The Foreign Service Journal, July-August 2003

To answer that question I took to the streets to talk to these vendors. In a series of interviews they explained that to operate a stall, a vendor has to pay five levels of weekly (and some monthly) bribes (mordidas). Every level of authority has a hand out, from the cop who walks the beat to the police in the patrol cars and the local politicians. In addition, for lack of any alternative, many of the vendors store their goods overnight in the subway system, so they count this “rent” as a bribe as well. Based on these conversations and other research I have conducted, I estimate that approximately $1.2 bil- lion is being paid in bribes every year just in Mexico City. Even granting that there are fewer vendors in the cities of the other 20 states that comprise Mexico, we are still talking about many billions of dollars on a national basis — to say nothing of the dozens of other countries around the world with similar systems. In addition, because the vast majority of micro-busi- nesses do not officially exist even now, they are ineligible for short-term loans from commercial banks or finance companies. Thus, most vendors have to borrow from moneylenders to cover their ad hoc capital needs. (Since the going interest rate is 15 percent per week or 780 per- cent per year, perhaps a better term for these moneylen- ders would be “loan sharks.”) Needless to say, if a loan isn’t repaid, the consequences for the debtor and his fam- ily can be dire. Between the cost of bribery and the cost of capital, vendors have a hard time of it. But their troubles don’t end there. Even when they pay up, their business can be destroyed in one fell swoop by greedy or overzealous law enforcement officials who want to make a point that the bribe was late or not the agreed-upon amount, or by the goons who work for the moneylenders. In such cases, the vendors have no legal recourse. There is one other hardship street vendors all face: the cost of acquiring merchandise to sell. In many cases, such goods are brought into Mexican ports in large ship- ping containers, off-loaded at the docks, and then trucked to their destination. We are not talking about single cig- arettes or packs of gum here, but huge items like washing machines, furniture, stoves and refrigerators, toilets, sinks, bathtubs, and all kinds of building supplies — the sort of goods known as fayuca, the old Spanish buccaneer term for bootlegged goods or contraband. The cost of purchasing such items is significantly higher than it would be for established stores or companies. With all these disincentives in mind, I asked these entrepreneurs whether they would prefer to be officially recognized by government authorities, even though they would then have to pay taxes. They unanimously assert- ed they would. First of all, if they were recognized as legitimate vendors, they and their families couldn’t be harassed by criminals, cops and low-level bureaucrats. For a change, the law would work for them. Similarly, if they held legal title to their businesses, they could collat- eralize their assets and obtain loans from established financial institutions instead of paying extortionate rates to loan sharks. Second, it would be far cheaper for them to pay taxes of up to 2 1 / 2 percent on their first $250,000 worth of busi- ness to the Mexican Treasury (Hacienda) and have some- thing to show for it than to keep paying multiple bribes, which end up being many times greater anyway. Finally, making this change would likely increase respect for the law throughout society, since everyone knows that the only people who benefit from the current system are the corrupt officials who exploit the working poor. The De Soto Example Fortunately, there are signs that at least some govern- ments have recognized the wisdom of legitimizing and nurturing micro-businesses instead of harassing them. A key crusader in such efforts has been the noted econo- mist Hernando de Soto, who has long focused on the problem of obtaining access for the poor capitalist. Curiously, de Soto didn’t start out with any special interest in poor people. Born in southern Peru some 60 years ago, the son of a diplomat stationed in Geneva, he went to college in Peru and then on to Switzerland for his master’s degree. After working for the General Agreement on Tariffs and Trade for awhile, he ran a Paris-based organization of copper-exporting nations. Swiss bank executives lured him away from that job to become the CEO of an engineering company owned by the bank. By the age of 39 he was financially indepen- dent and no longer had to work, so he decided to return to Peru. As he walked down the busy streets of Lima one day, he observed the intense commercial activities of the stalls selling everything under the sun: food, building supplies, appliances, equipment, car parts, etc. All of these stalls were illegal, yet they were supporting entire extended families. A short distance outside the capital he saw innu- merable squatter shacks; they, too, were illegal despite the fact that tens of thousands of families lived in them. In 1983 he began to study these “micro-businesses” J U LY- A U G U S T 2 0 0 3 / F O R E I G N S E R V I C E J O U R N A L 65