STAGE 3: Designing Institutional Reform

Design proposals for Institutional Reform.

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With a clear picture of the main characteristics, extent, and value of the extralegal economy and the specific legal barriers that force the majority of people into it, the Reform Program’s next stage can begin –designing proposals for Institutional Reform, based on well-established local legal and extralegal practices that all citizens identify with and respect. The Institutional Reform stage streamlines the rules and procedures that govern real estate and business activities, reducing the time and cost to enter and operate in the legal sector. The ultimate objective is to provide a strong foundation for the three essential institutions and a public memory system that includes everyone who wants to be part of it, along with a transparent, standardized record of their assets and transactions. Any economy without such a well-established, inclusive system for public memory is one that has to be constantly re-created, literally, day-by-day, transaction-by-transaction. THE GOALS OF INSTITUTIONAL REFORM Strengthen the three main institutions and build an inclusive public memory system from the bottom-up, based on well-established local legal and extralegal practices that all citizens identify with and respect; Design norms and regulations rooted in widespread extralegal practices so as to allow the poor to transfer their properties and businesses into a formal economy with characteristics and language they are familiar with; Simplify and adapt the current legal system to local needs and capabilities; n Build legal incentives for people to record their property by means of: – Low-cost, simplified procedures to formalize the different types of extralegal real estate holdings on a massive scale. – Low-cost, simplified mechanisms for the resolution of disputes. – a real folio registration system to encourage not only first registrations but also registration of transactions of formalized assets. – Feedback mechanisms to adapt existing laws and regulations to new circumstances. – “Pro-active” formalization, including education and publicity campaigns to encourage both the participation of the extralegal sector and support from the legal sector. – eliminating unnecessary legal and technical double-checks by different public offices. – replacing cumbersome title deeds by standardizing formats that are easy to understand and fill out, thus avoiding imprecise data and reducing the risk of introducing erroneous information. – eliminating registration requirements that do not have a direct bearing on ownership. Establish the legal and economic mechanisms that will promote the adoption of modern organizational forms and accessibility of most businesses to operate in expanded markets and use their real estate as a means to create capital: – simplified laws and procedures governing economic activities concerning real estate and business. – reasonable time and costs of operating businesses, expanding them, and using property rights –legally. Build legal incentives for businesses to abide by and to benefit from the rule of law, demonstrating to all, for example, that unless they are legal, they cannot: – represent their assets in shares and stock to capture new partners or investors. – have limited liability to protect their personal assets and avoid dramatic losses. – establish hierarchies within firms to create complex products and real wealth. – contract workers, suppliers, and clients outside the confines of their families and immediate acquaintances. – Identify themselves in order to enter into credible contracts with outsiders. – use property as information and collateral for credit. – comply with regulatory requirements to participate in global markets. Create a specialized organization capable of managing the integration of all citizens into an economic system whose primary objective will be to generate capital. Lay the foundations for a massive business and real estate formalization campaign. Provide the foundations to design and implement complementary policies, aimed at helping the creation of capital. Prepare an estimate of the economic impact of the reforms. Design a communications strategy and plan so that the government can explain the benefits of the reform and create a consensus for its approval and implementation. Put in place a feedback mechanism so that the reforms can be continually fine-tuned and adjusted to the changing circumstances and needs of the people. Establish an action plan for the Implementation and the capital Formation stages. The uniqueness of the ILD Program in Stage Three is that we build a new institutional set-up both from the bottom-up and the top-down approaches. The goal is to take the most common, accepted practices in the extralegal sector –reflecting the weaknesses of the existing legal system– while simultaneously taking into account the strongest and most effective legal norms, the aggregate socio-economic information, the best international practices, and the history of reform successes and failures around the world. The ultimate picture is a “converged” institutional policy map –bottom-up/top-down– that not only depicts and explains a country’s economic reality but also increases the odds of sustainable reforms in the face of the inevitable uncertainty that accompanies changing institutional relationships and market or government failures.

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