Property Rights: A Key to Development

After years of neglect, the central role that secure property rights play in promoting and sustaining economic growth is being recognised by policy makers and scholars around the world. This is an encouraging development for the poor.

Sustained economic growth and improved opportunities for people to flourish depend upon communities creating secure, clear, and defendable property rights for as many of their citizens as possible. Without secure rights people, especially poor people, are more likely to be subject to coercion by the powerful, who can, with impunity, seize and destroy what others have.

Consider recent events in Zimbabwe, where the government has destroyed the houses of squatters – people without secure property. These property-less people have little opportunity to protect themselves from the aggression of government officials and they have scant ability to defend themselves in a court of law. Imagine, though, how things would have been if they held secure rights to their homes and if they lived in a society where such rights could be effectively defended. It is hard to believe they would have suffered the same fate.

What is it about property that makes the institution such a key for development? The answer lies in the concept of incentives. When they are secure and divisible, property rights give people positive incentives to wisely use and conserve what they own. Under a system of secure property rights, owners know that they will directly bear the costs or reap the benefits that flow from property use. If they carefully tend to what they own they are better able to sell it at some future date for a profit. If they ignore their property, putting off making repairs or improvements, they will be less likely to see a profit when the time comes to sell. The incentives property rights provide promote wise use, positive entrepreneurship, and economic prosperity. As the basis for voluntary, non-coercive exchange, they also allow trade and markets to develop, to the benefit of all participants.

And yet, in many countries legislative, regulatory or, at times, customary barriers exist, leave rights unclear, block broad divisibility of rights, or create barriers to the effective enforcement of property rights. These kinds of impediments create insecure property rights – they limit the beneficial incentive structure that secure rights create. Unfortunately, well-intentioned development programmes often create similar constraints. When these kinds of barriers exist, economic growth is too often sacrificed and human flourishing is constrained.

A new partnership between the Free Market Foundation of South Africa, the Mercatus Center at George Mason University in the U.S., and the London-based Institute of Economic Affairs entitled Enterprise Africa! will identify, analyse, and communicate examples of enterprise-based solutions to poverty in Africa. Central to the project is the role of property rights in African countries. If Africans, Europeans, or Americans lack secure property rights they are less likely to engage in beneficial entrepreneurship. Rather, as is seen too often, people who live in an insecure property environment have incentives to hide or disguise wealth, or to prey on others. These evasive or predatory actions restrict economic growth and certainly do little to promote human flourishing. Enterprise Africa! will highlight those African entrepreneurs who use their property in beneficial ways and hold them up as an example of what is possible for people around the world.

An interesting example of the power of secure property rights to promote economic development and human flourishing is the case of Langa Township in Cape Town. In Langa, the South African government has transferred title of many homes to township inhabitants. Importantly, this transfer was accompanied by the knowledge that new owners could defend their valuable rights against others in an impartial court of law. What has happened as a result? Owners in Langa are expanding their homes and improving their property, which has led to a boom in the local construction industry. One can expect, in the future, that these owners will use their new asset – their home – to finance other endeavours, such as education for their children or to start their own business.

Secure, clearly defined property rights are helping to make life better for the people of Langa . The Enterprise Africa! team will take this valuable lesson, and others we learn along the way, to policy makers in Africa, the U.S., and Europe. Our hope is that we can play a small part in helping key decision makers understand that secure property rights are, indeed, a important key to unlocking human potential and economic development.

Author Karol Boudreaux is a Senior Fellow at the Mercatus Center at George Mason University, USA. kboudrea@gmu.edu 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 Free Market Foundation.

FMF Feature Article/ 14 June 2005 - Policy Bulletin / 01 September 2009