Pakistan Institute of Development Economics


Understanding sludge

Publication Year : 2021
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If someone draws a comparison between systems in the developed world and those in developing countries, one of the first things that come up is that things get done quickly in the former and much slower in the latter. Have you ever imagined the economic cost of snail paced procedures? Let me put it this way: have you ever thought about why it is so difficult to function legally in developing countries, to the extent that people find it easier to operate in an extra-legal domain, to avoid the cumbersome processes? You would say things are not as hard as they might appear to be, but the ground reality tells us a different story. Let me explain.

A major problem, which a majority of the people in developing nations face, is trying to acquire legal property. It involves a daunting legal process. The processes are simple in developed countries, but they are just so needlessly difficult here. In order to gauge the amount of ‘friction’ in terms of the number of steps required and the impediments to the legal process and bureaucratic mechanism, Hernando de Soto Polar, a prominent Peruvian neoliberal economist known for his work on the informal economy and the importance of business and property rights, started an extensive study spanning over year across South America along with his teams of researchers.

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