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Monday, November 12, 2012

The Paradox of Property Rights and Economic Development

Source: Council on Foreign Relations Blog

Recent weeks have seen simmering property rights conflicts around the world: Burmese citizens marching in protest against the government’s seizure of their lands for a hotel zone; Vietnamese villagers contesting the confiscation of their land for an EcoPark satellite city project; and violent clashes breaking out in Panama City over a controversial law allowing the sale of state-owned land in the port city of Colón—Latin America’s largest duty-free zone.

Worldwide, marginalized groups (women, ethnic minorities, and the poor) often face high property insecurity, even when the property rights of foreign investors and domestic elites are secure. This is a pressing development challenge today on almost every continent. Just this year, property rights conflicts from Liberia to Indonesia to Myanmar to Ethiopia have revealed the potentially negative impact on vulnerable groups of growth-enhancing land acquisitions and foreign investment, which can exacerbate disparities between the rich and the poor and intensify food insecurity and resource scarcity—even while bringing macroeconomic growth.

These facts present a puzzling paradox. Since Adam Smith penned The Wealth of Nations over two centuries ago, it has been the conventional wisdom that strong property rights are a prerequisite for growth and economic development. Yet throughout history, land expropriation and property insecurity for marginalized groups has actually led to growth—although at the cost of these vulnerable groups. The enclosure of the commons in seventeenth century Britain, broadly acknowledged to have reduced overgrazing and increased agricultural investments on newly enclosed land, improved the property rights security of landed elites but eroded the property rights of small and medium cottagers who previously had rights to the newly enclosed commons. Increasing the security of private property rights for the gentry required expropriating the property of smallholder farmers and pastoralists.

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