cannot arrange desktop items

Here's the Apple article explaining your options for arranging the files on your desktop when running Catalina.

Ways to organize files on your Mac desktop - Apple Support

I think this is the relevant section of the article that will allow you to arrange the files manually like you want to do. I underlined the section explaining how to configure that option.

Arrange files on your desktop

The desktop gives you many different ways to arrange the files you’re working on. You can keep your files sorted by name, kind, date added, size, tags, and more. Click the desktop, choose View > Sort By, then choose an option. If you want to control the placement of your files on the desktop, keep Sort By set to none. You can still arrange files neatly when desired—just click the desktop, choose View > Clean Up By, then choose how you’d like to arrange the files.

The desktop gives you many different ways to arrange the files you’re working on. You can keep your files sorted by name, kind, date added, size, tags, and more. Click the desktop, choose View > Sort By, then choose an option. If you want to control the placement of your files on the desktop, keep Sort By set to none. You can still arrange files neatly when desired—just click the desktop, choose View > Clean Up By, then choose how you’d like to arrange the files.