I was skimming through one of my history books recently, and was struck once again by how much more circumspection they afford to the creation of property rights than the majority of economics and development texts that deal with them. There’s a strong strain in development thinking to the effect that fixing property rights is a necessary precursor to both economic development and economic justice. This comes up in work on fragile states and on non-conflict affected areas, with the strong implication that it’s not only necessary for economic development, but that it reflects a kind of moral progress for society.
There’s absolutely no doubt that there is a correlation between the existence of property rights and the onset or acceleration of economic development, a fact that has been long recognized by historians (indeed, one of the principal benefits to economic development brought by colonization on the Indian subcontinent was the association of property rights with legal structures able to sustain and enforce them). Having said this, though, there’s need to provide a little subtlety in the analysis of property rights by acknowledging some of the complexity in how they emerge and the mechanisms through which they impact on economic growth and social stability.
Perhaps the first misconception we need to shake a little relates to the presumed moral dimension of property rights. The recognition of property and rights to it is generally assumed to be a socially progressive step in the development of a society. Historically, this has rarely been the case; it has been a developmental step, but the establishment of mechanisms through which property can be formally claimed and protected through the coercive power of the state have usually followed land grab, asset seizure and similar means of regressive redistribution. Most commonly a powerful elite or group of elites seizes land by force and then uses its influence and financial clout to ensure legal ratification of its actions and protection of the assets and land seized. The classic example of this is the enclosures movement in England. Property rights, when domestically generated through internal demand systems, tend to come when one group has gained contested property and needs protection; when there is a social consensus of what property is and when the existing distribution of it is seen as just, property rights are lower on the agenda.
Following this thought a little, it also becomes apparent that the timing of the creation of property rights matters a great deal. If property rights are formalized after the redistributive process described above, they can be an important means of stimulating capitalism by creating a distinct classes of landowners or asset holders and landless or asset-less workers. This disjunct lies at the root of the capitalist/industrial transformation, as it sets up the system of capital applied to wage labour, creating the incentive structure that powers the extraordinary innovative impulse and dynamism that we find in modern economies. If, however, property rights are formalized rigidly early they can greatly reduce the possibility of accumulation, while protecting the rights of those less-powerful citizens; yet capitalism is based on just this accumulation.
This dilemma then brings us to a further subtlety often overlooked in discussions of property rights: that a central characteristic of property regimes must be flexibility. With flexibility, it becomes possible to facilitate the accumulation that at some stage must occur for the development of capitalism while maintaining a level of protection (and compensation) for those who must inevitably be losers in this process. This can soften the economic transitions that capitalism begets, but may also slow the process: a trade off that each society needs to assess for itself.
Finally, property rights might have some claim to universality as a concept, but as Hernando de Soto has shown, different societies have vastly different conceptions of what property is and how it should be recognized – something that policy on property rights rarely recognizes. International organisations are keen on transposing western property systems onto new areas, but the reality is the way in which property is codified and transferred differs quite greatly between different countries, even in the West, and in particular the ways in which property rights evolved in each country was dramatically different.
So what am I saying? Property rights are far more complex than simply being ‘a good thing’ that ‘must be prioritized for economic development’. We need to think much more sharply about exactly when and how they should be formalized, the rules and mechanisms that should be associated with them, how to match them to specific local conceptions of property and its transmission between owners. Economic development and transformation will not be the only criteria in this: social and political stability will matter as well. In short, property rights should be dealt with as a practical issue and not an abstraction.