Property Rights, Democracy, and Development

Since the publication of Hernando de Soto’s landmark book The Mystery of Capital in 2000, the link between property rights and economic development, especially for the world’s poor, has become increasingly well understood. More recently, the events of the Arab Spring have thrown the relationship between property rights and democracy into sharper focus, emphasizing how the lack of access to property rights is intertwined with the lack of larger economic opportunity and democratic representation.

In the latest Economic Reform Feature Service article, CIPE Program Officer Anna Nadgrodkiewicz looks at the the connection between property rights, good institutions, and democratic governance. “While private ownership in and of itself does not guarantee freedom and democracy, it certainly makes them possible if appropriate rules governing responsible and ethical behavior are put in place,” she writes. Pervasive economic exclusion, on the other hand, leads to weak rule of law, corruption, and institutions that do not protect citizens’ rights or encourage sustainable economic growth.

Nadgrodkiewicz also points out that property rights mean more than just titles, which is how they are commonly understood. Instead, property rights are only meaningful if they are embedded in a larger institutional framework of good governance, transparency, and accountability accessible to all:

“Property market institutions comprise property rights laws and enforcement, access to credit by small businesses, democratic governance, rational dispute resolution, financial transparency, and appropriate regulations. Because of the strong linkages between those institutions, when some of them remain deficient the whole system underpinning a country’s democratic development prospects is underperforming and ordinary citizens suffer the consequences.”

Article at a glance

• When property rights are not properly documented and property market institutions remain weak – as is the case in many countries – the informal sector dominates the economy and inhibits inclusive growth.
• This pervasive economic exclusion has a direct impact on the quality of democratic governance since widespread informality leads to weak rule of law and corruption.
• The need to broaden property rights, especially for small entrepreneurs, and to strengthen institutions that make property titles meaningful is key to the success of both democratic and market-oriented reforms in transition countries.

Read the full article here.