State abuse against entrepreneuship in Peru

1. ENTREPRENEURSHIP IN PERU:
HOW DOES THE IDEOLOGY AFFECT IT?
José Luis Tapia Rocha 
―If we want to defend Capitalism and save the free enterprise
system, it has to be by means of morals and philosophy. In one
word, economics are not enough‖. R.A.Childs, Jr. 1
Do socially prevalent concepts and values promote or jeopardize entrepreneurship,
productivity, competition and the creation of wealth? The economic results of national
businesses depend on finding an answer to this question. It should not be surprising that
continued efforts to give entrepreneurship a greater freedom in the market have found
opposition in values and ideologies contrary to free enterprise. Moreover, these values and
ideologies are quite ancient, they remain in our midst and seemingly, day after day they
find greater acceptance in Peru. If they were harmless we should not worry much, but what
we face is actually more serious than what we imagine with respect to the attempt to
permanently attack our moral right to attain to benefits from entrepreneurial activity as the
mean to productively live in a civilized society. This work purposes to spotlight the role of
ideology in the exercise of entrepreneurship in Peru.
1.- VALUES
Values are guiding principles which function as premises for human behavior.2 As Ayn
Rand would say “it is that for which one acts, to obtain it and/or to preserve it”.3 Values
appear to be implied in norms and patterns of conduct and they crystallize in institutions,
and even in laws and constitutions. The best known, most popular, more spread out and
most practiced values are accepted by the majority of the population. For the economic
success or failure depend from laws and judicial and administrative decisions, but all these
in turn depend on the correlation of political trends. And likewise, politics critically depend
on values and ideological influences prevailing in schools, research institutes, universities
and press titles, on the comments of political analysts, who finally dominate in the global
society.
Collective Values
In a small society, the authority or tribal chief rules on the basis of implicit rules or its
equivalent: obedience to what he says. Anyone who pretended to disturb the peace ofothers
by a different behavior was expelled. It is a scarcely tolerant society with a few different
customs. In exchange, an open society or extended order –as Friedrich Hayek calls it- is not
like the tribe where everyone knows each other, but better, being conformed by millions of
individuals the place where it is difficult to efficiently articulate the millions of needs and
preferences without obviating its individualities. Some type of a harsh and chasing state-
control would be needed to keep the cohesion like in a tribal society. Of course, that would
negatively affect the members of the society as it would hinder the development and

Founder and General Director of Instituto de Libre Empresa (ILE). Professor of Economics at Universidad
San Martin de Porres, in Lima, Peru.

2. exposure of its individual talents –including the entrepreneurial- to the best bidder with no
permission from the state authority (paternal) and the subsequent benefit for the progress of
civilization. As Hayek says in his book “Fatal Arrogance”:
―If we would pretend to apply the rigid norms of conduct of the microcosmos (meaning the
characteristic order of community living in the small gang, or even of the family unit) to the
macrocosmos (meaning the order proper to a civilized society in all its complexity and
extension) – as so repeatedly recommend to us our deep inclinations-, we would endanger
this second type of order” 4
Chart 1 shows a summary of the main values which distinguish tribal societies from
extended or open societies.
CHART 1
Values of the Society
Tribals Open or Free
Colectivismo, Comunitarismo Individualism
People Citizenship
Altruism Benevolence
Solidarity Self love
Communitarian Private Property
Cooperation Competititon
Public Moral Private Moral
Social Interest Private Interest
Colective Freedom Individual Freedom
Social Corporate Individual Responsability
Responsability
Social Rights Individual Rights
Social Justice Restitution Justice
Elaboration: ILE
Collective values are attractive to any individual who favors safety, estability, and what is
known, and it is comprehensible that small communities will oppose to the change of an
open society, as the Ashaninkas would, and so would oppose change other Andean and
Amazonic communities of Peru.
Precisely, as part of the cultural involution, the greater Peruvian enterprises today lift up
collectivist concepts such as “social responsability” that stands against the spirit with which
was created by the shreholders. Milton Friedman and Tibor Machan have afformed that it is
enough for a company to be profitable to be morally recognized as a contributor to the
individuals in a society.5
But some proffesional altruists pretend to blame enterpreneurs6 if they do not work for their
community in areas of health, environment, education, culture, indigenous peoples,

3. democracy and other issues as a sort of enterpreneurial paternalism meant to replace estate
paternalism.
Chart 2 shows collectives and their corresponding ideologies, although there are more
updated versions of modern times, like eco-feminism-indigenism, new age, postmodern
thinking, among others.7
Chart 2
Ideologies of Colectives
Colectives Ideology
Ethnic Racism, Tribalism
Nation Nacionalism
People Populism
Proletarian Socialism
Vanguard Comunism
Majority Democracy
Planet Ecologism
Elaboration: ILE
Values and Ideologies
Values are rooted in our customs and ways of reasoning, some of them are inherited and
others are learned from our culture 8. Values can also be found in ideologies which are – as
Douglas North explains- those subjective concepts individuals structure on the basis of
values culturally inherited which explain what the world is and how it should be. If it is true
that scientific knowledge can change people’s perceptions of the world, this is not enough
as people always grab certain myths9, beliefs, religion, whatever sort of cultural inheritance
that may explain what the world is and how it should be.10
Graphic 1 shows the interrelation in between ideologies and the efficiency of Economics.
The process starts with ideologies influencing the political sphere through public debate of
ideas, arguments and opinions. But the world of Politics is the world of opinions,
subjectivism and values. As Constitutionalist Dr. Jorge Astete Virhuez points:
―It is the world of personal emotion, of ideologies, and also of individual prejudice. It is the
flame of passion and also of action; as such, if it is true that it feeds on reason, its sphere is
more the world of esthetics and of the irrational.‖ 11
Graphic 1
Ideología Política Leyes Economía
Elaboration: ILE

4. The third step is about the laws flowing from political power. The pretension is to enhance
reality through laws, but the results are precisely the opposite. They are the cause to
conflicts between entrepreneurs and workers, informal and formal entrepreneurs, it turns
into legal action the plunder of wealth generated by productive individuals and the whole of
society is harmed with more violence, poverty and injustice. In this respect Dr. Virhuez
points:
“It is true however, that every new law is an obstacle to economic and civil freedom of the
citizens. Laws do not enhance reality, they worsen it. They mean one more procedure, an
obstacle to display my freedom, a new obstacle, more and more thorns in the way, a
deceitful shortcut. The only ones who obtain a benefit from more and more laws and rules
are the estate bureaucracy, regional and local and those professionals in confusion,
lawyers, architects, engineers, accountants, etc. who live either legally or illegally thanks
to those obstacles.‖ 12
Hayek manifested that for an extended order to evolve, very abstract and general norms
inspired in non-tribal societies are needed, so that individuals can pursue concrete purposes.
As it comes out, the “law” of societies where collective values prevails becomes an
instrument of power to plunder the profits of productive individuals, business companies
among them. Frederic Bastiat wrote in 1850 the following:
“Thus, when plunder is organized by law for the benefit of those who dictate it, all those
plundered aspire to partake in the making of those laws, by means of pacific or
revolutionary.” 13
Pioneer works became interested in researching how state laws 14 affected entrepreneurial
performance in Peru creating behind it a whole illegal or “underground” economic
system15, far from the moral purpose every law must, according to Bastiat, uphold, and
which must irganize collectively the individual right of legitimate defense against the
plunder of a collective.16 But the truth is that in Peru, laws are born from political power
with value content (jusnatural), and from there, all kind of consequences can be observed,
as Dr. Astete describes it:
―As every right is born from the political womb, the whole of society is pending on politics:
whether in permanent anxiety with respect of their individual or commercial rights,
whether to obtain an advantage. It is not known whether they will be preserved, violated or
diminished for such or such ideological faction assuming political power. When what
worries citizens is not anxiety, but any labor, trade or corporate issue, they also know that
running to the estate (political power) they can get their laws‖ 17

5. As Socialism invades the political arena, it starts producing the unwanted consequences
which can be proved by the existent corruption, informal economics, social, economic,
technological and cultural underdevelopment, and moreover, moral perversion of the law.18
In this respect, it is accurate to point at the reason of the agression of the State to
entrepreneurship. According to the estatement of Spanish economist Jorge Valin, it is the
axiom of unilateral agression of the State itself which produces those unwanted
consequences:
“Thus, the State acts in a condition of anarchy where it does not explain anything to
anybody, not even to its sociaslists partisans (pressure groups), therefore, it can act as it
pleases.‖19
The State is not like the entrepreneur, who needs the decisions of the customers to act. By
the contrary the State can continue acting with no political nor ideological counterbalance
until it becomes a tyrant political regime. It is not enough, not even pertinent that
democratic mechansms will take care of coming to an end with this despotic tyranny
through elections. The Republican History of Peru shows the opposite. Peruvians have
rather elected socialist and populist regimes which ended up assaulting entrepreneurship, as
we will see later, but I doubt it that people will be able to elect another different reality if
there is no massive spreading of values and ideology opposite to estatism, and which will
be carried out by citizens that will get organized to produce that cultural change.
Institutionalists sustain the valid criteria that it is enough to modify the incentives behind
the political structure of the state so that authorities, one installed in the government, will
become discouraged in their desire to plunder entrepreneurship. Here, the issue is not only
choosing an institutional or cultural change. Both can be carried out by means of the
proposal we expose further on.
But what is important is to spotlight the great economic lesson left by statism of the Iron
Curtain. As Canadian Philosopher Pierre Lemieux estates:
“The study of economics teaches a lesson, maybe the only lesson: That individual liberty
serves efficiently individual designs and that it functions alone (it regulatess itself by its
efficiency)” 20
It is amazing that Austrian economist Ludwig von Mises foreviewed the fall of the socialist
regime 69 years before and that humankind would not beware of it21 . Nobody understood
that free market was an expression of individual liberty22. But alter this great historic
lesson we should ask, what kind of political ideology incorporates values opposite to
collectivism and at the same time allows the spontaneous and efficient rise of the market
and institutions of free enterprise? Doubtlessly that ideology is Liberalism, whose
conception of government and economics is the one which guaranties individual rights to
freedom and private property, among them entrepreneurial freedom. As Lemieux estates:
―Thus, the spontaneous order or freedom, by one hand, and individual rights by the other,
constitute both, the pillars of contemporary Liberalism.‖ 23

6. It is necessary to point that liberalism is in agreement with the individual and free nature of
man. It allows every man the search of personal fulfillment by means of responsible action
within the limits required by respect to life, property and the freedom of others. Liberalism
is the political conception of freedom for government and economics. In a liberal context,
individuals can structure trade relations of cooperation to enhance their standards of living
by means of creation of wealth.24 Free enterprise capitalism leads to the improvement of
the living standard of the people25.
However, according to the principle of unilateral agression, the state pretends to
institutionally constrain individuals for the sake of a collective and so as to plan economics
according to the judgements, ideas, feelings, emotions and values determined by estate
authorities. Being Socialism a popular ideology, vindicated and accepted by majorities in
our society,26 the state is used to impose by force values determined by a few enlightened
socialists. In this respect, the Spanish professor Jesús Huerta de Soto defines socialism this
way:
“.....a system of institutional aggression to the free exercise of the entrepreneurial role. By
aggression or constraint, we may understand any physical force or threat initiated and
executed upon the actor by other human being or group of them.” 27
Once an institution, aggression affects all entrepreneurial performance via commands 28
which make unviable the the self-regulating market efficiency. 29 It must be clear then, that
every “command” is an instruction issued from the political power in any judicial form
which commands, prohibits and orders the execution of certain specific actions against the
free exercise of the entrepreeneurial function.
2.- Ideology and Entrepreneurship
Ideology expresses itself through the conduction of the state. Statism is the political
expression of collectivism. Statism is contrary to liberalism.30 Its values are governments
unlimited in functions and expenses; repressed of the market and free initiatives suffocated
under taxes and limitations; a mixture of private institutions with political power. In legal
matters it is the opposite of the law. As Friedrich Hayek suggests, laws should not inhibit
the creative processes which naturally and spontaneously unchain in liberty; for society to
benefit plentifully from its fruits, people must submit more to covenant than to legal
relationships.31
With the statist mode however, norms are more rules than laws, and the Estate monopolizes
the creation of compulsory rules. Today, all rights, benefits and obligations must be
established by law, not by private contract. And also, they must be supervised by regulating
institutions not by ordinary judges. But that is an open way to the granting on unjust
benefits and legal privileges. That perverted process by which certain special interests are
established is called “concertation”, and they enjoy the following benefits:
 Subsidies or aids with specific names on account of the fiscal cash-flow;
 Imposition of absurd and individualistic obligations, designed in such a way that only
a few can fulfill the requirements;

7.  Other restrictions to the free enterprise, i.e. discriminatory taxes, overtaxing, generous
exemptions, discriminatory rules, by which some are exempted and others are not.
Under the statist pattern laws get to be numerous and oriented not by a justice criteria for
all but to satisfy special interests, at the expense of public resources or the consumer’s
wallet, or some other opposite interests. For that reason, they are not clear but complicated,
costly and obscure. And they are not stable, permanent nor foreseeable, but very unstable
and very difficult to anticipate, as they cannot bear with the pressures and counter-pressures
that bring continued change. They are rewritten once and again, at the rhythm of the
political moves.32
Ideology, Politics and Entrepreneurship
GRÁFICO 2
Clima Político-
Ideológico
R,E = RN + Ti + K + L
DP = IF
IC
Elaboración: ILE
In Graphic 2 (Grafico 2) we can see how the politic-economic climate (Clima Politico
Ideologico) makes impact on the entrepreneurial function. The equation shows that the
entrepreneur creates wealth and employment (R,E) in conditions where he can combine the
following factors: Natural resources (Rn), intelligent working force (Ti), capital (K) and
liberty (L). We must point, however, that this last factor is in great manner necessary for
the entrepreneur, so that it is granted enough priority. On what does liberty depend? It
depends on respect to private property (DP), and in turn, private property depends on
favorable ideological influences (IF), or those in opposition (IC) to the free market. If in the
political-ideological IF is greater than IC, then the results are higher than one, that meaning
that evident respect for right to property maximizes N times the creation of wealth and
employment. Likewise, if socialism prevails, then IC is greater than IF, thus there will not
be respect for rights to property, and in consequence, the lack of freedom will put to risk
competitiveness and wealth created by entrepreneurs.

8. In what way are entrepreneurs and economics in general affected by collective values
opposite to free market? Graphic 3 (Grafico 3) explains how a political-ideological
climate, hostile to free enterprise makes use of taxes (I) and regulations (R). If that climate
is in opposition to private initiative, we will soon see how that negative environment will
affect savings (A) and private Investment (I). The same thing happens when institutions and
parties defend liberal values. In this way, in order to guarantee the creation of wealth it is
necessary to promote internal savings with the purpose of creating enough offer of money
to supply national investors with capital. Unless the private sector finds foreign credit, long
term growth will no be possible if we are depending on foreign investment only. Also,
these kind of investment is more sensitive that local investments to the increase of risk in
the country. We should just observe that in spite of the diversity of economic experiments,
from state-corporation to neo-liberal reforms, the national entrepreneurship has been
contributing with small but valuable investments. But as Peru is conformed by millions of
poor citizens, it is difficult for consumption (C) to be important enough to reactivate the
economy without recurring to state Keynesian experiments. And this will be even more
evident if we think that the exceeding results of the enterprise (E) will serve to add capital
and grow continually in the medium term.
GRÁFICO 3
CLIMA POLÍTICO
IDEOLÓGICO
I R
Impuestos Regulaciones
- -  Creación de Riqueza CONSUMO
 Generación,
A I Multiplicación y
EXCEDENTE
Enriquecimiento de
Ahorro Inversiones Empleo
Elaboración: ILE
We think it is pertinent to point that the state is the only sector which benefits from the
climate against free enterprise, and that it monopolizes a good portion of capital and
freedom unjustly taken from the private sector. Unfortunately, taxes and regulations de-
capitalize small and micro-enterprises in such a way that they cannot grow. Graphic 4
shows the three sectors of economics: State, formal and informal. While the formal sector is
deprived of freedom because of state regulations, high taxes, by the other hand, it inhibits
investment decisions. Likewise, the informal sector does not have any other way than
fleeing from regulations, and thus, it enjoys freedom but lacks capital resources as they
must bear with the greater costs of state aggression in the form of taxes. The effective
tributary burdens of all taxes are carried down as prices, throughout productive channels,

9. and this process affects those who are at the bottom in the social pyramid. Those at the
bottom do not have a place to transfer costs, and for that reason, consumers and companies
in the informal sector continue in poverty. In this way, socialism incarnated in statism
manifests itself in regulations and excessive taxes which hinder the creation of wealth of
the entrepreneurial class.
GRAPHIC 4
1) STATE: Regulations
2) FORMAL PRIVATE
(GE) K, no F.
Absorbs
major Cost
part of K 3)PRIVATE INFORMAL
and W. taxes (Mype) F, no K
Elaboration: ILE
3.- LIBERALISM AND ENTREPRENEURSHIP
The Austrian school of Economics is catalogued as one of the schools which has confronted
socialism with success. It has also contributed to deepen the study of free makrket with
unconventional mental tools as methodological individualism.33 The School has provided
foundations for an understanding of market proccesses which neo-classic paradigm could
not introduce, limiting itself to an understanding of entrepreneurship within a productive
role.34 It also demonstrated to socialists like Oskar Lange that finding competitive prices
was not enough to make a socialist viable and that this needed private property as Mises
demonstrated. However, and beyond the epistemological problem that could arise and be an
issue to those who pursue a legitimate interest to estate certain scientific considerations
about the Black Box35, we have to stress the fact that the real magnitude of the problem
does not lay in methodologies, but in a proper and realistic perspective, consistent with the
ideological defense of the entrepreneurial role. Some authors 36 sustain that the Austrian
School vindicates the market against the centralized socialist planning. But Professor
Raimondo Cubeddu goes beyond that and estates the following:
“About this issue, we measure not only the significance of the Austrian School in the realm
of political philosophy and classical neo-liberalism, but also its contribution to solve the
problem of constraint and holding of power.” 37

10. Professor Krizner, a disciple of Mises, points also that those who hold the Austrian School
as the intelectual backing of liberalism make no mistake:
“And it is precisely because of the perception of this intelectual backing that those
committed to the cause of free market are completely right to be interested in the position
and progress of Austrian radition in economics.‖ 38
Entrepreneurship
The well-known volume of economics of Mises39 pointed that entrepreneurship is ,
ptoperly, human action itself, as an individual must save time, efforts and all kind of
resources with the purpose of obtaining a benefit at the lowest cost. It is the individual who
exercises the entrepreneurial function in pursuing and enhancement of living standards by
means of creation of wealth. But it is professor Israel M. Kirzner who deepened the
analysis of the entrepreneurial role in his book Competition and Entrepreneurship going
beyond the prevalent trend:
―.....is present an element that, although crucial to the economic activity, cannot be
analyzed in terms of economics, maximization or efficiency. I will entitle this element,
because of reasons that I will describe, as the entrepreneurial element‖.40
The competitive theory of entrepreneurial function elaborated from these concepts served
and serves now to explain the coordinating trend of disproportions originated in the free
market, and that can only be understood by the economist and finally can be anticipated in
the market by the entrepreneur. The Austrian Focus perceives the free market as a process
promoted by entrepreneurs who discover profitable opportunities. Once they discover
means and goals they change the guide to action they previously had. 41 It s good to point
that this kind of knowledge is of the subjective kind, not articulate, created from nothing
and transferable through repetitive behavior, and it is learned and copied by other
entrepreneurs, and that the state cannot formalize it and even less will the state be able to
coordinate it by means of regulations and interventions. This entrepreneurial dynamics
makes of the collectivist plan of redistribution of wealth a failure in its attempt to enhance
the living standards of people.42
When this pattern of behavior of entrepreneurs is kept free throughout the time and they are
fed by complex and irresistible circumstances experimented by other actors in the market,
they become customs, traditions, rights, institutions, and judicial norms which make it
possible to build a free and productive order known as Capitalism. 43
Liberalism
Capitalism is the economic face of liberalism, and as such, it functions based in the
freedom of individuals, so much in his consumer’s role as in his productive role. Economic
liberalism is equivalent to free market, but this is also a consequence of a state limited in
functions, power, resources and expenses. As it was said, the Austrian School teaches
classical liberalism, stressing the role of free markets and of entrepreneurship in the
spontaneous coordination of productive factors, and of private property in the fixation of
prices, within a natural economic order.

11. According to Marx and Engels, communism combines Classical English Economics,
French Socialism and the German Idealist Philosophy. Likewise, classical liberalism
combines The Austrian School of Economics, the School of Natural Law and Realistic
Philosophy, all of them in a political doctrine, of whose most brilliant exponent has been
the French Frederic Bastiat (XIXth century).
In his volume “The Law”, Bastiat –maybe the Marx of classical liberalism-, presented a
summary of is most important lessons. He focused on the concept that the law can be an
instrument for civilization and a lever for wellbeing, or it can become an instrument for
plunder, the “legalized plunder”. It is in this way that all respect for laws, including the
good ones is lost. Around the same time, Englishmen Cobden and Bright promoted in their
country the Anti-corn League, with the purpose of allowing the importation of cheap food
from the European continent. That League initiated the liberal era that made England
stronger going the way of free trade.
Another volume written by Bastiat is entitled ―Economic Harmonies‖, and stresses the
natural order of economics. “Paris come!”, writes Bastiat, and it is no government that
commands that to farmers, transport business, street-vendors, restaurant-owners and many
other who intervene in the productive chain. Legislators cannot enhance natural processes
by laws, rather, that attempt can hinder them. Classical Liberalism should no be confused
with Classic English Economics, (Adam Smith, David Ricardo, Mill), which so clearly
differs from the Austrian School. The first does not trust markets and it is oriented to state
interventions. The second is originated in French Fisiocracy, and the first one from the
Spanish School of Salamanca, and it is thus called “continental” (European), the line that
sticks towards free markets and free entrepreneurship.
The jusnaturalist doctrine describes a concept of natural order which laws must not harm. It
opposes judicial positivism (Kelsen), for which there is no more law than the positive or
sanctioned by the state. Realistic Philosophy teaches that realities have their own nature, as
specific as the operations possible for it, meant to fulfill the functions required for the
achievement of its goals.
4.- SOCIALISM AND ENTREPRENEUTRSHIP
Labor does not make a difference between left nor right, but between aggression or no
aggression, thus in between socialism and liberalism, as the right can use the state for its
trading objectives, where a entrepreneurial collective can plunder other entrepreneurs not
connected with political power, as the millions of small informal entrepreneurs in Peru
could be. Virgina Postrel has pointed that socialism is dead as ideal and also as political
practice44 but we sustain that such affirmation is true until certain point in the standard
clssification of the political spectrum. However, our work takes that which is substantial in
their concern which considers as the new attack of the “estatics” opposing to all market
dynamics melting the unifying criteria about the future of a society. Therefore, in its terms,
the “estatic” -control and estability- is what this work has endorsed in its first part, as
collective values bring a predictable future in a small community and about this Hayek
anticipated saying that individuals always prefer what is known, safe and estable. Then,
when we worry about the “estatic” expoliation of taxes and regulations upon

12. entrepreneurship, we are actually agreeing that the dynamics prompted by entrepreneurs
are what causes the “greatest ideological opposition today”. 45
In this sense, socialism seeks to benefit from the law to legally plunder enterprises and
confiscate the benefits of their private ownership.46 It does not matter if the one who
legislates is the Congress or a commission, what matters is to never miss the fact that
socialism uses the law for its redistribution purposes. As it was pointed, there is no way to
battle socialism without liberalism.47
It is usual that socialism generates an overflowing of the functions of the estate which is the
cause for statism. Statism assumes non natural functions which go beyond security, justice
and works of public infrastructure. When the estate takes false roles its performance is
illegitimate, and so are illegitimate the taxes to finance its Works and the norms issued to
interfere, prohibit and constrain the action of enterprise.
It is no accident that until today the opinion of entrepreneurs constitutes the opinion of the
minority against the public opinion which sanctions as just the legal plundering carried by
socialism. Frederic Bastiat wrote in 1850:
―All of us have the strong inclination to consider that which is legal as legitimate, to the
point that there are many who falsely consider that every just act flows from the law. It is
enough for the law to command and consecrate plundering, for this late one to appear just
and sacred to many consciences...‖48.
Socialism turned into political action requires of a legal monopoly of the estate to achieve
its redistributive goals of wealth. It wants to plunder some, to benefit others violating the
rights to private property. As it is known, taxes confiscate wealth while regulations
confiscate the entrepreneurs’ right to property. In his essay, David Kelley, “Altruism and
Capitalism‖ pointed the altruist argument that every “need creates a right”, which attempts
to legitimize the violation of the right to obtain profits by law.49 In this respect, Argentinian
economist Alberto Benegas-Lynch (h) points:
“A right that requires that the rights of others be violated cannot exist”.50
Socialism can not justly claim for taxes to distribute wealth to the needy. It is unmoral to
use entrepreneurs as “means” to supply for the needs of others. The values of socialism
always place others over the entrepreneurs. And the altruist ethics of socialism dictates that
entrepreneurs must be taken to the altar of sacrifice for the well being of others. And from
that perspective, to be concerned for oneself before being concerned by others is the same
as saying “the rights are theirs, yours is the obligation.‖ Kelley affirms the following
about the “Estate of well-being”:
―...those who are successful creating wealth, must do it with the only condition that others
may make use of it. The objective is not as much to benefit the needy as to tie the capable.
The implicit assumption is that a person‘s ability and initiative are social advantages, to be
exercised with the only condition that they may be to the service of others.‖ 51

13. True entrepreneurial ethics consist in recognizing that thinking and working productively
for oneself is a virtue. An entrepreneur must get profits from his achievements, not from his
mistakes, “he wins what he receives and he does not take it undeservedly.” 52 If some
individuals wantonly take by force the wealth of entrepreneurs by plundering or stealing,
they are destroying those who are capable of living for themselves, and they are using
methods used by animals according to the need in the moment.53 Socialism teaches that
certain individuals have a right to live at the expense of others, without working
productively, in dependence of what entrepreneurs do, and it grants them a moral status
over the entrepreneur, pretending to qualify all human action for the benefits of others as
“good” and all human action for one’s own benefit as “bad”. However, socialist
shortsightedness does not get to see that the entrepreneur Works like any other to survive
serving others and pursuing a profit. As Catholic priest Robert Sirico says, the
entrepreneurs’ act of creating wealth is like God’s creating act. Both are of benefit to
humankind.54
It is important to point that socialism reduces its ideology to a re-distribution theory; as as
Mises affirms:
―Socialism isn‘t but a ―just‖ distribution theory, and the socialist movement does not have
but that objective of the realization of an ideal (...) For Socialism, the problem of
distribution is in itself the economic.‖ 55
The fact that such socialism, obsessed about plundering the wealth of those “alien to the
tribe” may exist, can be understood as a psychological issue. From there, Mises qualifies as
pathological the anti-liberal roots of socialists:
―The root of anti-liberalism cannot be comprehended by pure reason, for that is not the
nature of such opposition; it is rather a fruit of a mental attitude flowing from resentment, a
neurotic condition, that could be called the Fourier complex, in memory of the well known
French.” 56
This socialist mentality originates from tribal values by means of which many philosophers,
politicians, ideologists and even intellectuals denigrate profit to the point of turning private
enterprise in a pitcher.57
5.-AGRESSIONS AGAINST ENTREPRENEURSHIP IN PERÚ
In the recent republican history, socialism has achieved the institutionalization of state
aggression against entrepreneurship via the issuing of laws, decrees and other norms which
prohibit, obligate and command to execute economic actions. In itself, all that legislation is
an instrument to legally suppress and plunder all the wealth produced by private enterprise.
These acts of statism are not recent. We have similar acts of even greater political
connotation in the two periods of military dictatorship from 1968 to 1979, and five
governments in democracy from 1980 to 2004, where deprivation, regulation and
prohibition and the issuing of all kind of state decrees have exercised constraint; from
socialism corresponding to the velascato to the moderated socialism of the 90s and the
beginning of the century. If there is something at which to point of the decade of the 90s is

14. that, in the best case we had a mercantilism responsible for the balanced management of
finances, but nothing proximate to a liberal government.58 As we can see, some
aggressions have been already institutionalized under the form of rights, social interest,
public and national, and always referred to collectivist values which interfere with the
freedom to run enterprises and distribute wealth through taxes and other payments. Let us
look at some of the aggressions that have been carried out and continue being carried out in
on behalf of community values and the socialist ideology.
Tributary, Labor and Local Government legislation
Legislation is the manifestation of prevailing statism, which is in turn, the aggressor to all
entrepreneurial exercise with the purpose of redistribution, thus twisting the structures of
entrepreneurial population and negatively affecting the local competitiveness of enterprises.
In the majority of cases it discourages the initiative to carry new private investments.
GRAPHIC 5
Structure of Entrepreneurial Population
Normal Distorted
Amost there is
not GE
GE
GE
ME
GE M
ME
ME E
SE
PE Mype
In Graphic 5 the structures of the normal and distorted entrepreneurial population in Peru
are represented. The normal pattern responds to an economy with no statism but with and
Estate where the Great Enterprise (GE) is the locomotive to entrepreneurial progress and
modernity. Likewise, the GE is connected to all the other medium enterprises (ME) and the
small (SE) through outsourcing. To go from one size to other is part of the normal
entrepreneurial cycle, they can go up and down with no difficulty. However, in the
distorted structure, big companies are a few, the medium size companies are not many, and
micro and small enterprises (SE) are a characteristic. While in the normal pattern the GE is
about a 5% of the entrepreneurial population, the ME and SE reach about 15% and 70%
respectively. But what the graphic is saying is that Peruvian Economy suffers of an illness
that could be called “entrepreneurial dwarfism”, as three million one hundred 100 thousand
of economic unities59 conform 98% of the total of companies which provide jobs to 70% of
the Economically Active Population. This critical condition is a civilized response from
individuals who chose to be entrepreneurs not because of a vocation as it would happen in a
free economy, but by the “necessity” created in an economy hindered by high taxes and
regulations. But what is real is that these companies never grow, they keep that size and the
cases that reach other scales are very rare. False myths have been built around this
distortion, among them, the affirmation that a country can successfully develop on the basis

15. of Pymes, and for that reason Latin American governments hold credit and estate
purchasing credit programs. The Mype are in essence poor. At the lowest decrease of state
purchase operations, thousands of them disappear.
Following are some of the laws and norms that affected and continue to affect
competitiveness, freedom and specially the structure of entrepreneurial:
 Organic Law of Municipalities - Law 27972. Date: 27 of May, 2003
 Municipal tax law – Legislativo Decree. 776. Date: 31st of December, 1993
 Tributary Code – Supreme decree. 135-99-EF. Date: 19 of August, 1999
 Income tax law – Legislative Decree 774.
 Law of Promotion and Formalization of Micro and Small Enterprise – Law 28015. Date: 3rd of July,
2003
 Law of General Administrative Procedure – Law 27444. date: 11 of April, 2001.
 Modifier to the Law of Collective Work Relations –Law 27912. Date: 6 of January, 2004
 Law of Ordinary and Extraordinary journal. – Decree 26136. Date: 29 of December, 1992
 Procedure Law of Labor – Law 26636. date: 21 of June, 1996
 Law of Replacement of work shares for investment shares – Law 27028. date: 29 of December,
1998.
 Law of delegation of faculties to the Executive Power so as to legislate on Inspections on behalf of
the laborers. - Law 27426. Date: 16 of February, 2001.
 Law of Nurse work – Law 27669. Date: 15 of February, 2002.
 Modifier of Law of journal, schedule and extra time– Law 27671. Date: 20 of February, 2002
 Law of midwives labor – Law 27853. Date: 22 of October, 2002
 Law of harbour labor – Law 27866. Date: 14 of November, 2002
 Law of Odontist work – Law 27878. Date: 13 of December, 2002
 Law of the Chemist/Pharmacist work -Law 28173. Date: 16 of February, 2004
Competitiveness, Entrepreneurial and Economic Freedom
The World Economic Forum elaborates the business rates of competitiveness for each
nation every year. In chart 3 we can observe how Peru has gone down in the Word rank on
the basis of a sample of 80 countries. It is no surprise that Peru is placed in position 71 in
year 2003, when it was placed in position 46 in1999. The lack of economic and
entrepreneurial freedom explains the causes for the low competitiveness in the area of
business.
Chart 3
Índex of Entrepreneurial
Competiviness l
- Perú -
Year Ranking
1998 47
1999 46
2000 49
2001 63
2002 66
2003 71
Source: World Economic Forum.
See at http://www.weforum.org
Elaboration: ILE

16. The explanation sustains that estate regulations are becoming costs –some of them hidden-
and they are transferred to the final prices to consumers. That can be observed in two
levels: one is the macro level, where economic freedom60 is not a characteristic of our
market, and the other level is at “doing business” (“Doing Business” as the World Bank
calls it) where specific regulations which discourage productivity, investment and growth
of businesses can be observed.
Graphic 6 shows the case of economic freedom for Peru. It shows how freedom has
decreased in Peru since year 2000, after having positively evolved since 1,995. The
indicator shows that the index 5 is the one responding to repressed economics like Cuba,
Libya, and North Korea and index 1 shows free economics like Singapore, Hong Kong, and
the USA, among others. What this indicator tries to say is that we are for the most part a
free country. The greater the economic freedom the more we have growth and countries are
prosperous. In other words, if a country wants to be poor and economically stagnant, the
only thing needed is the repression of economic freedom for businesses.
GRAPHIC 6
Índice de Libertad Económica
Source: Heritage Foundation.
http://cf.heritage.org/indetest/country.cfm?id=Peru
One of the ways to repress business is by taxes, labor regulations and local government
regulations. The web page “Doing Business” of the World Bank Group, estimates several
indicators showing the reality of doing business in different countries. On the basis of this
information, the “Ciudadanos Al Dia”61 organization has elaborated a chart comparing Peru
and other countries of the same region:
Chart 4 shows the number of procedures to open up a business, the length of the procedure
and the cost in US dollars. The data shows that Peru has some of the highest costs, still
lower that in Argentina, Brasil and Chile, but over Venezuela. In the same web page
“Doing Business” it is pointed that for year 2003, the Peruvian labor market is highly rigid.
In order to analyze it, an Index of Labor Legislation was elaborated. The conditions
covered were availability of part time contracts, contract requirements, minimum wage
salaries, and minimum employment conditions. Chart 5 spots the social burdens the
entrepreneur must assume to hire a stable worker. Going back to the Index, the measure is a
scale from 1 to 100 where high values represent rigid labor regulations. Peru bears 74,

17. compared to the regional index which reaches 61 and that of developed countries where the
average is 45.
Chart 4
C4
One of the regulations which directly affect business is that about functioning permits. A
research in the local Municipalities of the several districts shows that these permits are for
the most part expensive, the procedure to obtain them is too long and they are economically
harmful, an assailment to the free enterprise function. Permits are another state tool seeking
that any individual asks for permission to a bureaucrat so as to exercise his right to make it
for a living as a businessman. According to “Ciudadanos al Día” permits seek to ―....defend
the rights of the citizens to have legal and safe businesses in their districts....”.62 Why not
taking this measure to the extreme and ask that every worker of a district, including
domestic employees get their permits to work from the municipality officers? For nobody
would oppose a measure for a district to count with legal workers so as to be safe from
dishonest acts. Functioning permits are a pernicious way to impose a requirement which is
obviously unmoral, for it harms the right to self-supporting by exercising entrepreneurship.
A graphic within of the report elaborated by “Ciudadanos Al Día” 63 spots those districts
which are allied of entrepreneurship and those which are serious obstacle to do business.
Municipalities like Los Olivos, La Punta, El Agustino, Miraflores, Surco, Santa Maria del
Mar, and San Martin de Porres are not as agressive against entrepreneurs. The districts
where procedures are the most complicated and expensive are San Bartolo, Punta Hermosa,
San Luis, Surquillo, San Borja, La Victoria, Ancon and Punta Negra. The Jesus Maria
district reaches S/.960, the highest amount charged for a functioning permit, while the
lowest charge is S/.169 in La Punta district. And those who illegally charge for the forms
to obtain the permits are the municipalities of Jesús Maria, Ate, Barranco, Punta Negra,
Surquillo, Santa Maria del Mar, La Molina, Puente Piedra, among others. How is that, that
the professional altruists can require that entrepreneurs fulfill their “social responsibility” if
at the same time socialism impede them of fulfilling their profitable mission of social
benefit?
In chart 6 all taxes and other payments that businessmen must make to honestly do
business in Peru can be seen. It is enough for one of these taxes not to be paid for a
business to be withheld or in the worst case, for the estate to chase after a businessman, for
him to fulfill his tax obligations before the estate. One of the more eroding taxes is the one
upon the rent of third category of which its rates increase progressively from 15%, to 21%
and 30% depending on the wealth of a businessman to the economy. Upon the basis of up
to 27 UIT (Tributary Impositive Unity), he pays 15%, an excess among 27 UIT and 54 UIT
pays 21%; and for amounts exceeding 54 UIT the payment is of 30%. The progression is an
aggression against efficiency, quality costumer service, and a discouraging measure against

18. production and accumulation of capital.64 According to “Ciudadanos Al Día”, the tax
pressure65 reported by SUNAT does not show all the costs business must face, for there are
other extra-budget incomes for municipalities and independent organizations which
supervise and regulate, and in that case the pressure bore by the businessman is of 17.3%
and not of 12% as it is usually said. In other words, with this new calculation the
chastisement is real and greater to the one who produces more and better contributes to
society with the necessary goods and services. That explains that entrepreneurs avoid
paying the high taxes imposed fleeing via informality. It must not surprise us that our
economy is becoming more informal year after year, and that the rate has reached the
57.9% after Bolivia with 65.6%.66
Chart 6
Social Benefits That is Charged to
Businessmen
 Weekly Vacations
 Pre and Post Pregnant Vacations
 Paid Vacations
 Bonifications on July & December
 Health care Payment (Essalud)
 Retirment Payment
 Work and Risk insurance
 Bonification of Labor Time
Elaboration: ILE
More aggressions: Some plundering laws
Law 6634 “Creating the National Foundation of Archeology‖. Date: 13 of June 1929
Since the issuance of this law, a real agony started for Julio Zavaleta Flores and Rosa Maria
Zavaleta Alvarez de Zavaleta. They are the legitimate owners of the Machu Picchu ruins
located in their farm Santa Rita de Q’ente in the province of Urubamba in Cusco. From the
beginning of the past century until today, the State prohibited by laws, decrees, norms, and
also actions by estate organizations, that the Zavaleta family exercises their rights to do
business in the Inca City, while the National Institute of Culture does it charging the
entrance to visiting tourists. Besides, they are not allowed to invest in the agricultural
landscape nor receive foreign investments for the constructions of hotels and other
infrastructure works in the area of their property of 22,000 acres of extension.
The 6634 Law states:
―Article 1º- Historic monuments in existence in the national territory previously to
the Vice-Kingdom are State property. The right to the nation over those monuments
is unapplicable and non-prescriptible.‖
―Article 5º- If the archaeological sites to which the previous articles refer are
situated in private fields, the State may expropriate those fields according to the
law, in the extension needed to preserve the sites and so as to facilitate the scientific
research required.‖
The State’s illegitimate history of appropriation begins when the Nadal family registers the
land of their possession at the end of the XIXth century, once the Public Records Office

19. started operating at the time Peru becomes an independent nation. From there, the property
rights on the monument were of private dominion and registered under the 1852 civil code
which facilitated the successive purchasing by lots by Doña Tomasa FerroVizcarra who
purchased the lots from the Nadal family. Don Emilio Abril inherited the land as the
husband and he sells it to the Zavaleta family. The owners at this point are Julio Zavaleta
Flores and Rosa Maria Zavaleta Alvarez de Zavaleta, according to records in the Regional
Records Office Inka, entries 166 and 167 of card 9603. In a legal report it is pointed that the
contract of sale-purchase of Mr. Vizcarra “estated that the city of Machupicchu was not
included in the purchasing-sale operation for it would be expropriated and the vendor
reserved for himself the future indemnification to be paid by the Estate” 67. Likewise, it
concludes that “The 6 of December of 1944 the government issued the Supreme Resolution
Nr.3975 by which the National Park of Ollantaytambo was created and the National
Patronage of Archeology was authorized to act on behalf of the Supreme Government to
continue with the expropriation procedure, according to Laws 6634 and 9125, for the
totality of the Primavera farm (old name of the original farm to which the Q’ente farm
belonged), located in the district of Ollantaytantambo, previous measurements.”68
The State never expropriated the farm or the historic site from Mr. Emilio Abril Vizcarra or
from the Zavaleta family. In spite of the fact that in 1974 and 1975 the expropriation was
initiated with the purpose of carrying an Agricultural reform, however, by Supreme
Decree.036-91-AG this mistake was corrected as the land could not be destined to those
purposes as the city was considered national patrimony. The expropriation process was then
left without effect, returning to the owners the rights to property on the farm and of course
all further sale contracts. It is good to point that Machupicchu was formally discovered by
Hiram Bingham in 1911 when the Nadal family was owner of the land where the city was
located, and the fact. The existence of the city was already known by many. The estate
issued the 6634 and 9125 laws alter all that.
By the other hand, the National Institute of Culture made attempts for the state to declare
the Q’ente land as part of the National Cultural Patrimony. However, the supreme Decree
001-81-AA lacks legal foundations for the State to be the legal owner as the Administration
of National Patrimony declared that the registration of cultural patrimony does not imply
that the owner looses his rights to ownership. But the irregularity lies in that National
Superintendency of Public Registry-SUNARP has agreed in the co-existence of two
different entries on the same real estate property; one that registers the property rights of
the Zavaleta family, and other that registers the estate as owner of the cultural site which is
actually the Q’ente land. The truth is that the property should have been registered in one
entry as a debit, but not opening another entry where the estate appears as the owner.
It is proper to point that the National Institute of Natural Resources-INRENA, the
Administration of Machupicchu-UGM, the General Direction of Industry and Tourism of
Cusco, and the Judicial Power have constantly and systematically assailed the property
rights of the Zavaleta family, and that through the Itinerant Multiple Lobby of Cusco 69, and
the aggravating fact is that the State gets hundreds of thousands of dollars annually due to
paid rights to visit the site located in the land of the Zavaleta family, while this last one gets
nothing for the use the estate makes of their property.

20. Law 13406 ―Law of the University Student Ticket”. Date: 20 of February, 1960
This law was issued during Manuel Prado’s government, when there were only seven
universities in Peru. The law commands the transport companies to subsidize the students’
ticket at the expense of their profits. The students say it is an acquired right. However, and
according to Benegas-Lynch- its compulsory financing makes of it a false right. 70 Nobody
can claim something which does not belong to him. But although the law was modified by
Decree 651 and Supreme Decree 006-PCM-93 respectively, and these modifications
liberalized the prices, establishing no difference, the law 26271 issued in December 1993
establishes a difference in the prices for students, for the police and firemen. The
transportation businessmen have issued a demand for the illegality of such law. In October
of 1998, the law 26986 was issued, modifying articles 4 and 5, and by the law the National
Assembly of Rectors was empowered to issue scholar carnets, university carnets and
superior institute carnets. There is no definitive solution to this problem, and it is also being
discussed that the Estate subsidizes the transport businessmen for the compulsory subsidy
to students, policemen and firemen. There are very different calculations of the amounts the
transport entrepreneurs subsidize at their expense to students, which can reach from soles
150,000 to several hundreds of millions annually, mounting up to 17% of their income.71
Decree Law 17716 ―Law of Agrarian Reformation‖. date: 24/06/1969 The socialist
government of general Velasco Alvarado issued this law which expropriated the land from
the medium and greater owners to turn their companies into worker-owned cooperatives. It
is calculated that the number of individuals affected by the law reached the 4,000
entrepreneurs.72 However, the State did not fulfill the law as it did not pay the bonuses
issued to the former owners, a debt reaching from US$500 to US$1,200 millions. Likewise,
in many cases the State did not fulfill the requirements provided by the law, and many
owners have not received their bonuses or even a verdict on the value of the expropriated
land. By the other hand, during the expropriation process many small owners who were
under the limit of 100 acres were injured, for as the process continued, the limit was
reduced without opening the budget entry that could guarantee the corresponding bonuses.
In its considerations the 17716 Law declares:
―That the agrarian structures prove to suffer deep disorders which are the cause to
extreme conditions of social injustice in the agrarian fields; (....)
―That therefore, it is urgent to execute an Agrarian Reformation which may respond
to the Peruvian people’s unanimous interest....‖ (emphasis ours)
In an evaluation of the reformation 73 and the socialist economic policies, the results show
that the inequalities among regions increased, regional export operations decreased, and
there were also conflicts among the cooperative workers and against the estate. And that
against which socialism battled repeated again, but this time a new farming aristocracy
emerged with unequal distribution, and they led the poor farmers, not depending from
entrepreneurs but from the new leadership of the cooperative. 74
As observed, it is the socialist system which commits injustice and not the entrepreneurs.
Until now, no government has taken care of this problem, in spite of the fact that the

21. directors of this association have proposed some formulas to exchange bonuses for agrarian
projects. There is no claim for the returning of the lands as the mistake has already been
made and the consequences of Velasco’s socialism are being paid.
Law Nbr 28008 “Law of Custom Crimes” 19/6/2003
Photo 175 shows how the estate assailment to the small businessmen of the United Frontiers
downtown Lima, in a police operation that left dozens of merchants injured. Statism always
portrays the merchants as “bad” before the public opinion, as these try to sort the state costs
by purchasing smuggled merchandises so as to offer them at lower prices to their
costumers. The 28008 Law typifies this as a crime, thus proceeding to confiscate, destroy
and prohibit the trading of these merchandises considered smuggling. However, Statism is
the cause for smuggling, as the high costs of production derived from taxes and regulations
make it impossible to offer competitive prices against merchandises which proceed from
Bolivia. Photo 276 shows the small business destroyed a day after the police operative, and
a small local businesswoman showing her frustration.
PHOTO 1
PHOTO 2
Decree Law18169 ―Expropriation of newspapers Expreso and Extra‖. Date: 3/1970
This was the beginning of the expropriation of all the media businesses with the intention
of transferring them to the various social organizations, among them the teachers, agrarian
workers, etc. It did not happen that way in the practical, as the Estate assumed control upon

22. the,. They started up by the company that was at the time editing the newspapers Expreso
and extra. That Decree has no “consideratins” but its articles 1 and 2 say the following:
―Article 1 The expropriation of shares issued by Editora Nacional S.A. is declared
of social interest…‖
―Article 2 In this expropriation are included all the movable and real properties of
third parties who are actual owners of the company mentioned and that are
considered necessary for the accomplishment of its objectives‖
Decree Law 18275 ―The Revolutionary Government decrees the market regulation on
foreign payment orders.‖ Date 15/5/1970
It was not enough for the socialist government to plunder the physical properties, movables
and real properties, but it also expropriated the rights to make use of the US dollar profits
which belonged to the owners, prohibiting as well the possession and the performing of
contracts. In articles 1, 2 and 4, the law manifests:
―Article 1- From this date, natural and juridical individuals residing in the country,
with the exception of Banco Centra de Reserva del Perú and of Banco de la Nación,
are forbid to keep and deposit foreign currency in banks and institutions of the
country and /or abroad.
Article 2- Likewise natural and juridical individuals residing in the country are
forbid to keep and acquire debts and to perform contracts in foreign currency
within the Republican territory.
Article 4- From this date, those deposits in foreign currency in existence in banks
and other national institutions will turn into national currency, and the foreign
currency will be purchased by the Banco Central de Reserva del Perú at the
pondered purchasing exchange rate recorded en the money order market at the
closure of operations in the date of issuance of this law. The equivalent in national
currency will be paid to the depositors.‖ (highlights ours)
Decree Law18384 – ―Law of Industrial Community‖. Date: 1/2/1977
During the dictatorship by the military government of Morales Bermudez, in 1977, such
communities were established for the workers to partake in the benefits and the direct
administration of the affected industry. In article 3 and inclusions a) and b) the legitimate
owners are dispossessed of the rights private property grants to the owners of the modern
industries of that time.
―Article 3- The objectives of the Industrial Community are:
a.- The strengthening of the Industrial Enterprise by means of the joined action of
workers in the management, in the productive process, in the entrepreneurial
possession and in the re-investment, likewise, by encouraging all constructive forms
of interrelation between capital and labor.
b.- Uniting the workers actions on the management of the industrial enterprise so as
to take care of their rights and interests they are granted as owners by decree
Nbr.18350 ―

23. But far from achieving its purposes, it turned workers against entrepreneurs. Resides the
participation of workers kept at the minimum with 17% of the shares. The National Society
of Industry was against the law, as, in order to keep the labor participation low, the
entrepreneurs reduced their income. By the other hand, the workers faced each other so as
not to share the profits. 77
Law 24723 ―The activities of public service of Banks, Financial institutions and Insurance
companies is of social interest‖. Date: 29/9/1987
During his government, Alan García expropriated from the owners of banks and other
financial organizations their rights to property of shares, administration and management,
under the collectivist banner of “social or national interest”. In its article 2 and part of
article 7 the following is said:
―Article 2.- With the exceptions appointed by law, the expropriation of shares
representing social capital of private banking companies, financial institutions and
insurance companies is declared as of social relevance
The State is the beneficiary of the expropriation and the Ministry of Economics and
Finances has the role to execute it. With that purpose, the procedure described in this law
must be applied, and in what is not previewed, the Legislative Decree nbr. 313 and its rules
must apply.‖
―Article 7. On behalf of national interests, and because of emergency situations
affecting banking, financial and insurance businesses, and being decreed in article
132º of the Political Constitution of Peru, the Executive Power will provisionally
take directly take care of the management and administration of the companies
dedicated to such businesses. (...)‖
Although a judge accepted the judicial resource presented by a private bank asking the
expropriation process to be stopped, finally the government of Alan García withdrew from
their attempts to snatch the banking companies when the middle class, led by liberal
novelist Mario Vargas Llosa mobilized the people and the public opinion to hinder that
attempt to become a total statization of the economy. Although it is true that already the
50% of banking activity was under estate control, that statization was the beginning of
confrontation between entrepreneurs and government. Besides, a strong increase in the
purchasing of dollars took place while the international reserves diminished from US$1,383
millions in 1985 to US$ 60 millions in December of 1987.78
6.-THE EXIT: RETAKING LIBERALISM
This report could stop as a critic, but that would not be edifying. Doubtlessly, there exist
many ways to promote entrepreneurship and enhance its performance, but we think the best
is the “cultural change” in public opinion, specially from those who believe that “ideas
have consequences” as Richard Weaver said once.79
It is imperative that ideologies change in our society. And for that to happen, there should
be a “critical mass” of intellectual initiators organized in liberal research institutions “think

24. tanks”, study groups and Schools of Entrepreneurship, which may educate, debate and
communicate to the citizens, specially to small and medium size entrepreneurs, those
forgotten values and rights of free enterprise, private property and limited governments. For
politicians –those called to take into effect the necessary institutional changes to limit the
government to its natural role, modify negative incentives and re-establish the right to
property of businesses- are the expression of public opinion. If people want socialism they
will place socialist in power. If people believe in liberalism, they will elect liberals for the
congress and the Executive Power. Graphic 7 shows the liberal choice, which starts with
the ideological change of a good section of public opinion. In this first step, the “think
tanks” and educational foundations have a prevalent role in the spreading of liberal values
and ideology by means of courses, workshops, congresses, seminaries, addressed to the
different levels of society. Once widespread , the schools, universities, the press, analysts,
syndicates and political parties take, process and adapt values and ideology in the activities
mentioned before. About this last one, there will be those who will go from the stage of
political ideas to political action, organizing themselves in liberal movements –meaning
parties- confronting their own proposals with those of other movements and competing to
achieve political power. It is proper to point that, being the law an instrument with
expoliating power, it is pertinent that a liberal party focus in getting to the seats of the
Congress with a majority that will allow the derogation of bad laws which impede the
development of businesses and in that way to stop the constant state aggression to
entrepreneurship. About this in particular, it is good to point that the derogation of bad laws
is step simultaneous to the modification of the institutional structures with the purpose of
eliminating the state monopoly. Once this has been achieved, an “explosive production”
expressed by stronger institutions and a circulating economy, free from unjust and high
taxes and regulations will take place, and with it a liberation of entrepreneurial energies and
initiatives will accumulate, correcting the disadjustments in the market80 which were
caused by the bad laws of statism. In other words, entrepreneurs display all their creative
potential in the fabrication at great scale of new products at low prices originated in the
increase of competitors, which translates in the constant increase of productivity,
investments, and which is in turn the cause of entrepreneurial prosperity.
GRAPHIC 7
Public Liberal í
Majority Abolition Productive
l Prosperity
Opinion Party Congress Bad Laws Explotation
v l
7.- CONCLUSION
We have looked at some plundering aggressions only. Making a list of all the laws that
plunder entrepreneurs today deserves additional work. As we have seen, the performance of
entrepreneurs depends from the laws, and these in turn depend on politics, a result of the
collective ideas. Ideologies inspired in values such as solidarity, national interest, justice
and common, support the concern to distribute the wealth honestly generated by
entrepreneurs by means of different measures politically promoted by socialism through
statism. The results are obvious: low competitiveness, high and numerous taxes, abusive

25. regulations, lack of economic freedom, small entrepreneurship, and permanent conflicts
between workers and businessmen. The aggression of socialism is not recent, and it started
in the beginning of the past century, and good part of still continues through new laws.
Because of it, we should admit our failure to live as free and productive individuals in
Peru.81
Alter examining the multiple and unjust aggressions, entrepreneurs should ask themselves
if it is worthy continuing in legality and if it is not better to wait until the climate of legal
plundering may cease.
The intellectual initiators have the master key to carry the necessary cultural change into
effect, and encourage others to start political action to turn the country into a land of
freedom and entrepreneurial possibilities as Peru and Latin America were in the beginning
of the XXth century.
1
Stockman (1977), p.98
2
An interpretation of Hayek’s philosophical Politics is made by professor Cubeddu: “Hayek understands
values are those that can guide an individual‘s actions through the main part of his life as different from
specific goals which may determine his actions in definite moments”, thus, professor Raimondo Cubeddu
concludes ―Values, abstractly understood make possible a pacific existence of order in an open society‖, in
Cubeddu (1997), p.279.
3
Rand (1985), p.19
4
Hayek (1990), p.50.
5
In that respect, Milton Friedman pointed in December 2003 in a private conversation with professor Mark
Skousen that “entrepreneurial social responsibility” could be possible if the same executives could carry
campaigns with their own money and which could improve the reputation of their own companies before the
community. However, he could not see the advantages for small companies. See in
http://www.mskousen.com/sknews-031201.html. An ethical position beyond that sustained by Friedman is
that of Tibor Machan: ―Of course, Friedman does hold that making profit should be constrained by basic
rules of free trade and ordinary morality and law –of honesty and contractual integrity, the right to property,
and the like. But within this set of elementary rules that apply to us all, corporate executives or managers
have the sole responsibility of striving to turn a profit for the owners‖ in Machan, Tibor (2002), pp.13.
6
Read an extension of this point of view in Expreso newspaper, “El Síndrome de la Responsabilidad Social”,
written by José Luis Tapia Rocha, Thursday 13 of march of 2003, p.18
7
Professor and political analyst Alberto Mansueti wrote the following: ―Lo que tenemos ahora es
simplemente otra vuelta de tuerca. ¿Cuál es la ―fórmula‖ hoy? Neocomunismo, o comunismo ―políticamente
correcto‖, más allá del impresentable comunismo tipo soviético. En otras palabras: un colectivismo
actualizado según las modas ideológicas actuales: ecologismo e indigenismo ―multicultural‖; feminismo y
―derechos de los niños‖; ilusión de democracia directa (―participativa‖); filosofía ―posmoderna‖,
abiertamente contraria a la razón y al pensamiento objetivo; y religión ―Nueva Era‖, combinada con
cristianismo reinterpretado.”, in Mansueti (2002)
8
Hayek sustains that ―El hombre no viene al mundo dotado de sabiduría, racionalidad y bondad: es preciso
enseñarselas, debe aprenderlas‖. But later he points: “Eso que llamamos mente no es algo con lo que el
individuo nace --como nace con un cerebro—ni algo que el cerebro produce, sino una dotación genética
(p.e., un cerebro con una estructura y un volumen determinados) que nos permite aprender de nuestra
familia, y más tarde en el entorno de los adultos, los resultados de una tradición que no se transmiten por vía
genetica‖ in Hayek (1990), pp.55 and 56-57.
9
An enriching tought about the power of myths is made by Spanish Luis A. Balcarce in an electronic
message received the 4 of May of 2004 as a response to the author of this work. The following is a paragraph
of this reflextions: ―¿Dónde comienzan ‗los valores‘ y qué los distingue de los mitos? Guy Sorman ha
llamado la atención sobre el hecho de que el liberalismo ha sido muy descuidado con respecto a los mitos,
que en Occidente, tienen mucha más preponderancia que los tan mentados ‗valores‘. Sería muy fructífero que
explicaras cómo fue que en una tierra plagada de mitos y religiones como Latinoamérica, el socialismo haya

26. podido expandirse a sus anchas y no así el capitalismo. Si las dos eran ideologías de corte moderno y
occidental, ¿por qué en Perú triunfó una sobre la otra? ¿Cómo fue que la gente adoptó valores y creencias
que el eran ajenas o extrañas? ¿O no lo eran?‖. Dr.Balcarce is director of “Poder Limitado”, an electronic
Spanish magazine which can be located in Internet: www.poderlimitado.org
10
North, Douglass (2003). Instituciones, Ideología y Desempeño Económico, an essay published by Cato
Institute in its webpage : www.elcato.org. It was originally published in English in the Cato Journal in winter
1992. Los conocimientos científicos solo equivale al 20% del conocimiento total en el mundo mientras el gran
volumen restante son conocimientos subjetivos, dispersos y no articulables que determinan el comportamiento
de los empresarios. Muchos llaman ese conocimiento subjetivo arte, talento, destreza y habilidad.
11
Astete (2001), p.177
12
Ibid, pp.147-148
13
Bastiat, s/f., p.10
14
Estatism is about the estate going beyond its role in function, power and expenses, along supressed markets
and private institutions joined to political power. See Mansueti y Tapia (2003), p.4.
15
Authors like Enrique Ghersi, Mario Ghibellini and Hernando de Soto wrote “The Other Path” where they
discover that businessmen sort all the complicated legal puzzle which unavoidably leads them to survive in an
extralegal economy. After more than 15 years, informality of economics reaches 59.7% of the GNP according
to estimations by Norman Loayza, The Economics of the Informal Sector, Policy Research Working Paper
1727 World Bank. Although they were pioneer Peruvians exposing that extralegal economy, it is necessary to
point that William Mangin was pioneer in researching informality and he was in Peru in 1957 working with
the peace Corps. Afterwards, in the summer of 1967 he published his research in Latin American Research
Review “Latin American Squatter Settlements: A Problem and a Solution“ as journalist Alvaro Vargas Llosa
reported in his article, El Hombre que se Adelantó (I) y (II), Publisher in the newspaper Correo the 18 of
January and 1st of February 2004, pp. 8 and 10.
16
Bastiat, s/f, p.6.
17
Astete (2001), p.12
18
Huerta (1992), p.118-131
19
Electronic message received the 7 of May of year 2004 from Spanish economist Jorge Valín as a response
to a requirement from the author for some comments to this report from which he quotes a publication about
this topic “Do We Ever Really Get Out of Anarchy?” by Alfred G. Cuzán. Mr.Valín web page
www.jorgevalin.com
20
Lemieux (199?), p.56.
21
the famous article refers to “El Cálculo Económico en la Comunidad Socialista” written in 1920, with it he
initated a famous sevreal years long debate with Oskar Lange.
22
Ibid, p.78
23
Ibid, p.31
24
Skousen (2000), p.12
25
―El capitalismo es la dimensión económica del liberalismo. La economía capitalista se basa esencialmente
en la libertad individual y asegura la soberanía práctica del individuo”, in Lemieux (199?), p.64
26
Since General Velasco Alvarado’s regime, all governments have lifted the banners of social justice,
distribution of wealth, solidarity, but no party has nominated itself as liberal. Socialismo lives in our midst..
27
Huerta de Soto (1992), p.87
28
―El Mandato puede ser definido como toda instrucción o disposición específica de contenido concreto que,
con independencia de cuál sea su apariencia jurídca formal, prhibe, ordena y obliga a efectuar acciones
determinadas en circunstancias particulares‖ in Huerta (1992), p.94
29
Lemieux (s/f), p.73
30
Mansueti y Tapia, p.25
31
Cubbedu, p.230.
32
Mansueti y Tapia (2003), p.44
33
Economist Mark Skousen is one of the few who favors free market and who teaches in a university in the
USA combining supply-side economics with Austrian economics so as to explain the important role of the
factorial market in economics.
34
Santos (1997), pp.308-309
35
Ibid, p.13
36
Ibid, p.16

27. 37
Cubeddu (1997), p.316.
38
Kirzner (1989), p.46
39
Mises (1995) pp.77-85.
40
Kirzner (1998) pp. 46 y 264-265.
41
Huerta (2000), pp.33-49.
42
More about the distinction between the role of economics and entrepreneurship in the distribution of
resources, see article by Tapia (2002) pp. 4-7.
43
Huerta (1992), pp.69-70 and 71.
44
Postrel (1999)
45
Ibid
46
Bastiat was eloquent pointing that socialism uses the law for its plundering objectives. ―¿Quiere oponer la
ley al socialismo? Pero, el socialismo precisamente invoca la ley. No apela a la expoliación extra-legal, sino
a la expoliación legal al igual que todos los monopolistas, pretende hacer un instrumento de la ley misma; y
una vez que tenga la ley de su parte, ¿Cómo se puede volver la ley contra él?. ¿Cómo pretender colocarlo
bajo el poder de los tribunales, gendarmes y prisiones?. En Bastiat (s/f), p.18.
47
Mises (1975), p.30.
48
Bastiat (s/f), p.11
49
See article by Kelley (1989), pp.2-4
50
Benegas-Lynch (s/f)
51
Kelley (1989), p.3
52
Rand (1985), p.36
53
Ibid, p.28
54
American Catholic priest Robert Sirico has estated the neccessary moral recognition to entrepreneurship as
the source of social and spiritual well-being. Sirico qualifies entrepreneurship as “.vocación digna, como un
llamado sagrado” ( thaks to its availability to serve others supplying goods, jobs, incomes and investements.
Besides, he sustains that the ecclesiastical hierarchies have no clarity about the functions of the market,
likewise, they think entrepreneurs are collectors and no creators of the wealth. Going further, he sustains, as
Michael Novak does, that the act of creation of entrepreneurs ―...es similar a la actividad creadora de Dios en
el primer capítulo del Génesis‖, see Sirico (2001), pp.12,16,24, and 25.
55
Mises (1968), p.145
56
Mises (1975), p.29.
57
See article by José Luis Tapia Rocha “La Empresa privada convertida en piñata”, in newspaper Expreso,
saturday 1st of november 2003, pp.A-12. An opinión in that respect is the one by Luis García Miró, director
of the newspaper who wrote: ”Un claro ejemplo se resume en el sesudo artículo que publicó ayer EXPRESO
de nuestro buen colaborador José Luis Tapia Rocha, presidente del Instituto de Libre Empresa. En él se
analizan en detalle algunos peligroso ataques a la actividad privada como : 1) la perversa acusación a la
minera Manhattan que iba explotar un proyecto aurífero de enorme potencialidad; 2) los cuestionamientos al
proyecto Camisea; 3) el control de precios instaurado en forma clandestina e inconstitucional por Indecopi;
4) el dictamen de la comsión de Energía y Minas del Congreso prohibiendo la privatización de Petroperú,
etc.” In newspaper Expreso, “A mitad del camino”, Sunday 2nd of November 2003, p.A2.
58
Some readers may wonder if Alberto Fujimori’s government was a liberal one. Enrique Ghersi, one of the
most recognized public figures of liberalism in Peru says, in reference to the case of Peruvian Businessman
Baruch Ivcher, that there cannot be liberalism when basic individual rights are violated. See “¿Fin de Siglo
Liberal? In magazine Business, February 1998, Lima, pp.59. However, other liberals sustain that during the
decade of the 90’s was more a moderated estatism with some liberal elements and that some obsolete estate
measures were replaced by regulations. A more detailed analysis about the 90s in Tapia y Mansueti (2003),
pp.4-6
59
Lastra (2002)
60
The Index of Economic Freedom is elaborated by Heritage Foundation in cooperation with The Wall Street
Journal. The book can be found in the web page: www.heritage.org
61
Chart elaborated by Ciudadanos al Dia organization (2004), pp.46. The World Bank Group is the direct
source of information and it can be found in the web page: http://rru.worldbank.org/Doing
Business/SnapshotReports/Country.aspx?regionid=152
62
Ibid, p.44.
63
Ibid, p.12

28. 64
Mexican economist Luis Pazos, deputy of PAN of Mexico, makes a conclusion on the progression of taxes:
―Los altos y progresivos impuestos, además de no contribuir a una mejor distribución del ingreso, se
convierten en el principal desincentivo a la producción eficiente y capitalización de los sectores más
progresistas de la sociedad, reflejándose estos hechos en una menor disponibilidad de bienes y servicios para
las clases de menores ingresos, y también en una menor recaudación fiscal, debido al freno que provoca en
la actividad económica y en la creación de nuevas fuentes gravables los altos y progresivos impuestos” in
Pazos (1982), p.116
65
Ciudadanos Al Día (2003), pp.26 and 28
66
See note in Expreso newspaper, “Gobierno Pone Trabas a la Inversión”, 13 of January, 2003, p.9.
67
Legal Extended Report elaborated by lawyer Fausto Salinas Lovón 24 of May of 2002, p.4.
68
Ibid, p.5
69
Ibid, p.7
70
See web page of El Comercio with title: ¿Es un derecho el pasaje universitario?, in
http.//www.elcomercioperu.com.pe/Eccampus/Html/2003-04-11/EcCampPor0718.html. Professor Alberto
Benegas-Lynch (h) says in this respect:”No puede existir un derecho para cuya realización sea necesarios
violar el derecho de otras personas” in Benegas-Lynch (s/f).Congressman Hildebrando Tapia has joined To
the students’by introducing a Project of law 4261 by which a “right to half.ticket” on behalf of university and
institute students is created. See his article in Agenciaperu.com en
http://www.agenciaperu.com/columnas/2003/ene/tapia.htm
71
Figure drawn from a journalism research work by student from Universidad Católica del Perú Publisher in
http://www.pucp.edu.pe/fac/comunic/perdigital/trab2002-1/david/anterior.htm. By the other hand, president
of the association of Urban Transport Companies (Asetup) estimates the economic perjury reaches the S/.300
millions annually. See Translima S.A brochure. “Concertando”, No.15, of the 1st of November,2003, pp.17.
72
Figure drawn from declarations of director of Association of Expropriated Agricultors of the Ahrarian
Reformation (ADAEPRA), Pedro Olaechea. See Expreso newspaper, “MEF debe evaluar conversión de
deuda de la reforma agraria‖, Publisher on Sunday the 6 of April of 2002, p.A14.
73
Parodi (2002), p.126
74
Ibid, p.126
75
Taken from Correo newspaper, Tuesday the 5 of November of 2002, section Locales, p.14
76
Taken from Peru 21 newspaper, Tuesday the 5 of November of 2002, section Ciudad, p.12
77
Ibid, p.127.
78
Ibid, pp. 214-215
79
Reed (1999), p.1
80
It is understtod as unemployment, lack of investments, smuggling, low income and profits, distorted
productive structure, lack of growth, credits, cash flow, informality, among the most important.
81
In a similar sense, it agrees with Professor Skousen estatement:―...cada vez que promulgamos una nueva
ley o regulación, cada vez que elevamos los impuestos, cada vez que vamos a la guerra, admitimos el fracaso
de los individuos de gobernarse a sí mismos‖. Skousen (1997), p.99
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