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Page 1: Enterpreneurship in Peru

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. 1

Do socially prevalent concepts and values promote or jeopardize entrepreneurship,

productivity, competition and the creation of wealth? The economic results of national

businesses depend on finding an answer to this question. It should not be surprising that

continued efforts to give entrepreneurship a greater freedom in the market have found

opposition in values and ideologies contrary to free enterprise. Moreover, these values and

ideologies are quite ancient, they remain in our midst and seemingly, day after day they

find greater acceptance in Peru. If they were harmless we should not worry much, but what

we face is actually more serious than what we imagine with respect to the attempt to

permanently attack our moral right to attain to benefits from entrepreneurial activity as the

mean to productively live in a civilized society. This work purposes to spotlight the role of

ideology in the exercise of entrepreneurship in Peru.

1.- VALUES Values are guiding principles which function as premises for human behavior.

2 As Ayn

Rand would say “it is that for which one acts, to obtain it and/or to preserve it”.3 Values

appear 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 and

most practiced values are accepted by the majority of the population. For the economic

success or failure depend from laws and judicial and administrative decisions, but all these

in turn depend on the correlation of political trends. And likewise, politics critically depend

on values and ideological influences prevailing in schools, research institutes, universities

and press titles, on the comments of political analysts, who finally dominate in the global

society.

Collective Values

In a small society, the authority or tribal chief rules on the basis of implicit rules or its

equivalent: obedience to what he says. Anyone who pretended to disturb the peace ofothers

by a different behavior was expelled. It is a scarcely tolerant society with a few different

customs. In exchange, an open society or extended order –as Friedrich Hayek calls it- is not

like the tribe where everyone knows each other, but better, being conformed by millions of

individuals the place where it is difficult to efficiently articulate the millions of needs and

preferences 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 would

negatively 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 Universidad

San Martin de Porres, in Lima, Peru.

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exposure of its individual talents –including the entrepreneurial- to the best bidder with no

permission from the state authority (paternal) and the subsequent benefit for the progress of

civilization. As Hayek says in his book “Fatal Arrogance”:

―If we would pretend to apply the rigid norms of conduct of the microcosmos (meaning the

characteristic order of community living in the small gang, or even of the family unit) to the

macrocosmos (meaning the order proper to a civilized society in all its complexity and

extension) – as so repeatedly recommend to us our deep inclinations-, we would endanger

this second type of order” 4

Chart 1 shows a summary of the main values which distinguish tribal societies from

extended or open societies.

Collective values are attractive to any individual who favors safety, estability, and what is

known, and it is comprehensible that small communities will oppose to the change of an

open society, as the Ashaninkas would, and so would oppose change other Andean and

Amazonic communities of Peru.

Precisely, as part of the cultural involution, the greater Peruvian enterprises today lift up

collectivist concepts such as “social responsability” that stands against the spirit with which

was created by the shreholders. Milton Friedman and Tibor Machan have afformed that it is

enough for a company to be profitable to be morally recognized as a contributor to the

individuals in a society.5

But some proffesional altruists pretend to blame enterpreneurs6 if they do not work for their

community in areas of health, environment, education, culture, indigenous peoples,

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 Responsability

Individual Responsability

Social Rights Individual Rights

Social Justice Restitution Justice

Elaboration: ILE

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democracy and other issues as a sort of enterpreneurial paternalism meant to replace estate

paternalism.

Chart 2 shows collectives and their corresponding ideologies, although there are more

updated versions of modern times, like eco-feminism-indigenism, new age, postmodern

thinking, among others.7

Values and Ideologies

Values are rooted in our customs and ways of reasoning, some of them are inherited and

others are learned from our culture 8. Values can also be found in ideologies which are – as

Douglas North explains- those subjective concepts individuals structure on the basis of

values culturally inherited which explain what the world is and how it should be. If it is true

that scientific knowledge can change people’s perceptions of the world, this is not enough

as people always grab certain myths9, beliefs, religion, whatever sort of cultural inheritance

that may explain what the world is and how it should be.10

Graphic 1 shows the interrelation in between ideologies and the efficiency of Economics.

The process starts with ideologies influencing the political sphere through public debate of

ideas, 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 the

flame of passion and also of action; as such, if it is true that it feeds on reason, its sphere is

more the world of esthetics and of the irrational.‖ 11

Chart 2 Ideologies of Colectives

Colectives Ideology

Ethnic Racism, Tribalism

Nation Nacionalism

People Populism

Proletarian Socialism

Vanguard Comunism

Majority Democracy

Planet Ecologism

Elaboration: ILE

Graphic 1

Ideología Política Leyes Economía

Elaboration: ILE

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The third step is about the laws flowing from political power. The pretension is to enhance

reality through laws, but the results are precisely the opposite. They are the cause to

conflicts between entrepreneurs and workers, informal and formal entrepreneurs, it turns

into legal action the plunder of wealth generated by productive individuals and the whole of

society is harmed with more violence, poverty and injustice. In this respect Dr. Virhuez

points:

“It is true however, that every new law is an obstacle to economic and civil freedom of the

citizens. Laws do not enhance reality, they worsen it. They mean one more procedure, an

obstacle to display my freedom, a new obstacle, more and more thorns in the way, a

deceitful shortcut. The only ones who obtain a benefit from more and more laws and rules

are the estate bureaucracy, regional and local and those professionals in confusion,

lawyers, architects, engineers, accountants, etc. who live either legally or illegally thanks

to those obstacles.‖ 12

Hayek manifested that for an extended order to evolve, very abstract and general norms

inspired 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 an

instrument of power to plunder the profits of productive individuals, business companies

among them. Frederic Bastiat wrote in 1850 the following:

“Thus, when plunder is organized by law for the benefit of those who dictate it, all those

plundered aspire to partake in the making of those laws, by means of pacific or

revolutionary.” 13

Pioneer works became interested in researching how state laws

14 affected entrepreneurial

performance in Peru creating behind it a whole illegal or “underground” economic

system15

, far from the moral purpose every law must, according to Bastiat, uphold, and

which must irganize collectively the individual right of legitimate defense against the

plunder of a collective.16

But the truth is that in Peru, laws are born from political power

with 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 or

diminished for such or such ideological faction assuming political power. When what

worries citizens is not anxiety, but any labor, trade or corporate issue, they also know that

running to the estate (political power) they can get their laws‖ 17

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As Socialism invades the political arena, it starts producing the unwanted consequences

which can be proved by the existent corruption, informal economics, social, economic,

technological and cultural underdevelopment, and moreover, moral perversion of the law.18

In this respect, it is accurate to point at the reason of the agression of the State to

entrepreneurship. According to the estatement of Spanish economist Jorge Valin, it is the

axiom of unilateral agression of the State itself which produces those unwanted

consequences:

“Thus, the State acts in a condition of anarchy where it does not explain anything to

anybody, not even to its sociaslists partisans (pressure groups), therefore, it can act as it

pleases.‖19

The State is not like the entrepreneur, who needs the decisions of the customers to act. By

the contrary the State can continue acting with no political nor ideological counterbalance

until it becomes a tyrant political regime. It is not enough, not even pertinent that

democratic mechansms will take care of coming to an end with this despotic tyranny

through elections. The Republican History of Peru shows the opposite. Peruvians have

rather elected socialist and populist regimes which ended up assaulting entrepreneurship, as

we will see later, but I doubt it that people will be able to elect another different reality if

there is no massive spreading of values and ideology opposite to estatism, and which will

be 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 behind

the political structure of the state so that authorities, one installed in the government, will

become discouraged in their desire to plunder entrepreneurship. Here, the issue is not only

choosing an institutional or cultural change. Both can be carried out by means of the

proposal we expose further on.

But what is important is to spotlight the great economic lesson left by statism of the Iron

Curtain. As Canadian Philosopher Pierre Lemieux estates:

“The study of economics teaches a lesson, maybe the only lesson: That individual liberty

serves efficiently individual designs and that it functions alone (it regulatess itself by its

efficiency)” 20

It is amazing that Austrian economist Ludwig von Mises foreviewed the fall of the socialist

regime 69 years before and that humankind would not beware of it21

. Nobody understood

that free market was an expression of individual liberty22

. But alter this great historic

lesson we should ask, what kind of political ideology incorporates values opposite to

collectivism and at the same time allows the spontaneous and efficient rise of the market

and institutions of free enterprise? Doubtlessly that ideology is Liberalism, whose

conception of government and economics is the one which guaranties individual rights to

freedom 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

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It is necessary to point that liberalism is in agreement with the individual and free nature of

man. It allows every man the search of personal fulfillment by means of responsible action

within the limits required by respect to life, property and the freedom of others. Liberalism

is 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 living

by means of creation of wealth.24

Free enterprise capitalism leads to the improvement of

the living standard of the people25

.

However, according to the principle of unilateral agression, the state pretends to

institutionally constrain individuals for the sake of a collective and so as to plan economics

according to the judgements, ideas, feelings, emotions and values determined by estate

authorities. Being Socialism a popular ideology, vindicated and accepted by majorities in

our society,26

the state is used to impose by force values determined by a few enlightened

socialists. In this respect, the Spanish professor Jesús Huerta de Soto defines socialism this

way:

“.....a system of institutional aggression to the free exercise of the entrepreneurial role. By

aggression or constraint, we may understand any physical force or threat initiated and

executed upon the actor by other human being or group of them.” 27

Once an institution, aggression affects all entrepreneurial performance via commands 28

which make unviable the the self-regulating market efficiency. 29

It must be clear then, that

every “command” is an instruction issued from the political power in any judicial form

which commands, prohibits and orders the execution of certain specific actions against the

free exercise of the entrepreeneurial function.

2.- Ideology and Entrepreneurship

Ideology expresses itself through the conduction of the state. Statism is the political

expression of collectivism. Statism is contrary to liberalism.30 Its values are governments

unlimited in functions and expenses; repressed of the market and free initiatives suffocated

under taxes and limitations; a mixture of private institutions with political power. In legal

matters it is the opposite of the law. As Friedrich Hayek suggests, laws should not inhibit

the creative processes which naturally and spontaneously unchain in liberty; for society to

benefit plentifully from its fruits, people must submit more to covenant than to legal

relationships.31

With the statist mode however, norms are more rules than laws, and the Estate monopolizes

the creation of compulsory rules. Today, all rights, benefits and obligations must be

established by law, not by private contract. And also, they must be supervised by regulating

institutions not by ordinary judges. But that is an open way to the granting on unjust

benefits and legal privileges. That perverted process by which certain special interests are

established 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;

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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 for

all but to satisfy special interests, at the expense of public resources or the consumer’s

wallet, 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 unstable

and very difficult to anticipate, as they cannot bear with the pressures and counter-pressures

that bring continued change. They are rewritten once and again, at the rhythm of the

political moves.32

Ideology, Politics and Entrepreneurship

In Graphic 2 (Grafico 2) we can see how the politic-economic climate (Clima Politico

Ideologico) makes impact on the entrepreneurial function. The equation shows that the

entrepreneur creates wealth and employment (R,E) in conditions where he can combine the

following factors: Natural resources (Rn), intelligent working force (Ti), capital (K) and

liberty (L). We must point, however, that this last factor is in great manner necessary for

the entrepreneur, so that it is granted enough priority. On what does liberty depend? It

depends on respect to private property (DP), and in turn, private property depends on

favorable ideological influences (IF), or those in opposition (IC) to the free market. If in the

political-ideological IF is greater than IC, then the results are higher than one, that meaning

that evident respect for right to property maximizes N times the creation of wealth and

employment. Likewise, if socialism prevails, then IC is greater than IF, thus there will not

be respect for rights to property, and in consequence, the lack of freedom will put to risk

competitiveness and wealth created by entrepreneurs.

GRÁFICO 2

R,E = RN + Ti + K + L

DP = IF

IC

Elaboración: ILE

Clima Político-

Ideológico

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In what way are entrepreneurs and economics in general affected by collective values

opposite to free market? Graphic 3 (Grafico 3) explains how a political-ideological

climate, hostile to free enterprise makes use of taxes (I) and regulations (R). If that climate

is in opposition to private initiative, we will soon see how that negative environment will

affect savings (A) and private Investment (I). The same thing happens when institutions and

parties defend liberal values. In this way, in order to guarantee the creation of wealth it is

necessary to promote internal savings with the purpose of creating enough offer of money

to supply national investors with capital. Unless the private sector finds foreign credit, long

term 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 in

the 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 been

contributing with small but valuable investments. But as Peru is conformed by millions of

poor citizens, it is difficult for consumption (C) to be important enough to reactivate the

economy without recurring to state Keynesian experiments. And this will be even more

evident if we think that the exceeding results of the enterprise (E) will serve to add capital

and grow continually in the medium term.

We think it is pertinent to point that the state is the only sector which benefits from the

climate against free enterprise, and that it monopolizes a good portion of capital and

freedom 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 4

shows the three sectors of economics: State, formal and informal. While the formal sector is

deprived of freedom because of state regulations, high taxes, by the other hand, it inhibits

investment decisions. Likewise, the informal sector does not have any other way than

fleeing from regulations, and thus, it enjoys freedom but lacks capital resources as they

must bear with the greater costs of state aggression in the form of taxes. The effective

tributary burdens of all taxes are carried down as prices, throughout productive channels,

GRÁFICO 3

CLIMA POLÍTICO

IDEOLÓGICO

I

Creación de Riqueza

Generación,

Multiplicación y

Enriquecimiento de

Empleo

R

- -

EXCEDENTE

CONSUMO

A I

Regulaciones

Ahorro

Impuestos

Inversiones

Elaboración: ILE

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and this process affects those who are at the bottom in the social pyramid. Those at the

bottom do not have a place to transfer costs, and for that reason, consumers and companies

in the informal sector continue in poverty. In this way, socialism incarnated in statism

manifests itself in regulations and excessive taxes which hinder the creation of wealth of

the entrepreneurial class.

GRAPHIC 4

1) STATE:

Absorbsmajorpart of K

and W.

2) FORMAL PRIVATE(GE) K, no F.

3)PRIVATE INFORMAL(Mype) F, no K

Regulations

taxes

Elaboration: ILE

Cost

3.- LIBERALISM AND ENTREPRENEURSHIP

The Austrian school of Economics is catalogued as one of the schools which has confronted

socialism with success. It has also contributed to deepen the study of free makrket with

unconventional mental tools as methodological individualism.33

The School has provided

foundations for an understanding of market proccesses which neo-classic paradigm could

not introduce, limiting itself to an understanding of entrepreneurship within a productive

role.34

It also demonstrated to socialists like Oskar Lange that finding competitive prices

was not enough to make a socialist viable and that this needed private property as Mises

demonstrated. However, and beyond the epistemological problem that could arise and be an

issue to those who pursue a legitimate interest to estate certain scientific considerations

about the Black Box35

, we have to stress the fact that the real magnitude of the problem

does not lay in methodologies, but in a proper and realistic perspective, consistent with the

ideological defense of the entrepreneurial role. Some authors 36

sustain that the Austrian

School vindicates the market against the centralized socialist planning. But Professor

Raimondo Cubeddu goes beyond that and estates the following:

“About this issue, we measure not only the significance of the Austrian School in the realm

of political philosophy and classical neo-liberalism, but also its contribution to solve the

problem of constraint and holding of power.” 37

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Professor Krizner, a disciple of Mises, points also that those who hold the Austrian School

as the intelectual backing of liberalism make no mistake:

“And it is precisely because of the perception of this intelectual backing that those

committed to the cause of free market are completely right to be interested in the position

and progress of Austrian radition in economics.‖ 38

Entrepreneurship The well-known volume of economics of Mises

39 pointed that entrepreneurship is ,

ptoperly, human action itself, as an individual must save time, efforts and all kind of

resources with the purpose of obtaining a benefit at the lowest cost. It is the individual who

exercises the entrepreneurial function in pursuing and enhancement of living standards by

means of creation of wealth. But it is professor Israel M. Kirzner who deepened the

analysis of the entrepreneurial role in his book Competition and Entrepreneurship going

beyond the prevalent trend:

―.....is present an element that, although crucial to the economic activity, cannot be

analyzed in terms of economics, maximization or efficiency. I will entitle this element,

because of reasons that I will describe, as the entrepreneurial element‖.40

The competitive theory of entrepreneurial function elaborated from these concepts served

and serves now to explain the coordinating trend of disproportions originated in the free

market, and that can only be understood by the economist and finally can be anticipated in

the market by the entrepreneur. The Austrian Focus perceives the free market as a process

promoted by entrepreneurs who discover profitable opportunities. Once they discover

means and goals they change the guide to action they previously had.41

It s good to point

that this kind of knowledge is of the subjective kind, not articulate, created from nothing

and transferable through repetitive behavior, and it is learned and copied by other

entrepreneurs, and that the state cannot formalize it and even less will the state be able to

coordinate it by means of regulations and interventions. This entrepreneurial dynamics

makes of the collectivist plan of redistribution of wealth a failure in its attempt to enhance

the living standards of people.42

When this pattern of behavior of entrepreneurs is kept free throughout the time and they are

fed by complex and irresistible circumstances experimented by other actors in the market,

they become customs, traditions, rights, institutions, and judicial norms which make it

possible to build a free and productive order known as Capitalism. 43

Liberalism

Capitalism is the economic face of liberalism, and as such, it functions based in the

freedom of individuals, so much in his consumer’s role as in his productive role. Economic

liberalism is equivalent to free market, but this is also a consequence of a state limited in

functions, power, resources and expenses. As it was said, the Austrian School teaches

classical liberalism, stressing the role of free markets and of entrepreneurship in the

spontaneous coordination of productive factors, and of private property in the fixation of

prices, within a natural economic order.

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According to Marx and Engels, communism combines Classical English Economics,

French Socialism and the German Idealist Philosophy. Likewise, classical liberalism

combines The Austrian School of Economics, the School of Natural Law and Realistic

Philosophy, all of them in a political doctrine, of whose most brilliant exponent has been

the French Frederic Bastiat (XIXth century).

In his volume “The Law”, Bastiat –maybe the Marx of classical liberalism-, presented a

summary of is most important lessons. He focused on the concept that the law can be an

instrument for civilization and a lever for wellbeing, or it can become an instrument for

plunder, the “legalized plunder”. It is in this way that all respect for laws, including the

good ones is lost. Around the same time, Englishmen Cobden and Bright promoted in their

country the Anti-corn League, with the purpose of allowing the importation of cheap food

from the European continent. That League initiated the liberal era that made England

stronger going the way of free trade.

Another volume written by Bastiat is entitled ―Economic Harmonies‖, and stresses the

natural order of economics. “Paris come!”, writes Bastiat, and it is no government that

commands that to farmers, transport business, street-vendors, restaurant-owners and many

other who intervene in the productive chain. Legislators cannot enhance natural processes

by laws, rather, that attempt can hinder them. Classical Liberalism should no be confused

with Classic English Economics, (Adam Smith, David Ricardo, Mill), which so clearly

differs from the Austrian School. The first does not trust markets and it is oriented to state

interventions. The second is originated in French Fisiocracy, and the first one from the

Spanish School of Salamanca, and it is thus called “continental” (European), the line that

sticks towards free markets and free entrepreneurship.

The jusnaturalist doctrine describes a concept of natural order which laws must not harm. It

opposes judicial positivism (Kelsen), for which there is no more law than the positive or

sanctioned by the state. Realistic Philosophy teaches that realities have their own nature, as

specific as the operations possible for it, meant to fulfill the functions required for the

achievement of its goals.

4.- SOCIALISM AND ENTREPRENEUTRSHIP Labor does not make a difference between left nor right, but between aggression or no

aggression, thus in between socialism and liberalism, as the right can use the state for its

trading objectives, where a entrepreneurial collective can plunder other entrepreneurs not

connected with political power, as the millions of small informal entrepreneurs in Peru

could be. Virgina Postrel has pointed that socialism is dead as ideal and also as political

practice44

but we sustain that such affirmation is true until certain point in the standard

clssification of the political spectrum. However, our work takes that which is substantial in

their concern which considers as the new attack of the “estatics” opposing to all market

dynamics 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, as

collective values bring a predictable future in a small community and about this Hayek

anticipated saying that individuals always prefer what is known, safe and estable. Then,

when we worry about the “estatic” expoliation of taxes and regulations upon

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entrepreneurship, we are actually agreeing that the dynamics prompted by entrepreneurs

are what causes the “greatest ideological opposition today”. 45

In this sense, socialism seeks to benefit from the law to legally plunder enterprises and

confiscate the benefits of their private ownership.46

It does not matter if the one who

legislates is the Congress or a commission, what matters is to never miss the fact that

socialism uses the law for its redistribution purposes. As it was pointed, there is no way to

battle socialism without liberalism.47

It is usual that socialism generates an overflowing of the functions of the estate which is the

cause for statism. Statism assumes non natural functions which go beyond security, justice

and works of public infrastructure. When the estate takes false roles its performance is

illegitimate, and so are illegitimate the taxes to finance its Works and the norms issued to

interfere, prohibit and constrain the action of enterprise.

It is no accident that until today the opinion of entrepreneurs constitutes the opinion of the

minority against the public opinion which sanctions as just the legal plundering carried by

socialism. Frederic Bastiat wrote in 1850:

―All of us have the strong inclination to consider that which is legal as legitimate, to the

point that there are many who falsely consider that every just act flows from the law. It is

enough for the law to command and consecrate plundering, for this late one to appear just

and sacred to many consciences...‖48

.

Socialism turned into political action requires of a legal monopoly of the estate to achieve

its redistributive goals of wealth. It wants to plunder some, to benefit others violating the

rights to private property. As it is known, taxes confiscate wealth while regulations

confiscate the entrepreneurs’ right to property. In his essay, David Kelley, “Altruism and

Capitalism‖ pointed the altruist argument that every “need creates a right”, which attempts

to legitimize the violation of the right to obtain profits by law.49

In this respect, Argentinian

economist Alberto Benegas-Lynch (h) points:

“A right that requires that the rights of others be violated cannot exist”.50

Socialism can not justly claim for taxes to distribute wealth to the needy. It is unmoral to

use entrepreneurs as “means” to supply for the needs of others. The values of socialism

always place others over the entrepreneurs. And the altruist ethics of socialism dictates that

entrepreneurs must be taken to the altar of sacrifice for the well being of others. And from

that perspective, to be concerned for oneself before being concerned by others is the same

as saying “the rights are theirs, yours is the obligation.‖ Kelley affirms the following

about the “Estate of well-being”:

―...those who are successful creating wealth, must do it with the only condition that others

may 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 be

exercised with the only condition that they may be to the service of others.‖ 51

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True entrepreneurial ethics consist in recognizing that thinking and working productively

for oneself is a virtue. An entrepreneur must get profits from his achievements, not from his

mistakes, “he wins what he receives and he does not take it undeservedly.” 52

If some

individuals 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 using

methods used by animals according to the need in the moment.53

Socialism teaches that

certain individuals have a right to live at the expense of others, without working

productively, in dependence of what entrepreneurs do, and it grants them a moral status

over 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, socialist

shortsightedness does not get to see that the entrepreneur Works like any other to survive

serving others and pursuing a profit. As Catholic priest Robert Sirico says, the

entrepreneurs’ act of creating wealth is like God’s creating act. Both are of benefit to

humankind.54

It is important to point that socialism reduces its ideology to a re-distribution theory; as as

Mises affirms:

―Socialism isn‘t but a ―just‖ distribution theory, and the socialist movement does not have

but that objective of the realization of an ideal (...) For Socialism, the problem of

distribution is in itself the economic.‖ 55

The fact that such socialism, obsessed about plundering the wealth of those “alien to the

tribe” may exist, can be understood as a psychological issue. From there, Mises qualifies as

pathological the anti-liberal roots of socialists:

―The root of anti-liberalism cannot be comprehended by pure reason, for that is not the

nature of such opposition; it is rather a fruit of a mental attitude flowing from resentment, a

neurotic condition, that could be called the Fourier complex, in memory of the well known

French.” 56

This socialist mentality originates from tribal values by means of which many philosophers,

politicians, ideologists and even intellectuals denigrate profit to the point of turning private

enterprise in a pitcher.57

5.-AGRESSIONS AGAINST ENTREPRENEURSHIP IN PERÚ In the recent republican history, socialism has achieved the institutionalization of state

aggression against entrepreneurship via the issuing of laws, decrees and other norms which

prohibit, obligate and command to execute economic actions. In itself, all that legislation is

an 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 political

connotation in the two periods of military dictatorship from 1968 to 1979, and five

governments in democracy from 1980 to 2004, where deprivation, regulation and

prohibition and the issuing of all kind of state decrees have exercised constraint; from

socialism corresponding to the velascato to the moderated socialism of the 90s and the

beginning of the century. If there is something at which to point of the decade of the 90s is

Page 14: Enterpreneurship in Peru

Mype

that, in the best case we had a mercantilism responsible for the balanced management of

finances, but nothing proximate to a liberal government.58

As we can see, some

aggressions have been already institutionalized under the form of rights, social interest,

public and national, and always referred to collectivist values which interfere with the

freedom to run enterprises and distribute wealth through taxes and other payments. Let us

look at some of the aggressions that have been carried out and continue being carried out in

on behalf of community values and the socialist ideology.

Tributary, Labor and Local Government legislation

Legislation is the manifestation of prevailing statism, which is in turn, the aggressor to all

entrepreneurial exercise with the purpose of redistribution, thus twisting the structures of

entrepreneurial population and negatively affecting the local competitiveness of enterprises.

In the majority of cases it discourages the initiative to carry new private investments.

In Graphic 5 the structures of the normal and distorted entrepreneurial population in Peru

are represented. The normal pattern responds to an economy with no statism but with and

Estate where the Great Enterprise (GE) is the locomotive to entrepreneurial progress and

modernity. Likewise, the GE is connected to all the other medium enterprises (ME) and the

small (SE) through outsourcing. To go from one size to other is part of the normal

entrepreneurial cycle, they can go up and down with no difficulty. However, in the

distorted structure, big companies are a few, the medium size companies are not many, and

micro and small enterprises (SE) are a characteristic. While in the normal pattern the GE is

about 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 illness

that could be called “entrepreneurial dwarfism”, as three million one hundred 100 thousand

of economic unities59

conform 98% of the total of companies which provide jobs to 70% of

the Economically Active Population. This critical condition is a civilized response from

individuals who chose to be entrepreneurs not because of a vocation as it would happen in a

free economy, but by the “necessity” created in an economy hindered by high taxes and

regulations. But what is real is that these companies never grow, they keep that size and the

cases that reach other scales are very rare. False myths have been built around this

distortion, among them, the affirmation that a country can successfully develop on the basis

GRAPHIC 5 Structure of Entrepreneurial Population

Normal Distorted

GE

GE

ME

PE

Amost there is not GE

ME

GE

ME

SE

ME

Page 15: Enterpreneurship in Peru

of Pymes, and for that reason Latin American governments hold credit and estate

purchasing credit programs. The Mype are in essence poor. At the lowest decrease of state

purchase operations, thousands of them disappear.

Following are some of the laws and norms that affected and continue to affect

competitiveness, 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, 2004

Competitiveness, Entrepreneurial and Economic Freedom

The World Economic Forum elaborates the business rates of competitiveness for each

nation every year. In chart 3 we can observe how Peru has gone down in the Word rank on

the basis of a sample of 80 countries. It is no surprise that Peru is placed in position 71 in

year 2003, when it was placed in position 46 in1999. The lack of economic and

entrepreneurial freedom explains the causes for the low competitiveness in the area of

business.

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

Page 16: Enterpreneurship in Peru

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 two

levels: one is the macro level, where economic freedom60

is not a characteristic of our

market, and the other level is at “doing business” (“Doing Business” as the World Bank

calls it) where specific regulations which discourage productivity, investment and growth

of businesses can be observed.

Graphic 6 shows the case of economic freedom for Peru. It shows how freedom has

decreased in Peru since year 2000, after having positively evolved since 1,995. The

indicator 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, and

the USA, among others. What this indicator tries to say is that we are for the most part a

free country. The greater the economic freedom the more we have growth and countries are

prosperous. In other words, if a country wants to be poor and economically stagnant, the

only thing needed is the repression of economic freedom for businesses.

One of the ways to repress business is by taxes, labor regulations and local government

regulations. The web page “Doing Business” of the World Bank Group, estimates several

indicators showing the reality of doing business in different countries. On the basis of this

information, the “Ciudadanos Al Dia”61

organization has elaborated a chart comparing Peru

and other countries of the same region:

Chart 4 shows the number of procedures to open up a business, the length of the procedure

and the cost in US dollars. The data shows that Peru has some of the highest costs, still

lower 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 conditions

covered were availability of part time contracts, contract requirements, minimum wage

salaries, and minimum employment conditions. Chart 5 spots the social burdens the

entrepreneur must assume to hire a stable worker. Going back to the Index, the measure is a

scale from 1 to 100 where high values represent rigid labor regulations. Peru bears 74,

GRAPHIC 6

Índice de Libertad Económica

Source: Heritage Foundation. http://cf.heritage.org/indetest/country.cfm?id=Peru

Page 17: Enterpreneurship in Peru

compared to the regional index which reaches 61 and that of developed countries where the

average is 45.

One of the regulations which directly affect business is that about functioning permits. A

research in the local Municipalities of the several districts shows that these permits are for

the most part expensive, the procedure to obtain them is too long and they are economically

harmful, an assailment to the free enterprise function. Permits are another state tool seeking

that any individual asks for permission to a bureaucrat so as to exercise his right to make it

for a living as a businessman. According to “Ciudadanos al Día” permits seek to ―....defend

the rights of the citizens to have legal and safe businesses in their districts....”.62

Why not

taking this measure to the extreme and ask that every worker of a district, including

domestic employees get their permits to work from the municipality officers? For nobody

would oppose a measure for a district to count with legal workers so as to be safe from

dishonest acts. Functioning permits are a pernicious way to impose a requirement which is

obviously 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 districts

which 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 del

Mar, and San Martin de Porres are not as agressive against entrepreneurs. The districts

where 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 Maria

district reaches S/.960, the highest amount charged for a functioning permit, while the

lowest charge is S/.169 in La Punta district. And those who illegally charge for the forms

to 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, that

the professional altruists can require that entrepreneurs fulfill their “social responsibility” if

at the same time socialism impede them of fulfilling their profitable mission of social

benefit?

In chart 6 all taxes and other payments that businessmen must make to honestly do

business in Peru can be seen. It is enough for one of these taxes not to be paid for a

business to be withheld or in the worst case, for the estate to chase after a businessman, for

him to fulfill his tax obligations before the estate. One of the more eroding taxes is the one

upon 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 up

to 27 UIT (Tributary Impositive Unity), he pays 15%, an excess among 27 UIT and 54 UIT

pays 21%; and for amounts exceeding 54 UIT the payment is of 30%. The progression is an

aggression against efficiency, quality costumer service, and a discouraging measure against

C 4

Chart 4

Page 18: Enterpreneurship in Peru

production and accumulation of capital.64

According to “Ciudadanos Al Día”, the tax

pressure65

reported by SUNAT does not show all the costs business must face, for there are

other extra-budget incomes for municipalities and independent organizations which

supervise 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 the

chastisement is real and greater to the one who produces more and better contributes to

society with the necessary goods and services. That explains that entrepreneurs avoid

paying the high taxes imposed fleeing via informality. It must not surprise us that our

economy is becoming more informal year after year, and that the rate has reached the

57.9% after Bolivia with 65.6%.66

More aggressions: Some plundering laws

Law 6634 “Creating the National Foundation of Archeology‖. Date: 13 of June 1929

Since the issuance of this law, a real agony started for Julio Zavaleta Flores and Rosa Maria

Zavaleta Alvarez de Zavaleta. They are the legitimate owners of the Machu Picchu ruins

located in their farm Santa Rita de Q’ente in the province of Urubamba in Cusco. From the

beginning of the past century until today, the State prohibited by laws, decrees, norms, and

also actions by estate organizations, that the Zavaleta family exercises their rights to do

business in the Inca City, while the National Institute of Culture does it charging the

entrance to visiting tourists. Besides, they are not allowed to invest in the agricultural

landscape nor receive foreign investments for the constructions of hotels and other

infrastructure 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 the

land of their possession at the end of the XIXth century, once the Public Records Office

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: ILE

Page 19: Enterpreneurship in Peru

started operating at the time Peru becomes an independent nation. From there, the property

rights on the monument were of private dominion and registered under the 1852 civil code

which facilitated the successive purchasing by lots by Doña Tomasa FerroVizcarra who

purchased the lots from the Nadal family. Don Emilio Abril inherited the land as the

husband and he sells it to the Zavaleta family. The owners at this point are Julio Zavaleta

Flores and Rosa Maria Zavaleta Alvarez de Zavaleta, according to records in the Regional

Records Office Inka, entries 166 and 167 of card 9603. In a legal report it is pointed that the

contract of sale-purchase of Mr. Vizcarra “estated that the city of Machupicchu was not

included in the purchasing-sale operation for it would be expropriated and the vendor

reserved for himself the future indemnification to be paid by the Estate” 67

. Likewise, it

concludes that “The 6 of December of 1944 the government issued the Supreme Resolution

Nr.3975 by which the National Park of Ollantaytambo was created and the National

Patronage of Archeology was authorized to act on behalf of the Supreme Government to

continue with the expropriation procedure, according to Laws 6634 and 9125, for the

totality of the Primavera farm (old name of the original farm to which the Q’ente farm

belonged), located in the district of Ollantaytantambo, previous measurements.”68

The State never expropriated the farm or the historic site from Mr. Emilio Abril Vizcarra or

from the Zavaleta family. In spite of the fact that in 1974 and 1975 the expropriation was

initiated with the purpose of carrying an Agricultural reform, however, by Supreme

Decree.036-91-AG this mistake was corrected as the land could not be destined to those

purposes as the city was considered national patrimony. The expropriation process was then

left without effect, returning to the owners the rights to property on the farm and of course

all further sale contracts. It is good to point that Machupicchu was formally discovered by

Hiram Bingham in 1911 when the Nadal family was owner of the land where the city was

located, and the fact. The existence of the city was already known by many. The estate

issued the 6634 and 9125 laws alter all that.

By the other hand, the National Institute of Culture made attempts for the state to declare

the Q’ente land as part of the National Cultural Patrimony. However, the supreme Decree

001-81-AA lacks legal foundations for the State to be the legal owner as the Administration

of National Patrimony declared that the registration of cultural patrimony does not imply

that the owner looses his rights to ownership. But the irregularity lies in that National

Superintendency of Public Registry-SUNARP has agreed in the co-existence of two

different entries on the same real estate property; one that registers the property rights of

the Zavaleta family, and other that registers the estate as owner of the cultural site which is

actually the Q’ente land. The truth is that the property should have been registered in one

entry 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, the

Administration of Machupicchu-UGM, the General Direction of Industry and Tourism of

Cusco, and the Judicial Power have constantly and systematically assailed the property

rights of the Zavaleta family, and that through the Itinerant Multiple Lobby of Cusco69

, and

the aggravating fact is that the State gets hundreds of thousands of dollars annually due to

paid rights to visit the site located in the land of the Zavaleta family, while this last one gets

nothing for the use the estate makes of their property.

Page 20: Enterpreneurship in Peru

Law 13406 ―Law of the University Student Ticket”. Date: 20 of February, 1960

This law was issued during Manuel Prado’s government, when there were only seven

universities 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, and

according to Benegas-Lynch- its compulsory financing makes of it a false right.70

Nobody

can claim something which does not belong to him. But although the law was modified by

Decree 651 and Supreme Decree 006-PCM-93 respectively, and these modifications

liberalized the prices, establishing no difference, the law 26271 issued in December 1993

establishes a difference in the prices for students, for the police and firemen. The

transportation businessmen have issued a demand for the illegality of such law. In October

of 1998, the law 26986 was issued, modifying articles 4 and 5, and by the law the National

Assembly of Rectors was empowered to issue scholar carnets, university carnets and

superior institute carnets. There is no definitive solution to this problem, and it is also being

discussed that the Estate subsidizes the transport businessmen for the compulsory subsidy

to students, policemen and firemen. There are very different calculations of the amounts the

transport entrepreneurs subsidize at their expense to students, which can reach from soles

150,000 to several hundreds of millions annually, mounting up to 17% of their income.71

Decree Law 17716 ―Law of Agrarian Reformation‖. date: 24/06/1969 The socialist

government of general Velasco Alvarado issued this law which expropriated the land from

the medium and greater owners to turn their companies into worker-owned cooperatives. It

is calculated that the number of individuals affected by the law reached the 4,000

entrepreneurs.72

However, the State did not fulfill the law as it did not pay the bonuses

issued 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 many

owners have not received their bonuses or even a verdict on the value of the expropriated

land. By the other hand, during the expropriation process many small owners who were

under the limit of 100 acres were injured, for as the process continued, the limit was

reduced 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 show

that the inequalities among regions increased, regional export operations decreased, and

there were also conflicts among the cooperative workers and against the estate. And that

against which socialism battled repeated again, but this time a new farming aristocracy

emerged with unequal distribution, and they led the poor farmers, not depending from

entrepreneurs but from the new leadership of the cooperative. 74

As 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

Page 21: Enterpreneurship in Peru

directors of this association have proposed some formulas to exchange bonuses for agrarian

projects. There is no claim for the returning of the lands as the mistake has already been

made and the consequences of Velasco’s socialism are being paid.

Law Nbr 28008 “Law of Custom Crimes” 19/6/2003

Photo 175

shows how the estate assailment to the small businessmen of the United Frontiers

downtown Lima, in a police operation that left dozens of merchants injured. Statism always

portrays the merchants as “bad” before the public opinion, as these try to sort the state costs

by purchasing smuggled merchandises so as to offer them at lower prices to their

costumers. The 28008 Law typifies this as a crime, thus proceeding to confiscate, destroy

and prohibit the trading of these merchandises considered smuggling. However, Statism is

the cause for smuggling, as the high costs of production derived from taxes and regulations

make it impossible to offer competitive prices against merchandises which proceed from

Bolivia. Photo 276

shows the small business destroyed a day after the police operative, and

a small local businesswoman showing her frustration.

Decree Law18169 ―Expropriation of newspapers Expreso and Extra‖. Date: 3/1970

This was the beginning of the expropriation of all the media businesses with the intention

of transferring them to the various social organizations, among them the teachers, agrarian

workers, etc. It did not happen that way in the practical, as the Estate assumed control upon

PHOTO 1

PHOTO 2

Page 22: Enterpreneurship in Peru

the,. They started up by the company that was at the time editing the newspapers Expreso

and 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 on

foreign payment orders.‖ Date 15/5/1970

It was not enough for the socialist government to plunder the physical properties, movables

and real properties, but it also expropriated the rights to make use of the US dollar profits

which belonged to the owners, prohibiting as well the possession and the performing of

contracts. 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: 1/2/1977

During the dictatorship by the military government of Morales Bermudez, in 1977, such

communities were established for the workers to partake in the benefits and the direct

administration of the affected industry. In article 3 and inclusions a) and b) the legitimate

owners are dispossessed of the rights private property grants to the owners of the modern

industries 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 ―

Page 23: Enterpreneurship in Peru

But far from achieving its purposes, it turned workers against entrepreneurs. Resides the

participation of workers kept at the minimum with 17% of the shares. The National Society

of Industry was against the law, as, in order to keep the labor participation low, the

entrepreneurs reduced their income. By the other hand, the workers faced each other so as

not to share the profits. 77

Law 24723 ―The activities of public service of Banks, Financial institutions and Insurance

companies is of social interest‖. Date: 29/9/1987

During his government, Alan García expropriated from the owners of banks and other

financial 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 of

article 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 relevance

The State is the beneficiary of the expropriation and the Ministry of Economics and

Finances has the role to execute it. With that purpose, the procedure described in this law

must be applied, and in what is not previewed, the Legislative Decree nbr. 313 and its rules

must 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 the

expropriation process to be stopped, finally the government of Alan García withdrew from

their attempts to snatch the banking companies when the middle class, led by liberal

novelist Mario Vargas Llosa mobilized the people and the public opinion to hinder that

attempt to become a total statization of the economy. Although it is true that already the

50% of banking activity was under estate control, that statization was the beginning of

confrontation between entrepreneurs and government. Besides, a strong increase in the

purchasing of dollars took place while the international reserves diminished from US$1,383

millions in 1985 to US$ 60 millions in December of 1987.78

6.-THE EXIT: RETAKING LIBERALISM This report could stop as a critic, but that would not be edifying. Doubtlessly, there exist

many ways to promote entrepreneurship and enhance its performance, but we think the best

is the “cultural change” in public opinion, specially from those who believe that “ideas

have consequences” as Richard Weaver said once.79

It is imperative that ideologies change in our society. And for that to happen, there should

be a “critical mass” of intellectual initiators organized in liberal research institutions “think

Page 24: Enterpreneurship in Peru

tanks”, study groups and Schools of Entrepreneurship, which may educate, debate and

communicate to the citizens, specially to small and medium size entrepreneurs, those

forgotten values and rights of free enterprise, private property and limited governments. For

politicians –those called to take into effect the necessary institutional changes to limit the

government to its natural role, modify negative incentives and re-establish the right to

property of businesses- are the expression of public opinion. If people want socialism they

will place socialist in power. If people believe in liberalism, they will elect liberals for the

congress and the Executive Power. Graphic 7 shows the liberal choice, which starts with

the ideological change of a good section of public opinion. In this first step, the “think

tanks” and educational foundations have a prevalent role in the spreading of liberal values

and ideology by means of courses, workshops, congresses, seminaries, addressed to the

different levels of society. Once widespread , the schools, universities, the press, analysts,

syndicates and political parties take, process and adapt values and ideology in the activities

mentioned before. About this last one, there will be those who will go from the stage of

political ideas to political action, organizing themselves in liberal movements –meaning

parties- confronting their own proposals with those of other movements and competing to

achieve political power. It is proper to point that, being the law an instrument with

expoliating power, it is pertinent that a liberal party focus in getting to the seats of the

Congress with a majority that will allow the derogation of bad laws which impede the

development of businesses and in that way to stop the constant state aggression to

entrepreneurship. About this in particular, it is good to point that the derogation of bad laws

is step simultaneous to the modification of the institutional structures with the purpose of

eliminating the state monopoly. Once this has been achieved, an “explosive production”

expressed by stronger institutions and a circulating economy, free from unjust and high

taxes and regulations will take place, and with it a liberation of entrepreneurial energies and

initiatives will accumulate, correcting the disadjustments in the market80

which were

caused by the bad laws of statism. In other words, entrepreneurs display all their creative

potential in the fabrication at great scale of new products at low prices originated in the

increase of competitors, which translates in the constant increase of productivity,

investments, and which is in turn the cause of entrepreneurial prosperity.

GRAPHIC 7

7.- CONCLUSION We have looked at some plundering aggressions only. Making a list of all the laws that

plunder entrepreneurs today deserves additional work. As we have seen, the performance of

entrepreneurs depends from the laws, and these in turn depend on politics, a result of the

collective ideas. Ideologies inspired in values such as solidarity, national interest, justice

and common, support the concern to distribute the wealth honestly generated by

entrepreneurs by means of different measures politically promoted by socialism through

statism. The results are obvious: low competitiveness, high and numerous taxes, abusive

Public

Opinion

Liberal Party

Majority í Congress

Abolition

Bad Laws l Productive

Explotation v

Prosperity

l

Page 25: Enterpreneurship in Peru

regulations, lack of economic freedom, small entrepreneurship, and permanent conflicts

between workers and businessmen. The aggression of socialism is not recent, and it started

in 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 in

Peru.81

Alter examining the multiple and unjust aggressions, entrepreneurs should ask themselves

if it is worthy continuing in legality and if it is not better to wait until the climate of legal

plundering may cease.

The intellectual initiators have the master key to carry the necessary cultural change into

effect, and encourage others to start political action to turn the country into a land of

freedom and entrepreneurial possibilities as Peru and Latin America were in the beginning

of the XXth century.

1 Stockman (1977), p.98

2 An interpretation of Hayek’s philosophical Politics is made by professor Cubeddu: “Hayek understands

values are those that can guide an individual‘s actions through the main part of his life as different from

specific goals which may determine his actions in definite moments”, thus, professor Raimondo Cubeddu

concludes ―Values, abstractly understood make possible a pacific existence of order in an open society‖, in

Cubeddu (1997), p.279. 3 Rand (1985), p.19

4 Hayek (1990), p.50.

5 In that respect, Milton Friedman pointed in December 2003 in a private conversation with professor Mark

Skousen that “entrepreneurial social responsibility” could be possible if the same executives could carry

campaigns with their own money and which could improve the reputation of their own companies before the

community. However, he could not see the advantages for small companies. See in

http://www.mskousen.com/sknews-031201.html. An ethical position beyond that sustained by Friedman is

that of Tibor Machan: ―Of course, Friedman does hold that making profit should be constrained by basic

rules 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 managers

have 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.18 7 Professor and political analyst Alberto Mansueti wrote the following: ―Lo que tenemos ahora es

simplemente otra vuelta de tuerca. ¿Cuál es la ―fórmula‖ hoy? Neocomunismo, o comunismo ―políticamente

correcto‖, más allá del impresentable comunismo tipo soviético. En otras palabras: un colectivismo

actualizado 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 con

cristianismo reinterpretado.”, in Mansueti (2002) 8 Hayek sustains that ―El hombre no viene al mundo dotado de sabiduría, racionalidad y bondad: es preciso

enseñarselas, debe aprenderlas‖. But later he points: “Eso que llamamos mente no es algo con lo que el

individuo 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 nuestra

familia, y más tarde en el entorno de los adultos, los resultados de una tradición que no se transmiten por vía

genetica‖ 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 electronic

message received the 4 of May of 2004 as a response to the author of this work. The following is a paragraph

of this reflextions: ―¿Dónde comienzan ‗los valores‘ y qué los distingue de los mitos? Guy Sorman ha

llamado 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 que

explicaras cómo fue que en una tierra plagada de mitos y religiones como Latinoamérica, el socialismo haya

Page 26: Enterpreneurship in Peru

podido expandirse a sus anchas y no así el capitalismo. Si las dos eran ideologías de corte moderno y

occidental, ¿por qué en Perú triunfó una sobre la otra? ¿Cómo fue que la gente adoptó valores y creencias

que el eran ajenas o extrañas? ¿O no lo eran?‖. Dr.Balcarce is director of “Poder Limitado”, an electronic

Spanish magazine which can be located in Internet: www.poderlimitado.org 10

North, Douglass (2003). Instituciones, Ideología y Desempeño Económico, an essay published by Cato

Institute in its webpage : www.elcato.org. It was originally published in English in the Cato Journal in winter

1992. Los conocimientos científicos solo equivale al 20% del conocimiento total en el mundo mientras el gran

volumen restante son conocimientos subjetivos, dispersos y no articulables que determinan el comportamiento

de los empresarios. Muchos llaman ese conocimiento subjetivo arte, talento, destreza y habilidad. 11

Astete (2001), p.177 12

Ibid, pp.147-148 13

Bastiat, s/f., p.10 14

Estatism is about the estate going beyond its role in function, power and expenses, along supressed markets

and 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 they

discover that businessmen sort all the complicated legal puzzle which unavoidably leads them to survive in an

extralegal economy. After more than 15 years, informality of economics reaches 59.7% of the GNP according

to estimations by Norman Loayza, The Economics of the Informal Sector, Policy Research Working Paper

1727 World Bank. Although they were pioneer Peruvians exposing that extralegal economy, it is necessary to

point that William Mangin was pioneer in researching informality and he was in Peru in 1957 working with

the peace Corps. Afterwards, in the summer of 1967 he published his research in Latin American Research

Review “Latin American Squatter Settlements: A Problem and a Solution“ as journalist Alvaro Vargas Llosa

reported in his article, El Hombre que se Adelantó (I) y (II), Publisher in the newspaper Correo the 18 of

January and 1st of February 2004, pp. 8 and 10. 16

Bastiat, s/f, p.6. 17

Astete (2001), p.12 18

Huerta (1992), p.118-131 19

Electronic message received the 7 of May of year 2004 from Spanish economist Jorge Valín as a response

to a requirement from the author for some comments to this report from which he quotes a publication about

this topic “Do We Ever Really Get Out of Anarchy?” by Alfred G. Cuzán. Mr.Valín web page

www.jorgevalin.com 20

Lemieux (199?), p.56. 21

the famous article refers to “El Cálculo Económico en la Comunidad Socialista” written in 1920, with it he

initated a famous sevreal years long debate with Oskar Lange. 22

Ibid, p.78 23

Ibid, p.31 24

Skousen (2000), p.12 25

―El capitalismo es la dimensión económica del liberalismo. La economía capitalista se basa esencialmente

en la libertad individual y asegura la soberanía práctica del individuo”, in Lemieux (199?), p.64 26

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.87 28

―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 acciones

determinadas en circunstancias particulares‖ in Huerta (1992), p.94 29

Lemieux (s/f), p.73 30

Mansueti y Tapia, p.25 31

Cubbedu, p.230. 32

Mansueti y Tapia (2003), p.44 33

Economist Mark Skousen is one of the few who favors free market and who teaches in a university in the

USA combining supply-side economics with Austrian economics so as to explain the important role of the

factorial market in economics. 34

Santos (1997), pp.308-309 35

Ibid, p.13 36

Ibid, p.16

Page 27: Enterpreneurship in Peru

37

Cubeddu (1997), p.316. 38

Kirzner (1989), p.46 39

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 of

resources, see article by Tapia (2002) pp. 4-7. 43

Huerta (1992), pp.69-70 and 71. 44

Postrel (1999) 45

Ibid 46

Bastiat was eloquent pointing that socialism uses the law for its plundering objectives. ―¿Quiere oponer la

ley al socialismo? Pero, el socialismo precisamente invoca la ley. No apela a la expoliación extra-legal, sino

a la expoliación legal al igual que todos los monopolistas, pretende hacer un instrumento de la ley misma; y

una vez que tenga la ley de su parte, ¿Cómo se puede volver la ley contra él?. ¿Cómo pretender colocarlo

bajo el poder de los tribunales, gendarmes y prisiones?. En Bastiat (s/f), p.18. 47

Mises (1975), p.30. 48

Bastiat (s/f), p.11 49

See article by Kelley (1989), pp.2-4 50

Benegas-Lynch (s/f) 51

Kelley (1989), p.3 52

Rand (1985), p.36 53

Ibid, p.28 54

American Catholic priest Robert Sirico has estated the neccessary moral recognition to entrepreneurship as

the source of social and spiritual well-being. Sirico qualifies entrepreneurship as “.vocación digna, como un

llamado 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, as

Michael Novak does, that the act of creation of entrepreneurs ―...es similar a la actividad creadora de Dios en

el primer capítulo del Génesis‖, see Sirico (2001), pp.12,16,24, and 25. 55

Mises (1968), p.145 56

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, director

of the newspaper who wrote: ”Un claro ejemplo se resume en el sesudo artículo que publicó ayer EXPRESO

de nuestro buen colaborador José Luis Tapia Rocha, presidente del Instituto de Libre Empresa. En él se

analizan en detalle algunos peligroso ataques a la actividad privada como : 1) la perversa acusación a la

minera Manhattan que iba explotar un proyecto aurífero de enorme potencialidad; 2) los cuestionamientos al

proyecto 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 the

most recognized public figures of liberalism in Peru says, in reference to the case of Peruvian Businessman

Baruch Ivcher, that there cannot be liberalism when basic individual rights are violated. See “¿Fin de Siglo

Liberal? In magazine Business, February 1998, Lima, pp.59. However, other liberals sustain that during the

decade of the 90’s was more a moderated estatism with some liberal elements and that some obsolete estate

measures were replaced by regulations. A more detailed analysis about the 90s in Tapia y Mansueti (2003),

pp.4-6 59

Lastra (2002) 60

The Index of Economic Freedom is elaborated by Heritage Foundation in cooperation with The Wall Street

Journal. The book can be found in the web page: www.heritage.org 61

Chart elaborated by Ciudadanos al Dia organization (2004), pp.46. The World Bank Group is the direct

source of information and it can be found in the web page: http://rru.worldbank.org/Doing

Business/SnapshotReports/Country.aspx?regionid=152 62

Ibid, p.44. 63

Ibid, p.12

Page 28: Enterpreneurship in Peru

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, se

convierten en el principal desincentivo a la producción eficiente y capitalización de los sectores más

progresistas de la sociedad, reflejándose estos hechos en una menor disponibilidad de bienes y servicios para

las clases de menores ingresos, y también en una menor recaudación fiscal, debido al freno que provoca en

la actividad económica y en la creación de nuevas fuentes gravables los altos y progresivos impuestos” in

Pazos (1982), p.116 65

Ciudadanos Al Día (2003), pp.26 and 28 66

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.5 69

Ibid, p.7 70

See web page of El Comercio with title: ¿Es un derecho el pasaje universitario?, in

http.//www.elcomercioperu.com.pe/Eccampus/Html/2003-04-11/EcCampPor0718.html. Professor Alberto

Benegas-Lynch (h) says in this respect:”No puede existir un derecho para cuya realización sea necesarios

violar el derecho de otras personas” in Benegas-Lynch (s/f).Congressman Hildebrando Tapia has joined To

the students’by introducing a Project of law 4261 by which a “right to half.ticket” on behalf of university and

institute students is created. See his article in Agenciaperu.com en

http://www.agenciaperu.com/columnas/2003/ene/tapia.htm 71

Figure drawn from a journalism research work by student from Universidad Católica del Perú Publisher in

http://www.pucp.edu.pe/fac/comunic/perdigital/trab2002-1/david/anterior.htm. By the other hand, president

of the association of Urban Transport Companies (Asetup) estimates the economic perjury reaches the S/.300

millions 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 Ahrarian

Reformation (ADAEPRA), Pedro Olaechea. See Expreso newspaper, “MEF debe evaluar conversión de

deuda de la reforma agraria‖, Publisher on Sunday the 6 of April of 2002, p.A14. 73

Parodi (2002), p.126 74

Ibid, p.126 75

Taken from Correo newspaper, Tuesday the 5 of November of 2002, section Locales, p.14 76

Taken from Peru 21 newspaper, Tuesday the 5 of November of 2002, section Ciudad, p.12 77

Ibid, p.127. 78

Ibid, pp. 214-215 79

Reed (1999), p.1 80

It is understtod as unemployment, lack of investments, smuggling, low income and profits, distorted

productive 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 nueva

ley o regulación, cada vez que elevamos los impuestos, cada vez que vamos a la guerra, admitimos el fracaso

de los individuos de gobernarse a sí mismos‖. Skousen (1997), p.99

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