People deal only with those they know and trust or through informal associations that substitute for formal law. Extralegal arrangements flourish because they are essential for survival. Some of these arrangements are ethical, but others are corrupt. In Peru, for example, bribes raise the cost of running a small business by 10 to 15 percent, de Soto writes. Aside from depressing economic growth, the denial of property rights destroys any constituency for popular capitalism.
Some wealthy investors do enjoy property rights and legal capital.
It builds on his 1989 work, The Other Path, which convincingly revealed the widespread informal or underground economies in many poor countries. That book's argument was similar, noting that the bureaucratic difficulties in creating legal businesses usually compel the poor to skip the process. They instead establish small businesses with few, if any, of the necessary permits or licenses. In the informal economy, street vendors, taxicabs, small bus services, shops, tiny factories, and urban marketplaces predominate. De Soto's insight has clearly influenced developmental economics.