September 17, 2004
Becky Norton Dunlop
Thank you so much for the opportunity to visit with you briefly about a favorite and very important topic, property rights.
The basic concept of property is remarkably simple. Even toddlers have a strong sense of property and they let you know it with the word “mine!”
Peruvian economist Hernando DeSoto has noted that when you “walk through the countryside, from Indonesia to Peru, and you walk by field after field – in each field a different dog is going to bark at you. Even dogs,” he said, “know what private property is all about. The only on who does not know it is the government.”
The significance of property is well recognized by students of liberty. The founding fathers of the United States viewed the protection of property as a primary purpose of government. Indeed, John Adams said, “Property must be sacred or liberty cannot exit.” It is no wonder, then, that the Constitution provides that if private property is taken for public use, the owner must be justly compensated, no matter how important the objective.
But in addition to the essential role it plays in creating a free society, there is an attribute of property that is less well understood. And that is how property empowers people to correct countless problems that are otherwise insoluble.
I mentioned Hernando DeSoto a moment ago. His studies of impoverishment in the third world have produced insights into the nature of this seemingly intractable problem that should revolutionize the way the world approaches poverty.
He found that the poor in places like Bombay or Cairo, in Peru and Indonesia operate in what he calls an informal economy. They ply their trade or tend their land outside of the formal economy in which business activity is licensed, regulated and recognized by the legal system. They may farm a plot of land that has been in their family for generations and their ownership of that land may be accepted by their neighbors, but they do not have documented legal title to the land. They may be a shade tree mechanic or bake bread in a charcoal oven on the street corner, but their place of business has not formal address and chances are neither does the place they live in.
DeSoto found that poor people in the world have five trillion dollars in assets in their homes and businesses, but these assets are totally useless as a basis for credit because they are not in the legal system. As a result, there are millions of hard-working, entrepreneurial people who will never really build a business, or gain a little wealth for their family because they cannot get loans or credit from the formal economy. Without legally recognized property rights, few will rise above subsistence living.
Furthermore, rather than helping, governmental bureaucracies tend to lock these poor people in to their present status. In Cairo, I have been told, it takes, on average, over 500 days of wrangling with government officials to navigate the licensing system and open a small, family-run bakery. You can imagine the obstacles faced by a poor farmer trying to get legal title to his land. Chances are he has no written records. He can neither afford to hire a law firm nor to bribe government officials the amount they would expect for such a favor. He may be dealing with a socialist government that doesn’t want land to be privately owned or that wants to seize land for distribution to political supports.
“Ideas Have Consequence” is the title of a book by Richard Weaver that had a great impact on political thinking during the middle of the last century. And Desoto’s idea of fighting third world poverty – not with government welfare programs – but by instituting a legal infrastructure that expands projection of private property and thereby fosters economic growth is an idea that could have tremendously beneficial consequences.
Strengthening private property rights not only offers the only realistic hope for improving the economic condition of the poorest of the poor, but helps in many ways few people realize. For example, without an ability to get secure title to land, those who currently grow cocoa for the drug trade have no incentive to make the long-term investment in building a family farm that grows legal crops. And if a family had secure title to their land, they would have a strong incentive not to put their property at risk by growing illegal crops.
The benefits that come from private ownership of land is a theme I have been talking about for years and my ideas on this subject are not new. In 1787, man named Arthur Young wrote: “Give a man the secure possession of bleak rock, and he will turn it into a garden; give him a nine years lease of a garden, and he will convert it to a desert. The magic of property turns sand into gold.”
A generation ago, Stanford University Biologist Garrett Hardin coined the brilliant term “tragedy of the commons” to describe the inevitable degradation that occurs whenever land is collectively owned. Hardin showed that when property is owned communally, each user will try to maximize his benefit to the detriment of the land rather than making sure the basic resource – the land – would increase in value as would naturally happen with private property. By contrast, if a farmer, timber lot owner or any private owner damages his own land, he and his family have damaged the source of their livelihood. If the harm is severe enough the land may be worthless or even – a huge liability.
In short, you have to get the incentives right.
That is why government programs that weaken property rights often do more harm than good.
And let me be clear, it’s not just in Peru or Egypt that government programs curtail the economic, social and environmental benefits that flow from property rights. The United States, too, often pursues programs that weaken property rights most often these days for the stated benefit of environmental protections. So we all, like the people DeSoto writes about, need to work to strengthen the legal protections given to private property. And we all, like they, need to get rid of bureaucratic impediments that strangle investment and innovation and entrepreneurship.
If we do this we will prosper and our lands will blossom. But even more important than the material benefits, we will be free people living in our various and varied lands of liberty just as America’s founders dreamed and wrote about in the early days of our country.
Thank you and God Bless you all.