Thursday, December 23, 2010

Private Property Rights---BORING!! Well, not so much for people without them...They would like just a little of what rights you enjoy today...

In the span of two days the articles linked below have shone a light on how the lack of enforceable private property rights in developing countries have harmed large groups of people.  This is a widespread problem in Africa and other developing countries and it is commonly cited as a (the?) major, over-arching reason why it makes it so difficult for these countries to experience significant economic progress for the masses.

WSJ: Tullow Oil's Ambitions in Uganda Entangle Company in Land Dispute
NY TIMES: African Farmers Displaced as Investors Move In

Here are a few excerpts that illustrate the issue/problem. Notice the commonalities:

""The half-dozen strangers who descended on this remote West African village brought its hand-to-mouth farmers alarming news: their humble fields, tilled from one generation to the next, were now controlled by Libya’s leader, Col. Muammar el-Qaddafi, and the farmers would all have to leave."" WSJ 

""Sekou Traoré, 69, a village elder, was dumbfounded when government officials said last year that Libya now controlled his land and began measuring the fields. He had always considered it his own, passed down from grandfather to father to son.""WSJ

""A battle is brewing over oil-rich land licensed by Uganda's government to Tullow Oil PLC, entangling the U.K. company in a conflict between nomadic livestock herders and indigenous communities.  In recent days, Uganda's army had begun enforcing an order from President Yoweri Museveni to remove the herders. They were forced off the land with about 10,000 head of cattle and not provided with an alternative place to settle, according to security officers in the Bulisa and Hoima districts. "" NYTIMES

""The legal spat echoes similar conflicts over land and resources in other developing countries, from Africa to Asia. Governments sometimes sell land to companies where local farmers have lived for generations, with or without any record of property ownership."" NYTIMES

""Like many other indigenous people in the area, Mr. Alisemera said he inherited his land from his ancestors. Yet with the discovery of oil and an influx of cattle herders, his hold on the land is threatened. Many herders have acquired title deeds in an effort to bolster bids for compensation if they are asked to leave."NYTIMES
From our Euro-centric point of view, it seems like a relatively simple thing to do.  Advanced economy's of the developed world have mastered the art of establishing and maintaining private property rights to the extent that we hardly give it second thought and it is woven into the fabric of our economic DNA. How come we can do it, but much of the rest of the world can't or won't?  Ownership rights give one a sense of security and it allows you to benefit (ok, profit) from that ownership.  Ownership rights privide the incentive to maintain and improve the asset for (1) your own private benefit, which in turn improves the community you live in and (2) makes it more attractive to someone else who may want to acquire ownership in your asset at a fair market price.  Without property rights that are enforced by the rule of law, then the incentive to do these two things, in large part, disappears.

Hernado de Soto, in his great book "The Mystery of Capital--Why Capitalism Triumphs in the West and Fails Everywhere Else"", gives as keen an insight on this issue and is considered an authority on the subject.  He sees private property as a generator of physical and financial capital that one can parlay into more physical and financial captial.
""...But they hold these resources in defective forms: houses built on land whose ownership rights are not adequately recorded, unincorporated businesses with undefined liability, industries located where financiers and investors cannot see them. Because the rights to these possessions are not adequately documented, these assets cannot readily be turned into capital, cannot be traded outside of narrow local circles where people know and trust each other, cannot be used as collateral for a loan, and cannot be used as a share against an investment....""

""The poor inhabitants of these nations —the overwhelming majority— do have things, but they lack the process to represent their property and create capital. They have houses but not titles; crops but not deeds; businesses but not statutes of incorporation. It is the unavailability of these essential representations that explains why people who have adapted every other Western invention, from the paper clip to the nuclear reactor, have not been able to produce sufficient capital to make their domestic capitalism work.""
In the US and other developed countries this confiscating of property with no due process rarely happens.  While not perfect, we do have the institutions (the legal system) to help us fend off land grabs, from the government or other elites, that are so common in developing countries.  Until private property reforms are made and enforced by an independent legal system, places and incidents like the ones described above will have very limited progress. 

So, if you own a house, car, business, or other physical/financial asset and you don't fear someone can arbitrarily take it away from you, then you should thank the private property rights our major institutions (executive, legislative, judicial) still protect...many in the world envy you right now...
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