Monday, August 6, 2007

A Poor Man's Capital

Running a successful business is the best way to escape poverty. Unfortunately, government is often the primary obstacle to starting and running a business.

Parth Shah, from the Centre for Civil Society in India, gives a stunning example of how law and regulation makes the poor even poorer.

The Delhi Municipal Corporation has a law regulating rickshaws. The law requires every rickshaw operator to own the rickshaw. He cannot lease or loan it to another. Any owner found leasing or loaning his rickshaw will have his property confiscated and destroyed.

The result of this law is the destruction of the poor man's capital. The rich man's capital in India can operate 24 hours a day, seven days a week. But a poor rickshaw operator can only use his capital, i.e., his rickshaw, while he has the strength to drive it.

Shah says that laws like this are prime examples of the law of unintended consequences. The original intent may have been to help rickshaw owners. The result is great harm.

Finally, Shah says there are some laws in India that were never intended to be enforced. Rather, they were designed to enrich public officials. Shah estimates that government officials collect 10 million rupees per month from the poorest of the poor as bribes to avoid prosecution for "violating" these laws.

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