Private property: imperative for growth

In his introduction to the 2010 report of the International Property Rights Index (IPRI), published by the Property Rights Alliance, Hernando de Soto said, “Generally, the developing world suffers from weak protection of physical and intellectual property rights. It is essential to extend these protections to all people, but most especially those in dire economic circumstances.”

The IPRI annually measures the level of protection of physical and intellectual property and the integrity of the legal and political environments. Since the first report in 2007, the number of countries included in the report has increased from 70 to 125 in the 4th edition.

De Soto, author of The Other Path and The Mystery of Capital, has persistently argued for property ownership and its protection as a critical factor in the growth of individual incomes and of national economies. The IPRI measures and compares levels of private ownership and the extent to which judiciaries and governments protect property.

Such studies are valuable as they confirm what we learn from observation. Walking about in a township such as Cape Town’s Langa, it is possible to identify which occupants of houses have ownership and which do not. Those who own their properties paint their houses and build on new rooms. A most significant change is usually a new front door, which appears to be a form of affirmation of the household’s independence.

I contended in a recent article that liberty is indivisible; that if some of us do not have liberty, none of us have liberty. Equally, if some of us do not have secure property rights, including intellectual property rights, none of us have secure property rights. If you can be deprived of your property without just cause, then my rights to my property are also vulnerable.

The FMF fought to ensure that the Bill of Rights of our Constitution contained a property rights clause. In arguing for strong constitutional protection of property rights, we were not thinking of our own interests, or even those of our children, but of the constitutional and legal environment that our generation will create for future generations of South Africans. Those who argue for the weakening or even abandonment of the protection of property rights should think about the legacy they will leave behind. Given the empirical evidence, which confirms to my satisfaction that there is a direct correlation between secure property rights and economic progress, I would argue that the existing property rights in the constitution be strengthened. Short-term thinking does not help to build a prosperous nation. On the contrary it invariably leads to chaos and misery.

Security of all forms of property is dependent for its enforcement on a strong rule of law ethos, an independent judiciary, and a supportive political environment. Those are the desirable features of a dispensation pursued by a nation that aspires to greatness.

South Africa is ranked 25th out of the 125 countries measured in the IPR index, a ranking we share with Spain, Qatar, South Korea and Taiwan. The study shows a significant correlation between high IPRI scores and GDP per capita. A one-point increase in an IPRI score predicts a $7,694 increase in GDP per capita. However, there is not necessarily a causal relationship. The question economists ask is whether countries provide better protection of property rights because they are already rich, or whether countries get rich by providing better protection. My view is that countries stay rich by providing good protection of property rights, including protection of persons, and get rich by providing a more secure environment.

SA should deliberately pursue policies aimed at improving its ranking on the IPR index. We should also improve our ranking on the Doing Business index of the World Bank. Such objectives have nothing to do with trying to do better than other countries. It has everything to do with improving the health, wealth and happiness of all the citizens of this great country.

Author: Temba A Nolutshungu is a director of the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author's and are not necessarily shared by the members of the Foundation.

FMF Feature Article / 27 April 2010 - Policy Bulletin / 04 August 2010