for the state to declarethe Q’ente land as part of the National Cultural Patrimony. However, the supreme Decree001-81-AA lacks legal foundations for the State to be the legal owner as the Administrationof National Patrimony declared that the registration of cultural patrimony does not implythat the owner looses his rights to ownership. But the irregularity lies in that NationalSuperintendency of Public Registry-SUNARP has agreed in the co-existence of twodifferent entries on the same real estate property; one that registers the property rights ofthe Zavaleta family, and other that registers the estate as owner of the cultural site which isactually the Q’ente land. The truth is that the property should have been registered in oneentry as a debit, but not opening another entry where the estate appears as the owner.It is proper to point that the National Institute of Natural Resources-INRENA, theAdministration of Machupicchu-UGM, the General Direction of Industry and Tourism ofCusco, and the Judicial Power have constantly and systematically assailed the propertyrights of the Zavaleta family, and that through the Itinerant Multiple Lobby of Cusco 69, andthe aggravating fact is that the State gets hundreds of thousands of dollars annually due topaid rights to visit the site located in the land of the Zavaleta family, while this last one getsnothing for the use the estate makes of their property.
  • Law 13406 ―Law of the University Student Ticket”. Date: 20 of February, 1960This law was issued during Manuel Prado’s government, when there were only sevenuniversities in Peru. The law commands the transport companies to subsidize the students’ticket at the expense of their profits. The students say it is an acquired right. However, andaccording to Benegas-Lynch- its compulsory financing makes of it a false right. 70 Nobodycan claim something which does not belong to him. But although the law was modified byDecree 651 and Supreme Decree 006-PCM-93 respectively, and these modificationsliberalized the prices, establishing no difference, the law 26271 issued in December 1993establishes a difference in the prices for students, for the police and firemen. Thetransportation businessmen have issued a demand for the illegality of such law. In Octoberof 1998, the law 26986 was issued, modifying articles 4 and 5, and by the law the NationalAssembly of Rectors was empowered to issue scholar carnets, university carnets andsuperior institute carnets. There is no definitive solution to this problem, and it is also beingdiscussed that the Estate subsidizes the transport businessmen for the compulsory subsidyto students, policemen and firemen. There are very different calculations of the amounts thetransport entrepreneurs subsidize at their expense to students, which can reach from soles150,000 to several hundreds of millions annually, mounting up to 17% of their income.71Decree Law 17716 ―Law of Agrarian Reformation‖. date: 24/06/1969 The socialistgovernment of general Velasco Alvarado issued this law which expropriated the land fromthe medium and greater owners to turn their companies into worker-owned cooperatives. Itis calculated that the number of individuals affected by the law reached the 4,000entrepreneurs.72 However, the State did not fulfill the law as it did not pay the bonusesissued to the former owners, a debt reaching from US$500 to US$1,200 millions. Likewise,in many cases the State did not fulfill the requirements provided by the law, and manyowners have not received their bonuses or even a verdict on the value of the expropriatedland. By the other hand, during the expropriation process many small owners who wereunder the limit of 100 acres were injured, for as the process continued, the limit wasreduced without opening the budget entry that could guarantee the corresponding bonuses.In its considerations the 17716 Law declares: ―That the agrarian structures prove to suffer deep disorders which are the cause to extreme conditions of social injustice in the agrarian fields; (....) ―That therefore, it is urgent to execute an Agrarian Reformation which may respond to the Peruvian people’s unanimous interest....‖ (emphasis ours)In an evaluation of the reformation 73 and the socialist economic policies, the results showthat the inequalities among regions increased, regional export operations decreased, andthere were also conflicts among the cooperative workers and against the estate. And thatagainst which socialism battled repeated again, but this time a new farming aristocracyemerged with unequal distribution, and they led the poor farmers, not depending fromentrepreneurs but from the new leadership of the cooperative. 74As observed, it is the socialist system which commits injustice and not the entrepreneurs.Until now, no government has taken care of this problem, in spite of the fact that the
  • directors of this association have proposed some formulas to exchange bonuses for agrarianprojects. There is no claim for the returning of the lands as the mistake has already beenmade and the consequences of Velasco’s socialism are being paid.Law Nbr 28008 “Law of Custom Crimes” 19/6/2003Photo 175 shows how the estate assailment to the small businessmen of the United Frontiersdowntown Lima, in a police operation that left dozens of merchants injured. Statism alwaysportrays the merchants as “bad” before the public opinion, as these try to sort the state costsby purchasing smuggled merchandises so as to offer them at lower prices to theircostumers. The 28008 Law typifies this as a crime, thus proceeding to confiscate, destroyand prohibit the trading of these merchandises considered smuggling. However, Statism isthe cause for smuggling, as the high costs of production derived from taxes and regulationsmake it impossible to offer competitive prices against merchandises which proceed fromBolivia. Photo 276 shows the small business destroyed a day after the police operative, anda small local businesswoman showing her frustration. PHOTO 1 PHOTO 2Decree Law18169 ―Expropriation of newspapers Expreso and Extra‖. Date: 3/1970This was the beginning of the expropriation of all the media businesses with the intentionof transferring them to the various social organizations, among them the teachers, agrarianworkers, etc. It did not happen that way in the practical, as the Estate assumed control upon
  • the,. They started up by the company that was at the time editing the newspapers Expresoand extra. That Decree has no “consideratins” but its articles 1 and 2 say the following: ―Article 1 The expropriation of shares issued by Editora Nacional S.A. is declared of social interest…‖ ―Article 2 In this expropriation are included all the movable and real properties of third parties who are actual owners of the company mentioned and that are considered necessary for the accomplishment of its objectives‖Decree Law 18275 ―The Revolutionary Government decrees the market regulation onforeign payment orders.‖ Date 15/5/1970It was not enough for the socialist government to plunder the physical properties, movablesand real properties, but it also expropriated the rights to make use of the US dollar profitswhich belonged to the owners, prohibiting as well the possession and the performing ofcontracts. In articles 1, 2 and 4, the law manifests: ―Article 1- From this date, natural and juridical individuals residing in the country, with the exception of Banco Centra de Reserva del Perú and of Banco de la Nación, are forbid to keep and deposit foreign currency in banks and institutions of the country and /or abroad. Article 2- Likewise natural and juridical individuals residing in the country are forbid to keep and acquire debts and to perform contracts in foreign currency within the Republican territory. Article 4- From this date, those deposits in foreign currency in existence in banks and other national institutions will turn into national currency, and the foreign currency will be purchased by the Banco Central de Reserva del Perú at the pondered purchasing exchange rate recorded en the money order market at the closure of operations in the date of issuance of this law. The equivalent in national currency will be paid to the depositors.‖ (highlights ours)Decree Law18384 – ―Law of Industrial Community‖. Date: 1/2/1977During the dictatorship by the military government of Morales Bermudez, in 1977, suchcommunities were established for the workers to partake in the benefits and the directadministration of the affected industry. In article 3 and inclusions a) and b) the legitimateowners are dispossessed of the rights private property grants to the owners of the modernindustries of that time. ―Article 3- The objectives of the Industrial Community are: a.- The strengthening of the Industrial Enterprise by means of the joined action of workers in the management, in the productive process, in the entrepreneurial possession and in the re-investment, likewise, by encouraging all constructive forms of interrelation between capital and labor. b.- Uniting the workers actions on the management of the industrial enterprise so as to take care of their rights and interests they are granted as owners by decree Nbr.18350 ―
  • But far from achieving its purposes, it turned workers against entrepreneurs. Resides theparticipation of workers kept at the minimum with 17% of the shares. The National Societyof Industry was against the law, as, in order to keep the labor participation low, theentrepreneurs reduced their income. By the other hand, the workers faced each other so asnot to share the profits. 77Law 24723 ―The activities of public service of Banks, Financial institutions and Insurancecompanies is of social interest‖. Date: 29/9/1987During his government, Alan García expropriated from the owners of banks and otherfinancial organizations their rights to property of shares, administration and management,under the collectivist banner of “social or national interest”. In its article 2 and part ofarticle 7 the following is said: ―Article 2.- With the exceptions appointed by law, the expropriation of shares representing social capital of private banking companies, financial institutions and insurance companies is declared as of social relevanceThe State is the beneficiary of the expropriation and the Ministry of Economics andFinances has the role to execute it. With that purpose, the procedure described in this lawmust be applied, and in what is not previewed, the Legislative Decree nbr. 313 and its rulesmust apply.‖ ―Article 7. On behalf of national interests, and because of emergency situations affecting banking, financial and insurance businesses, and being decreed in article 132º of the Political Constitution of Peru, the Executive Power will provisionally take directly take care of the management and administration of the companies dedicated to such businesses. (...)‖Although a judge accepted the judicial resource presented by a private bank asking theexpropriation process to be stopped, finally the government of Alan García withdrew fromtheir attempts to snatch the banking companies when the middle class, led by liberalnovelist Mario Vargas Llosa mobilized the people and the public opinion to hinder thatattempt to become a total statization of the economy. Although it is true that already the50% of banking activity was under estate control, that statization was the beginning ofconfrontation between entrepreneurs and government. Besides, a strong increase in thepurchasing of dollars took place while the international reserves diminished from US$1,383millions in 1985 to US$ 60 millions in December of 1987.786.-THE EXIT: RETAKING LIBERALISMThis report could stop as a critic, but that would not be edifying. Doubtlessly, there existmany ways to promote entrepreneurship and enhance its performance, but we think the bestis the “cultural change” in public opinion, specially from those who believe that “ideashave consequences” as Richard Weaver said once.79It is imperative that ideologies change in our society. And for that to happen, there shouldbe a “critical mass” of intellectual initiators organized in liberal research institutions “think
  • tanks”, study groups and Schools of Entrepreneurship, which may educate, debate andcommunicate to the citizens, specially to small and medium size entrepreneurs, thoseforgotten values and rights of free enterprise, private property and limited governments. Forpoliticians –those called to take into effect the necessary institutional changes to limit thegovernment to its natural role, modify negative incentives and re-establish the right toproperty of businesses- are the expression of public opinion. If people want socialism theywill place socialist in power. If people believe in liberalism, they will elect liberals for thecongress and the Executive Power. Graphic 7 shows the liberal choice, which starts withthe ideological change of a good section of public opinion. In this first step, the “thinktanks” and educational foundations have a prevalent role in the spreading of liberal valuesand ideology by means of courses, workshops, congresses, seminaries, addressed to thedifferent levels of society. Once widespread , the schools, universities, the press, analysts,syndicates and political parties take, process and adapt values and ideology in the activitiesmentioned before. About this last one, there will be those who will go from the stage ofpolitical ideas to political action, organizing themselves in liberal movements –meaningparties- confronting their own proposals with those of other movements and competing toachieve political power. It is proper to point that, being the law an instrument withexpoliating power, it is pertinent that a liberal party focus in getting to the seats of theCongress with a majority that will allow the derogation of bad laws which impede thedevelopment of businesses and in that way to stop the constant state aggression toentrepreneurship. About this in particular, it is good to point that the derogation of bad lawsis step simultaneous to the modification of the institutional structures with the purpose ofeliminating the state monopoly. Once this has been achieved, an “explosive production”expressed by stronger institutions and a circulating economy, free from unjust and hightaxes and regulations will take place, and with it a liberation of entrepreneurial energies andinitiatives will accumulate, correcting the disadjustments in the market80 which werecaused by the bad laws of statism. In other words, entrepreneurs display all their creativepotential in the fabrication at great scale of new products at low prices originated in theincrease of competitors, which translates in the constant increase of productivity,investments, and which is in turn the cause of entrepreneurial prosperity. GRAPHIC 7 Public Liberal í Majority Abolition Productive l Prosperity Opinion Party Congress Bad Laws Explotation v l7.- CONCLUSIONWe have looked at some plundering aggressions only. Making a list of all the laws thatplunder entrepreneurs today deserves additional work. As we have seen, the performance ofentrepreneurs depends from the laws, and these in turn depend on politics, a result of thecollective ideas. Ideologies inspired in values such as solidarity, national interest, justiceand common, support the concern to distribute the wealth honestly generated byentrepreneurs by means of different measures politically promoted by socialism throughstatism. The results are obvious: low competitiveness, high and numerous taxes, abusive
  • regulations, lack of economic freedom, small entrepreneurship, and permanent conflictsbetween workers and businessmen. The aggression of socialism is not recent, and it startedin the beginning of the past century, and good part of still continues through new laws.Because of it, we should admit our failure to live as free and productive individuals inPeru.81Alter examining the multiple and unjust aggressions, entrepreneurs should ask themselvesif it is worthy continuing in legality and if it is not better to wait until the climate of legalplundering may cease.The intellectual initiators have the master key to carry the necessary cultural change intoeffect, and encourage others to start political action to turn the country into a land offreedom and entrepreneurial possibilities as Peru and Latin America were in the beginningof the XXth century.1 Stockman (1977), p.982 An interpretation of Hayek’s philosophical Politics is made by professor Cubeddu: “Hayek understandsvalues are those that can guide an individual‘s actions through the main part of his life as different fromspecific goals which may determine his actions in definite moments”, thus, professor Raimondo Cubedduconcludes ―Values, abstractly understood make possible a pacific existence of order in an open society‖, inCubeddu (1997), p.279.3 Rand (1985), p.194 Hayek (1990), p.50.5 In that respect, Milton Friedman pointed in December 2003 in a private conversation with professor MarkSkousen that “entrepreneurial social responsibility” could be possible if the same executives could carrycampaigns with their own money and which could improve the reputation of their own companies before thecommunity. However, he could not see the advantages for small companies. See inhttp://www.mskousen.com/sknews-031201.html. An ethical position beyond that sustained by Friedman isthat of Tibor Machan: ―Of course, Friedman does hold that making profit should be constrained by basicrules of free trade and ordinary morality and law –of honesty and contractual integrity, the right to property,and the like. But within this set of elementary rules that apply to us all, corporate executives or managershave the sole responsibility of striving to turn a profit for the owners‖ in Machan, Tibor (2002), pp.13.6 Read an extension of this point of view in Expreso newspaper, “El Síndrome de la Responsabilidad Social”,written by José Luis Tapia Rocha, Thursday 13 of march of 2003, p.187 Professor and political analyst Alberto Mansueti wrote the following: ―Lo que tenemos ahora essimplemente otra vuelta de tuerca. ¿Cuál es la ―fórmula‖ hoy? Neocomunismo, o comunismo ―políticamentecorrecto‖, más allá del impresentable comunismo tipo soviético. En otras palabras: un colectivismoactualizado según las modas ideológicas actuales: ecologismo e indigenismo ―multicultural‖; feminismo y―derechos de los niños‖; ilusión de democracia directa (―participativa‖); filosofía ―posmoderna‖,abiertamente contraria a la razón y al pensamiento objetivo; y religión ―Nueva Era‖, combinada concristianismo reinterpretado.”, in Mansueti (2002)8 Hayek sustains that ―El hombre no viene al mundo dotado de sabiduría, racionalidad y bondad: es precisoenseñarselas, debe aprenderlas‖. But later he points: “Eso que llamamos mente no es algo con lo que elindividuo nace --como nace con un cerebro—ni algo que el cerebro produce, sino una dotación genética(p.e., un cerebro con una estructura y un volumen determinados) que nos permite aprender de nuestrafamilia, y más tarde en el entorno de los adultos, los resultados de una tradición que no se transmiten por víagenetica‖ in Hayek (1990), pp.55 and 56-57.9 An enriching tought about the power of myths is made by Spanish Luis A. Balcarce in an electronicmessage received the 4 of May of 2004 as a response to the author of this work. The following is a paragraphof this reflextions: ―¿Dónde comienzan ‗los valores‘ y qué los distingue de los mitos? Guy Sorman hallamado la atención sobre el hecho de que el liberalismo ha sido muy descuidado con respecto a los mitos,que en Occidente, tienen mucha más preponderancia que los tan mentados ‗valores‘. Sería muy fructífero queexplicaras cómo fue que en una tierra plagada de mitos y religiones como Latinoamérica, el socialismo haya
  • podido expandirse a sus anchas y no así el capitalismo. Si las dos eran ideologías de corte moderno yoccidental, ¿por qué en Perú triunfó una sobre la otra? ¿Cómo fue que la gente adoptó valores y creenciasque el eran ajenas o extrañas? ¿O no lo eran?‖. Dr.Balcarce is director of “Poder Limitado”, an electronicSpanish magazine which can be located in Internet: www.poderlimitado.org10 North, Douglass (2003). Instituciones, Ideología y Desempeño Económico, an essay published by CatoInstitute in its webpage : www.elcato.org. It was originally published in English in the Cato Journal in winter1992. Los conocimientos científicos solo equivale al 20% del conocimiento total en el mundo mientras el granvolumen restante son conocimientos subjetivos, dispersos y no articulables que determinan el comportamientode los empresarios. Muchos llaman ese conocimiento subjetivo arte, talento, destreza y habilidad.11 Astete (2001), p.17712 Ibid, pp.147-14813 Bastiat, s/f., p.1014 Estatism is about the estate going beyond its role in function, power and expenses, along supressed marketsand private institutions joined to political power. See Mansueti y Tapia (2003), p.4.15 Authors like Enrique Ghersi, Mario Ghibellini and Hernando de Soto wrote “The Other Path” where theydiscover that businessmen sort all the complicated legal puzzle which unavoidably leads them to survive in anextralegal economy. After more than 15 years, informality of economics reaches 59.7% of the GNP accordingto estimations by Norman Loayza, The Economics of the Informal Sector, Policy Research Working Paper1727 World Bank. Although they were pioneer Peruvians exposing that extralegal economy, it is necessary topoint that William Mangin was pioneer in researching informality and he was in Peru in 1957 working withthe peace Corps. Afterwards, in the summer of 1967 he published his research in Latin American ResearchReview “Latin American Squatter Settlements: A Problem and a Solution“ as journalist Alvaro Vargas Llosareported in his article, El Hombre que se Adelantó (I) y (II), Publisher in the newspaper Correo the 18 ofJanuary and 1st of February 2004, pp. 8 and 10.16 Bastiat, s/f, p.6.17 Astete (2001), p.1218 Huerta (1992), p.118-13119 Electronic message received the 7 of May of year 2004 from Spanish economist Jorge Valín as a responseto a requirement from the author for some comments to this report from which he quotes a publication aboutthis topic “Do We Ever Really Get Out of Anarchy?” by Alfred G. Cuzán. Mr.Valín web pagewww.jorgevalin.com20 Lemieux (199?), p.56.21 the famous article refers to “El Cálculo Económico en la Comunidad Socialista” written in 1920, with it heinitated a famous sevreal years long debate with Oskar Lange.22 Ibid, p.7823 Ibid, p.3124 Skousen (2000), p.1225 ―El capitalismo es la dimensión económica del liberalismo. La economía capitalista se basa esencialmenteen la libertad individual y asegura la soberanía práctica del individuo”, in Lemieux (199?), p.6426 Since General Velasco Alvarado’s regime, all governments have lifted the banners of social justice,distribution of wealth, solidarity, but no party has nominated itself as liberal. Socialismo lives in our midst..27 Huerta de Soto (1992), p.8728 ―El Mandato puede ser definido como toda instrucción o disposición específica de contenido concreto que,con independencia de cuál sea su apariencia jurídca formal, prhibe, ordena y obliga a efectuar accionesdeterminadas en circunstancias particulares‖ in Huerta (1992), p.9429 Lemieux (s/f), p.7330 Mansueti y Tapia, p.2531 Cubbedu, p.230.32 Mansueti y Tapia (2003), p.4433 Economist Mark Skousen is one of the few who favors free market and who teaches in a university in theUSA combining supply-side economics with Austrian economics so as to explain the important role of thefactorial market in economics.34 Santos (1997), pp.308-30935 Ibid, p.1336 Ibid, p.16
  • 37 Cubeddu (1997), p.316.38 Kirzner (1989), p.4639 Mises (1995) pp.77-85.40 Kirzner (1998) pp. 46 y 264-265.41 Huerta (2000), pp.33-49.42 More about the distinction between the role of economics and entrepreneurship in the distribution ofresources, see article by Tapia (2002) pp. 4-7.43 Huerta (1992), pp.69-70 and 71.44 Postrel (1999)45 Ibid46 Bastiat was eloquent pointing that socialism uses the law for its plundering objectives. ―¿Quiere oponer laley al socialismo? Pero, el socialismo precisamente invoca la ley. No apela a la expoliación extra-legal, sinoa la expoliación legal al igual que todos los monopolistas, pretende hacer un instrumento de la ley misma; yuna vez que tenga la ley de su parte, ¿Cómo se puede volver la ley contra él?. ¿Cómo pretender colocarlobajo el poder de los tribunales, gendarmes y prisiones?. En Bastiat (s/f), p.18.47 Mises (1975), p.30.48 Bastiat (s/f), p.1149 See article by Kelley (1989), pp.2-450 Benegas-Lynch (s/f)51 Kelley (1989), p.352 Rand (1985), p.3653 Ibid, p.2854 American Catholic priest Robert Sirico has estated the neccessary moral recognition to entrepreneurship asthe source of social and spiritual well-being. Sirico qualifies entrepreneurship as “.vocación digna, como unllamado sagrado” ( thaks to its availability to serve others supplying goods, jobs, incomes and investements.Besides, he sustains that the ecclesiastical hierarchies have no clarity about the functions of the market,likewise, they think entrepreneurs are collectors and no creators of the wealth. Going further, he sustains, asMichael Novak does, that the act of creation of entrepreneurs ―...es similar a la actividad creadora de Dios enel primer capítulo del Génesis‖, see Sirico (2001), pp.12,16,24, and 25.55 Mises (1968), p.14556 Mises (1975), p.29.57 See article by José Luis Tapia Rocha “La Empresa privada convertida en piñata”, in newspaper Expreso,saturday 1st of november 2003, pp.A-12. An opinión in that respect is the one by Luis García Miró, directorof the newspaper who wrote: ”Un claro ejemplo se resume en el sesudo artículo que publicó ayer EXPRESOde nuestro buen colaborador José Luis Tapia Rocha, presidente del Instituto de Libre Empresa. En él seanalizan en detalle algunos peligroso ataques a la actividad privada como : 1) la perversa acusación a laminera Manhattan que iba explotar un proyecto aurífero de enorme potencialidad; 2) los cuestionamientos alproyecto Camisea; 3) el control de precios instaurado en forma clandestina e inconstitucional por Indecopi;4) el dictamen de la comsión de Energía y Minas del Congreso prohibiendo la privatización de Petroperú,etc.” In newspaper Expreso, “A mitad del camino”, Sunday 2nd of November 2003, p.A2.58 Some readers may wonder if Alberto Fujimori’s government was a liberal one. Enrique Ghersi, one of themost recognized public figures of liberalism in Peru says, in reference to the case of Peruvian BusinessmanBaruch Ivcher, that there cannot be liberalism when basic individual rights are violated. See “¿Fin de SigloLiberal? In magazine Business, February 1998, Lima, pp.59. However, other liberals sustain that during thedecade of the 90’s was more a moderated estatism with some liberal elements and that some obsolete estatemeasures were replaced by regulations. A more detailed analysis about the 90s in Tapia y Mansueti (2003),pp.4-659 Lastra (2002)60 The Index of Economic Freedom is elaborated by Heritage Foundation in cooperation with The Wall StreetJournal. The book can be found in the web page: www.heritage.org61 Chart elaborated by Ciudadanos al Dia organization (2004), pp.46. The World Bank Group is the directsource of information and it can be found in the web page: http://rru.worldbank.org/DoingBusiness/SnapshotReports/Country.aspx?regionid=15262 Ibid, p.44.63 Ibid, p.12
  • 64 Mexican economist Luis Pazos, deputy of PAN of Mexico, makes a conclusion on the progression of taxes:―Los altos y progresivos impuestos, además de no contribuir a una mejor distribución del ingreso, seconvierten en el principal desincentivo a la producción eficiente y capitalización de los sectores másprogresistas de la sociedad, reflejándose estos hechos en una menor disponibilidad de bienes y servicios paralas clases de menores ingresos, y también en una menor recaudación fiscal, debido al freno que provoca enla actividad económica y en la creación de nuevas fuentes gravables los altos y progresivos impuestos” inPazos (1982), p.11665 Ciudadanos Al Día (2003), pp.26 and 2866 See note in Expreso newspaper, “Gobierno Pone Trabas a la Inversión”, 13 of January, 2003, p.9.67 Legal Extended Report elaborated by lawyer Fausto Salinas Lovón 24 of May of 2002, p.4.68 Ibid, p.569 Ibid, p.770 See web page of El Comercio with title: ¿Es un derecho el pasaje universitario?, inhttp.//www.elcomercioperu.com.pe/Eccampus/Html/2003-04-11/EcCampPor0718.html. Professor AlbertoBenegas-Lynch (h) says in this respect:”No puede existir un derecho para cuya realización sea necesariosviolar el derecho de otras personas” in Benegas-Lynch (s/f).Congressman Hildebrando Tapia has joined Tothe students’by introducing a Project of law 4261 by which a “right to half.ticket” on behalf of university andinstitute students is created. See his article in Agenciaperu.com enhttp://www.agenciaperu.com/columnas/2003/ene/tapia.htm71 Figure drawn from a journalism research work by student from Universidad Católica del Perú Publisher inhttp://www.pucp.edu.pe/fac/comunic/perdigital/trab2002-1/david/anterior.htm. By the other hand, presidentof the association of Urban Transport Companies (Asetup) estimates the economic perjury reaches the S/.300millions annually. See Translima S.A brochure. “Concertando”, No.15, of the 1st of November,2003, pp.17.72 Figure drawn from declarations of director of Association of Expropriated Agricultors of the AhrarianReformation (ADAEPRA), Pedro Olaechea. See Expreso newspaper, “MEF debe evaluar conversión dedeuda de la reforma agraria‖, Publisher on Sunday the 6 of April of 2002, p.A14.73 Parodi (2002), p.12674 Ibid, p.12675 Taken from Correo newspaper, Tuesday the 5 of November of 2002, section Locales, p.1476 Taken from Peru 21 newspaper, Tuesday the 5 of November of 2002, section Ciudad, p.1277 Ibid, p.127.78 Ibid, pp. 214-21579 Reed (1999), p.180 It is understtod as unemployment, lack of investments, smuggling, low income and profits, distortedproductive structure, lack of growth, credits, cash flow, informality, among the most important.81 In a similar sense, it agrees with Professor Skousen estatement:―...cada vez que promulgamos una nuevaley o regulación, cada vez que elevamos los impuestos, cada vez que vamos a la guerra, admitimos el fracasode los individuos de gobernarse a sí mismos‖. Skousen (1997), p.99BIBLIOGRAPHYAstete Virhuez, Jorge. “The Neutral Power. Theory on the balance of powers in Peru”, Peruvian Institute of Constitucional Law, Peru, 2001Bastiat, Frederic. “The Law”, Center of Social and Economic Studies, Guatemala, s/f.Benegas-Lynch, Alberto. “The illnes of public health”, in Informe No.6: Project for an open society, Argentina, non-date.Ciudadanos Al Día. “Transparency in the Municipalities: the case of Functioning Permits” Lima – Perú, Report of March 2004.Ciudadanos Al Día.“How much does the Peruvian State cost to the citizens?”, Report December 2003, Lima – Perú.Cubeddu, Raimondo.“The Filosophy of the Austrian School”, Unión Editorial SA, España, 1997.Hayek, Friedrich.“Fatal Arrogante. The mistakes of Socialism”, Centro de Estudios Públicos, Chile, 1990.Huerta de Soto, Jesús.“Socialism, Economic Calculation and Entrepreneurial function”, Unión Editorial S.A., España, 1992.Huerta de Soto, Jesús.“The Austrian School: Market and Entrepreneurial Creativity‖, 1era Edición, Editorial Síntesis, España, 2000
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