Building Institutions that Make Property Markets Work
Why Property Rights and Markets Matter
Property rights are among the most fundamental principles enshrined in Article 17 of the United Nations’ Universal Declaration of Human Rights and are constitutionally protected in most states. Despite this worldwide legal recognition of the importance of property rights to building peaceful, democratic, and prosperous societies, access to and protection of property rights vary greatly in practice. What is more, in many countries understanding of property rights often remains limited to property titles, without deeper appreciation of the underlying and interconnected institutions that allow property markets to function.
Peruvian economist Hernando de Soto famously asked: although cities across the developing world are teeming with entrepreneurs, why do those countries seem unable to become prosperous market economies? The answer, he argues, is that they hold “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 property rights are not properly documented and institutions that make them meaningful are weak, the property that so many small entrepreneurs around the world hold remains “dead capital” that cannot be easily turned into productive use.
If a small business does not have a title to the location where it operates, it cannot use it as collateral for a bank loan to invest or expand operations. If the justice system is dysfunctional, small entrepreneurs cannot rationally resolve disputes over property or any other business matter. If rules and regulations on business conduct are too complex and costly for compliance, or if local land and tax officials are corrupt, businesses are forced to operate in the informal sector.
Those examples illustrate that property markets are multi-dimensional institutional frameworks that touch upon issues key for all citizens but particularly vital for small businesses – from access to credit to appropriate regulation. As such, property markets are a microcosm reflecting the state of a country’s institutions that build democracies and market economies alike.
Anna Nadgrodkiewicz is a Program Officer for Global Programs at CIPE, where she works on projects involving democratic and market-oriented reform around the world. Prior to joining CIPE, she worked as a business consultant in her native Poland on the issues of competitiveness and market entry in Central and Eastern Europe. She holds a Master’s degree in German and European Studies from Georgetown University in Washington, DC.
The views expressed by the authors are her own and do not necessarily represent the views of the Center for International Private Enterprise (CIPE). CIPE grants permission to reprint, translate, and/or publish original articles from its Economic Reform Feature Service provided that (1) proper attribution is given to the original author and to CIPE and (2) CIPE is notified where the article is placed and a copy is provided to CIPE’s Washington office.
