The Other Path: The Invisible Revolution in the Third World
by Hernando de Soto
If you were wondering how de Soto arrived to the his great ideas included in The Mystery of Capital (see post of March 13, 2004), you should read his previous book: The Other Path. In The Other Path, the author provides an analysis of Peruvian informal economic activity, the reasons why it exists and its costs to society. He again sees a historical parallel between Peru in the 20th century and European societies in their era of merchantilism. De Soto's suggestion for a way out of merchantilism is:
First, "to tackle existing institutional problems in order to remove the obstacles which currently prevent formals and informals from integrating", which means simplification of laws and regulations, decentralization of the decision making process, and deregulation; and
Second, "to tackle future institutional problems, which would involve changing the way in which we [Peruvians] make laws".
If you would like to review the technical aspect of de Soto's and the Instituto Libertad y Democracia's analysis of Peru's informal economic activity, read "Technical and Statistical Compendium to the Other Path".