Property is the basic building block of all business interactions that occur in our daily lives. But as a recent report from The Property Rights Alliance shows, the lack of secure property rights is holding many countries back from reaching their true economic potential.
Long before the United Nation’s enshrined it as a human right, property has been the medium through which we trade. Without the right to property, an individual is left with no means to securing the basic necessities and is left reliant on others. When property rights are secure, we have the freedom to seek innovative business opportunities. Through property rights, we are able to invest in our future, improve our circumstances, and, in turn, contribute to the growth of the market and economy in which we function.
As an extension of this human right, small businesses and entrepreneurs must have secure rights to their property. Peruvian economist and expert in the informal sector and property rights Hernando de Soto has termed the absence of such security “dead capital.” He pointed out that even though a business might have the physical resources such as land or a building, its hands are tied in putting it to work unless property rights to such resources are well established and secure. When such assurances are absent, businesses and individuals are forced to operate in the informal sector, costing all parties in potential revenues in the forms of taxes and the subsequent services from the state.
As we have seen through countless studies and recent articles, property rights go hand in hand with the development of families, communities, and nations – especially women’s ownership. When women own their property, they invest more in food, education, and the security of the next generation. Yet, in many places around the world today, property rights are under siege and women’s property rights are not guaranteed because of inheritance laws or through outright gendered policies favoring men.
It is within this context that The Property Rights Alliance released its 2013 International Property Rights Index (IPRI). The IPRI report is an annual evaluation of 131 nations on their performance in property rights in four categories: overall property rights, the legal and political environment, physical property rights, and intellectual property rights. The IPRI report demonstrates the connection between a nation’s property rights and its economic development. In this year’s Index, Finland receives the highest overall score of 8.6 (out of 10), while Yemen is ranked last at number 131.
A country with quite a lot of potential for improvement in property rights is China which ranked number 58 out of 131 countries in the Index, receiving an overall score of 5.5 and a physical property rights score of 6.8. Xingyuan Feng, Vice Director of Unirule Institute of Economics and Professor at the Chinese Academy of Social Sciences, contributed the case study on China to the IPRI report along with co-authors Chister Ljungwall and Yeliang Xia, which we posted on the CIPE Development Blog yesterday.
The case study describes how China has historically ignored the concept of property rights. However, over the last 30 years, there has been steady growth in the numbers of private enterprises and individual entrepreneurs. This was encouraged by the re-emergence and selective introduction of private property rights in the late 1970s. Since then, however, the Chinese state continues to limit property rights and does not offer security in ownership of land rights. Furthermore, the co-authors argue that the renationalization of many enterprises contributed to the slowing of growth in the Chinese economy seen over the last decade. Ultimately, the case study recommends that China boost its private sector development and protect the property rights of farmers and private entrepreneurs.
Unirule works in China on improving the government’s approach to property rights. One of the biggest challenges in China is the situation of “small title” holders, who exist in a legal limbo – small businesses typically rent or buy the land from the municipal government, which profits, but the central government considers their land titles illegal. Thus, these “small title” holders enjoy no protection under the law and can face expropriation without adequate compensation. Another important aspect of Unirule’s work is to improve the situation of rural (village) collectives that face barriers to entering the market for transferring land use rights. Currently only city governments can purchase village-owned land in the suburbs, thus creating a monopoly that is transferred to real estate developers at a significant profit.
Contrasting with China’s potential for successful change is Venezuela, which holds second to last place on the IPRI report, with an overall score of 3.4. Venezuela, which previously received a score of 50 (out of 100) on property rights from the Index of Economic Freedom in 1995, fell 45 points by 2013. Throughout the Bolivarian Revolution, the executive branch consolidated power and violated previous constitutional laws on property rights. The case of Venezuela is also included in the IPRI report.
The case study, authored by CEDICE Libertad (the Center for the Dissemination of Economic Knowedge) research fellows, Luis Alfonso Herrera and Felipe Benitez, highlights four specific types of systematic violations of property rights over the last 10 years: those concerning urban and agrarian lands, the means of production, industrial and intellectual inventions, and, specifically, the rights of indigenous people to their housing, lands, and inventions. Herrera and Benitez point out that the Venezuelan government has disregarded property rights in two main ways – first, through the violation of previously legitimately legal methods of expropriation with compensation, and secondly, the creation of unconstitutional laws that allow for “legal” seizure of property. The authors make several recommendations, aiming to reestablish the respect for property rights, both physical and intellectual. The recommendations focus on the need to return to the early 2000s attitudes and laws regarding property rights as well as strengthening the legal framework needed to champion these rights in all three branches of the government and among the electorate.
CEDICE has worked in Venezuela since 1984 to promote discussion of market economics, political and economic freedoms, and individual liberties and to share information with Venezuelans. CEDICE’s programs include conducting business and economics training programs for print and broadcast journalists, a consensus building project to unite the private sector in promoting specific policy initiatives encouraging market-based economic reform, and a conference and workshops in 2004 to encourage debate on several key economic freedom issues.
Ultimately it is in the best interest of the people and the government to ensure that property rights, both physical and intellectual, are guaranteed in the laws and practiced by their actions. Property rights are inextricably linked to a nation’s growth and development. Trusting private businesses and individuals with their property is the first step to allowing them to contribute to the success of the country.
Laura Boyette is Program Assistant for Global Programs at CIPE.