The Need for Constitutional Protection of Private Enterprise

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Constitutions can play an important role in protecting economic liberties, in addition to political liberties. As the state’s foundational legal document, the constitution can provide the essential framework for establishing commercial freedom and promoting the development of the private sector. For example, CIPE partner the Syrian Economic Forum (SEF) is developing proposals for the constitutional protection of private enterprise during a future transition period in Syria.

Different countries have taken a variety of approaches in tailoring their constitutions accordingly, which should be examined in determining how Syria’s next constitution will promote and protect private enterprise.

Private property rights encompass an individual’s rights to acquire, possess, enjoy, use, and dispose of private property without government interference. This includes freedom from expropriation — when the government dispossesses an owner of private property — without justification or compensation. Strong property rights are important for two main reasons. First, they are important in and of themselves because they are personal liberties, akin to freedom of speech or association. Second, they play an essential role in facilitating economic growth by providing individuals and businesses with the security necessary to invest their capital in the acquisition, maintenance, and improvement of the factors of production.

Other countries’ constitutions secure property rights in a myriad of ways. Iraq’s Constitution specifically states, “Private property is protected.” It further enumerates the owner’s right “to benefit, exploit, and dispose of private property within the limits of the law.” Libya’s Constitution similarly provides, “Private property shall be safeguarded.” It deals specifically with freedom of alienation, stating, “No owner may be prevented from disposing of his property except within the limits of the law.”

Most constitutions that protect private property also have a provision that forbids expropriation except through legal processes. While many constitutions allow for some government confiscation of private property, they require that it be for the public good and upon payment of just compensation. For instance, Lebanon’s Constitution states, “The ownership is protected by the law. Ownership of any one cannot be expropriated except for reasons of public utility under the conditions prescribed by the law and upon fair compensation to him.”

The constitution should also protect freedom of contract. Contractual rights allow market economies to function. Citizens must be free to enter into contracts of their choosing and feel secure that those contracts will be upheld in order to move from a system of personal exchange to a system of impersonal exchange.

The constitution may explicitly protect freedom of contract. For instance, the Moroccan Constitution declares, “The state guarantees the freedom to contract and free competition.” Contractual freedom could also be framed as an individual right through language enumerating every person’s right “to enter into binding agreements containing any and only provisions of their choice.” On the other hand, the constitution may operate to prevent the government from impairing contractual obligations. For example, the United States Constitution forbids states from passing laws that impair the obligation of contract.

The ability to choose a profession and enter a business of one’s choosing is essential to fostering market competition. A free market economy, in turn, promotes individual freedom by allowing citizens to exercise a greater degree of choice — which occupation to engage in, whether to buy or sell property and for what price, with whom to do business, etc.

This economic freedom contributes to political freedom. By decoupling economic power from political power, a market economy helps to prevent the concentration of power in the hands of an autocratic regime. It also contributes to the emergence of a business constituency that is not beholden to the government and a civil society that the government must accommodate rather than control. Constitutions can play a role in facilitating free market competition in a number of ways.

Some constitutions refer to a person’s right to participate in any lawful profession or economic activity, allowing for free market entry. Other constitutions refer more generally to free market economic principles. Iraq’s Constitution guarantees the reform of the Iraqi economy “in accordance with modern economic principles to insure the full investment of its resources, diversification of its sources, and the encouragement and development of the private sector.” A state may wish to elaborate further, such as by explicitly committing to foster entrepreneurship or support small- and medium-sized enterprises.

Ultimately, the constitutional provisions designed to support private enterprise will be rendered meaningless unless practically implemented and enforced. While the constitution can employ numerous structural mechanisms to achieve this end, one of the most important deserves particular mention: judicial independence. Without an independent judiciary to act as a check on centralized authority, an authoritarian regime can disregard constitutional protections for private enterprise in favor of policies that benefit its patrons.

By incorporating the provisions discussed above, constitution drafters can strengthen private enterprise and foster economic and political freedom within states undergoing a transition to democracy.

Peako Jenkins is a Public Service Initiative Fellow for the Middle East & North Africa at CIPE.