Private Property Rights

The absence of land title absolutely hurts the poorest of the poor... You can't start an economy without ownership not being in question. This is my fundamental.
- Herman Chinery-Hesse

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  • Hernando de Soto on Property Right Initiating the Rule of Law

    A property right initiates the rule of law … makes people interested in the rule of law. The first thing that they understand … is that everybody on this earth lives on a plot of land.

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  • Hernando de Soto on Private Property Rights Breaking the Back of Poverty and Privilege

    When you look at 19th century America or 18th and 16th century Europe, all of a sudden it’ll become clearer that … the thing that broke the back of poverty and privilege in developed countries in the past was when property rights came around and destroyed feudal title.

    More from Hernando de Soto
  • Hernando de Soto on the Effect of Private Property Rights in Peru

    In the case of Peru you can clearly see that where titling takes place, education is better immediately because more people can get jobs, they feel secure about their homes; they are ready to make more investments in the homes. More kids go to school because many people keep their kids at home just simply to indicate that they have a stake in that place. And now all of a sudden the security is replaced with law. Law has also that function.

    More from Hernando de Soto
  • Herman Chinery-Hesse on the Land Problem in Africa

    We have a serious land problem here. Nobody’s attacking that, as far as I know. I haven’t heard any NGO. I hear them talking about child labor, gay rights, and so on and so forth. Not to say that they aren’t important. But in the scheme of things, when people need money and a livelihood, we need to focus first on things like property rights so that the land tenure problem is solved, so people can take their ancestral land and borrow money against it to set up businesses and pay tax. That’s where we should be going. That’s where our survival is; that’s where our money is; that’s where our progress will come from.

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  • Herman Chinery-Hesse on Why the World Bank Should Focus on Private Property Rights

    We haven’t got clean title in Ghana. It’s very, very difficult. You buy land, you have to buy it four, five times. Last time I had a meeting in the World Bank, I asked the World Bank officials, ‘Hey, you’ve been working with our government all these years. You know this is at the bottom of our problems, that fundamental unknown, and what are you doing about it? Are you saying for twenty years you just forgot that we have a situation where anybody’s business, anybody’s house can suddenly come into question, and they might just lose their investment and that it wouldn’t encourage people to invest?’ I don’t see that a lot of work has been done there or a lot of progress has been made there.

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  • Herman Chinery-Hesse on Private Property Rights as Fundamental to an Economy

    The absence of land title absolutely hurts the poorest of the poor. [About] sixty, seventy percent of our people are farmers. Just imagine, if you have ten million farmers who have no title to the land they are farming on. They can’t take it to the bank to get a loan to get farm implements. Whereas if they were allowed to buy the land, it may take them six years of share cropping to then own the land, then they could take that land out to the bank, get a loan, and get a tractor. Now, if you are stopping them from doing this for generations and generations, it’s chronic poverty. You are creating chronic poverty. They need to own their land and trade their land. The good ones amongst them will become large farmers, the ones that are not so good will become medium sized farmers, and the bad ones will end up working for the large and medium farmers. And they’ll have good jobs that pay them, like America, a good job that pays them a good decent wage every month. Maybe they are not entrepreneurial, but they will get a job … You can’t start an economy without ownership not being in question. This is my fundamental.

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  • Kirtee Shah on Public Policy and the Importance of Property Rights in India

    An enormously important sanction has just come in from a major policy initiative on slum. This policy initiative was announced 3 years ago, where government said that government will provide property rights to slum dwellers as a way to make India slum-free. What they’re saying is this: that those people who have solved their housing problem, they have illegally encroached upon lands, taken someone lands, we will [instead] provide those lands to people so that they become official, they become legal, and once they become legal, they have the wherewithal and motivation and capability to improve their houses. Yes, State and the government will have to intervene, develop to provide services, hopefully they will provide capital, they will provide loan facility, but if you do that, people will start solving the problem.

    So you are essentially, in my understanding, not building through houses; you are creating a large support for the people in the form of a policy so that they can start solving their problem, they could start a legitimate existence in the cities. They become new citizens.

    Property right is very important. You look upon [slum dwellers] as illegal encroaches. These are the people who are taking over someone’s land illegally. They are unauthorized. They don’t have address. In India, they’re allowed to kind of work… but otherwise you don’t have address in a city, you are not a legitimate citizen. Property right would give them a new citizenship.

    That citizenship will do two things. They will start living with dignity, because they’re no longer called illegitimate and no longer called illegal and no longer called unauthorized. Second important thing that will happen is this: giving them property right will start the whole second cycle what I call of investments by communities. People are very keen to improve their settlements. They’re very, very keen to see that they’s children live in better house. They are very keen that the children go to school so that their children do not see the same fate, the same conditions that they lived in. They want to get away from poverty. They are very motivated.

    So property rights start the whole process of new citizenship, their foothold on the city, they’re becoming legal, and then creating a situation where they would invest. These poor people, the slum dwellers are not there just for the sake of living there. They are the engines of growth of the cities, their own informal sector. In country like India, 80% of jobs are informal sector. There’s nothing like unemployment. There’s certainly underemployment that is intermittent employment, but they’re employed. They are very hard-working people.

    Once their existence in the cities is safe, once the sword which is hanging on their head, where they could be bulldozed, they could be evicted, they could be thrown out of the city. Once that is gone, they would invest more, not only in their housing, in their occupations, in their business, in their livelihoods, in the way they earn their income.

    The very fact that you’re creating these conditions of their legal state, they will take, that is the most important step in terms of alleviating poverty, because you are empowering them. You are giving them conditions where they could invest more labor, they can invest more capital, they would work harder to earn more, that in the process.

    Not only that, once the security of the property right is given, once the city makes investment in infrastructure like clean water, drinking water, few schools, little healthcare, their health will improve. Better water supply would make more working days available to that. That will add to that income. The health would be much lesser. So all these conditions will start from giving property rights, will lead to improving the condition of the poor significantly.

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  • Ernesto Schargrodsky on Researching the Impact of Land Titling on Children and Families

    We found that children in the titled houses are more likely to go into secondary school. In Argentina in these areas, most kids go to primary school, so there are no difference in attendance to primary school, but they are more likely to go into secondary and tertiary education. They have a lower school absenteeism. They have better health, for example, better anthropometrics. They show lower teenage pregnancies. So, the next generation show several advantages in the titled parcels. We have a group of kids now in the titled parcels that, one day, they are going to receive a house, an inheritance from their parents. But in addition to that, they were raised in better houses, they were raised in smaller families, and in these smaller families, they got better education and better health.

    More from Ernesto Schargrodsky
  • Ernesto Schargrodsky on Land Titling Improving Human Relationships

    We found that the people in the titled parcels, they trust each other more. They understand, I mean, they believe that material progress help to be happy. They believe more in meritocracy and also they are perhaps more individualistic, which might be surprising because they were successful in the land occupation by being a large group; they couldn’t have done that by their own. But now they believe that you can progress in life by your own. And what is very interesting is that we also ask these very same questions to an average Buenos Aires population. So we took random citizens, I mean random households, and we ask the same belief. And even the area still very poor, the people that got titles, they have a set of belief which are very similar to the belief by the Buenos Aires household, than relative to the belief of the untitled populations. So, land title integrated them to the average population and now they share, they seem to share the belief and the values of the more average population, although they are still quite, quite poor.

    More from Ernesto Schargrodsky
  • Ernesto Schargrodsky on Land Titling and Poverty Alleviation

    Hernando de Soto was very influential with his idea that land titling could be a main tool to reduce poverty. The main idea is that there are millions of people in urban slums in the cities around Latin America, Asia, and Africa, and that these people, they cannot use the land that they possess and occupy as a collateral, because of the lack of titles.

    Wealth creation is the true form of poverty alleviation, and this experience of land titling shows that if it allows people to invest more and if it allows the people to educate their children more, that’s a promising way of poverty alleviation.

    I think land titling is a very powerful anti-poverty policy, not through the shortcut of access to credit, but through the positive incentives on investment, on children education, on child health, that it’s going to improve the lives of the future generations.

    More from Ernesto Schargrodsky
  • Marcos Hilding Ohlsson on Lack of Private Property in La Cava

    There is actually no formal private property. Of the people we interviewed, none of them has any documents saying, this is my house or my piece of land. So people will just stay on the land in the house where they were born, or if they want to eventually sell their house, there’s no formal contract. It’s just a pay as you receive, so people would pay as they come into the house, or they can even rent it. But they would only sell or rent to people they knew. And normally, you have to be, they say always be very careful. So actually people in this area will always live on average between fifteen and twenty years in the same house.

    More from Marcos Hilding Ohlsson

An intangible lack

Most of us take property rights for granted. We fail to appreciate the gravity of the fact that we can own land, own possessions, and own our labor. If you pay for something in full, whether by your sweat or by the money in your pocket, you own it, and nobody can take it away from you unless you first do some other injustice to them. This is one of the single biggest challenges facing the developing world.


Table of Contents

  • Why Property Rights are Important
  • Private Property Rights in Developing Countries
  • Cultivating a Sound Foundation
  • The Case of Kibera
  • Barriers to Private Property and Business as Evidenced by the “Arab Spring” Uprisings
  • The Extralegal Sector
  • Private Property: A Prerequisite for Authentically Free Markets
  • Private Property: More than an Economic Issue
  • Conflict and Cultural Norms that Prevent Private Property Establishment
  • Private Property Rights in the Judeo-Christian Tradition
  • A Prudential Case for Private Property

Why property rights are important

Dr. Peter Boettke of the Virginia Institute for Public Policy summarizes the economic importance of property rights as follows:

  1. Recognized private property rights provide the legal certainty necessary for individuals to commit resources to ventures. The threat of confiscation, by either private individuals or public officials, undermines confidence in market activity and limits investment possibilities.
  2. Clear property rights tend to make decision makers pay close attention to resource use and the discounted value of the future employment of scarce resources. Absent private property rights, economic actors will tend to be short-sighted in their decision making and not conserve resources over time.
  3. Property rights are the basis of exchange and the extension of ownership to capital goods provides the basis for the development of financial markets that are essential for economic growth and development.
  4. Secure private property rights are the basis for limited and civilized government. The elimination of arbitrary confiscation and the establishment of regular taxation at announced rates enables merchants to calculate the present value of investment decisions and pass judgment on alternative allocations of capital.

Source: "The Role of Private Property in a Free Society" by Dr. Peter Boettke, Virginia Institute for Public Policy


Private property rights in the least developed countries (LDCs)

There is no lack of entrepreneurs in the world, and the developing world is no exception to this. As development economist, Hernando de Soto states, “The developing world is teeming with entrepreneurs.” What poor people need are the conditions of justice, things like private property and rule of law, which allow individuals and families to create wealth and prosperity for themselves and their communities.

Clear and enforced private property rights enable individuals to own homes and businesses, generate capital, rent, benefit from, and trade all or part of a property. Unfortunately, many in the developing world are not able to enjoy these rights. The efforts of these individuals are often stifled by a system of complex regulations that only the rich and well-connected can navigate.

For those that lack the political and economic connections to traverse a system run by big business and government, clear and recognized property rights are especially vital. Without the right to property, the poor are trapped. They can’t build business and equity in their homes and then become dependent on charity efforts to support their livelihood. Indeed, lack of clear private property rights is one of the greatest challenges facing the developing world.


Cultivating a sound foundation

The area of property rights is often ignored when analyzing poverty on a surface level. Sometimes the differences between the rich and poor are so palpable that is easy to overlook the underlying immaterial differences, such as property rights and clear land title. But it is in fact these immaterial differences that build the foundation on which true development can take root. As Microfinance pioneer Muhammad Yunus articulates,

If you go and look at the tallest tree in the forest and pick the best seed of the tallest tree and plant it in a flower pot, you get about a meter high or less than a meter high plant, exact replica of the tall tree that you saw in the forest.  So what is wrong with this little one? Is it the seed, no, we picked the best seed possible, planted it on that. So what is wrong? The wrong thing is the flower pot. Because you didn’t allow the base on which it could grow. If you had planted in the real soil, it would be as tall as the tree you saw in the forest. Poor people are bonsai people; society doesn’t provide them the base.

Those in the West often take property rights for granted. If you pay for something, you own it, and nobody can take it away from you. People in developing countries don’t always have that; often times certain people have it based on political, social, or racial class, while most do not.

Along with rule of law, economic freedom, and access to networks of exchange, property rights is one of the foundational elements that prosperous countries have and underdeveloped countries lack. These elements are the axes of growth and human flourishing, as evident by the unprecedented levels of prosperity achieved by the United States and others who have benefited from these commonalities. They are so fundamental to the Western system that it is easy to forget they exist. We forget how developed countries’ sustained wealth is created. Those who that lack these key elements, however, often have a much more vivid appreciation for their value.


The case of Kibera

Located in Nairobi, Kibera is the largest slum in sub-Saharan Africa. Kibera has, according to various estimates, anywhere from 500,000 to 800,000 people crowded into an area of about 630 acres, smaller than Manhattan’s Central Park. It is also a place where private property ownership is difficult to achieve. Many of the homes and businesses are labeled temporary structures, and the owners are unable to gain land title and recognition by the government.

Joshua Omoga is a businessman who operates a small shop in Kibera. His experience highlights the concrete hindrances the lack of private property creates for normal business operation and personal livelihood. Joshua established a small store in Kibera to support his family, and began by first selling fruits and vegetables. But because he has no private property or land titling, his efforts have been stifled. Joshua explains:

I live in the same place I work and this place is very small. The place is not mine, so you cannot expand it. Kibera has temporary structures and the government does not recognize temporary structures to be registered.

Lack of property rights severely limits the opportunity for business growth, and blocks the capacity for sustained wealth creation. Recognizing that these negative consequences overshadow the likelihood of any future progress, Joshua hopes to move from Kibera to an area where he can register his business and earn sufficient income to support his son’s education and the basic needs of his family.

Like Joshua, there are many entrepreneurs that build businesses, but are unable to generate sustained wealth or build equity in their homes. This lack of clear private property right and rule of law stifles the entrepreneurial spirit and blocks the capacity to create prosperity. In some countries, over 70% of the land has no clear title. One simply cannot get out of poverty without private property.


Barriers to private property and business as evidenced by the “Arab Spring”

Hindrances to private property and business operation can become a key point of contention, especially when corruption is prevalent and government officials consistently do not recognize and uphold these basic rights. This struggle to buy, sell, and own property was, in fact, one of the sparks that ignited the Arab Spring uprisings.

Peruvian development economist Hernando de Soto and his team at the Institute for Liberty and Democracy (ILD) came to this conclusion after conducting research on the economic, legal, and political environments in the Middle East and North Africa (MENA). A significant portion of their research points to Tunisia specifically and is documented in the 2013 International Property Rights Index, a publication of the Property Rights Alliance.

Tunisia witnessed firsthand the beginning of the Arab Spring, when on December 17, 2010, fruit vendor Mohamed Bouazizi lit himself on fire in the Tunisian city of Sidi Bouzid. Earlier in the day, town inspectors had accused him of failing to pay a fine for an arbitrary infraction. They proceeded to seize his produce and electronic scale, the entire capital of his business. A municipal police officer slapped him across the face in front of the crowd that had gathered, and when Bouazizi appealed to authorities that his property be returned he got nowhere.

Bouazizi’s tragic act was precipitated by deep-seated corruption and a prevailing legal vacuum. Entrepreneurs like Bouazizi can work day and night, but get nowhere because they continually face property rights infringements and harassment by local officials. Unable to establish collateral, they are often denied access to credit and loans, and remain blocked off from the basic legal frameworks which enable development. They are left in a vulnerable position, unable to access the market and at the mercy of local officials’ often unconscionable subversion of Tunisian law.

In effect, Bouazizi began a revolution against institutional barriers to business operation and property rights access. Within two months of his self-immolation, 63 others across the MENA region also set themselves afire, every one of them a small business entrepreneur, like Bouazizi.

The ILD interviewed many of the protestors that survived their self-immolations and their families and learned that the primary reason these protestors gave for this drastic action was expropriation. The team concluded that Bouazizi might be representative of an emerging Arab underclass that runs businesses and occupies property but without having the legal tools to generate capital, guarantee credit, and create additional value.

In an attempt to circumvent corrupt officials and operate business with greater ease, many entrepreneurs in Tunisia and other countries have opted to work extralegally.


The extralegal sector

Like most countries, Tunisia has legal mechanisms that support formal property rights which increase productivity through business creation and enable involvement in circles of exchange, i.e. markets that extend beyond just close communities.

But these components are only accessible to a minority of privileged individuals, forcing most to step outside the legal sphere in order to make a living. Businesses and property within this category are referred to as “extralegal assets,” which cannot be used optimally (for example to buy, sell, lease, or transfer title), because their holders cannot comply with the legal provisions governing their use. The ILD team estimates that 85% of all enterprises in Tunisia are extralegal, and 83% of the total population resides in extralegal dwellings.

A main reason why the vast majority of Tunisian entrepreneurs remain extralegal: they simply cannot deal with the complexities and high costs of the legal system. Even entrepreneurs capable of traversing the bureaucratic maze are often stifled by the arbitrary power of corrupt officials, who subvert the legal process with special privileges and unauthorized action.

Those who attempt to adhere to legal standards face a long, drawn-out business start-up process. To establish a small sole proprietorship in Tunisia takes 55 administrative steps during 142 days and requires spending some US $3,233 (not including maintenance and exit costs). Similar obstacles exist in other parts of MENA and across the globe. In Algeria for example, the team found that “to establish and operate a fast food restaurant in the Rouiba, an entrepreneur has to go through a procedure that involves 86 administrative steps that take 222 days to complete and costs US $11,592.” Even once the business is established, there is often no clear land title. It is not uncommon that the parcel on which the business stands is registered in the name of several owners.

Similarly in Egypt, de Soto found that:

82% of businesses and 92% of land holdings were unrecorded and thus unprotected by the rule of law. That is a startling reminder that no amount of money Western nations or investors transfer to these countries can ever come close to the economic potential locked up in the entrepreneurial aspirations of their people.

More than 200 million people throughout the Middle East and North Africa depend on income from operating businesses or occupying territory in the informal economy -- without the protection of the rule of law.

De Soto maintains that in many cases, legal systems are “simply unfriendly to poor people,” especially in the developing world. Private property and rule of law, which many in MENA have fought for and made sacrifices for, are essential aspects of development, and some would argue, fundamental rights.


Private property as a prerequisite for authentically free markets

Legal legitimacy is a luxury most developing world entrepreneurs can only dream of. Private property is managed informally and is therefore highly subject to subjectivity and corruption. Rule of law and the protection of private property are among the most primary prerequisites of an authentic free-market economy. The world’s poor are purposefully excluded from the so-called free market, which is only really free for a few and therefore not free at all, by corporatist cronies in bed with central planners. Indeed, it is precisely an extension of a more authentically free market - i.e. attainable private property rights, equal protection before the law, the economic freedom to buy and sell, and access to social networks of human productivity and exchange - that we hear developing world entrepreneurs crying out for so desperately.


Private property: more than an economic issue

We can see that private property is essential for business development and caring for one’s self and family, but what if having private property yields benefits that extend into other aspects of life? An interesting study entitled, "The Formation of Beliefs: Evidence from the Allocation of Land Titles to Squatters," conducted in the outskirts of Buenos Aires, Argentina was conducted in an attempt to answer this very question, and more specifically, “what happens when people who did not have previously have private property get private property?

The study concluded that clear land parcel ownership not only changed individuals’ economic relationships with others; it actually changed their world view.  Ernesto Schargrodsky, one of the study’s authors, observed the following in families that inhabited titled land parcels:

We found that children in the titled houses are more likely to go into secondary school. In Argentina in these areas, most kids go to primary school, so there are no difference in attendance to primary school, but they are more likely to go into secondary and tertiary education. They have a lower school absenteeism. They have better health, for example, better anthropometrics. They show lower teenage pregnancies. So, the next generation show several advantages in the titled parcels. We have a group of kids now in the titled parcels that, one day, they are going to receive a house, an inheritance from their parents. But in addition to that, they were raised in better houses, they were raised in smaller families, and in these smaller families, they got better education and better health.

Though many of the inhabitants still lived in poverty, maintaining a low economic status, Schargrodsky identified a shift in their mindset and daily actions. He explains, “Land title integrated them to the average population, and now they seem to share the same beliefs of the average population, although they are still quite poor.”


The case of Kosovo: conflict and cultural norms

The benefits of private property seem unquestionable, but in some cases, establishing and recognizing the right to private property is an arduous and near impossible process. Conflict zones are perhaps most apt to create the conditions for such a reality. Consider for example the case of Kosovo, which has only experienced 6 years as an independent country. As a result of the Kosovo War of 1998-1999, almost all Kosovo property records were destroyed. According to the U.S. Department of State’s Climate Statement on Kosovo:

Most property records were destroyed or removed to Serbia by the Serbian government during the 1998-1999 conflict, making determination of rightful ownership for the majority of properties complex. There have been cases of up to 20 ownership claims on a single property, presenting a variety of ownership documents as proof.

It is extremely difficult to maintain livelihood and build businesses when the owner of a property cannot be identified. Partly due to this lack of clear property rights, Kosovo’s economy has suffered. It is one of the poorest countries in Europe, boasting a meager 2012 per capita GDP of $3,453 (Source: World Bank GDP per capita).

Another hindrance to private property is more intentional and not a direct cause of arguably unavoidable external conditions. In the case of Kosovo, women have often opted to follow cultural norms and renounce their property rights, namely when given the option to receive inheritance from family members. Dr. Sandra F. Joireman, Weinstein Chair of International Studies and professor of Political Science at the University of Richmond, explains in a working paper entitled "Law as Performance: Women's Property Rights in Kosovo":

In the case of Kosovo, renunciation of inheritance rights is frequently exercised and not for reasons of taxation or because of the onerous burden of particular properties. Instead, it is used by female inheritors to ‘refuse’ or ‘resign’ their inheritance rights so as to allow patrilineal secession of family resources and increase the percentage of resources left to their brothers and sons. It is also not customary for women to own property in their own names while married.

Joireman goes on to explain a few other factors that may explain limited women’s property ownership in Kosovo. Among these are “the coercion of family members and a process of legal exclusion in the courts preventing women from claiming their property rights.” Women’s lack of property rights and involvement in the economy has also hurt Kosovo’s economy tremendously. Joireman reinforces this point concretely. She maintains:

Women’s property rights are the low hanging fruit of property issues in Kosovo. The steps to achieving them are unambiguous. Yet there is little compliance with the law regarding women’s property rights and without the enforcement of their property rights there are significant barriers to women’s engagement in the economy.

She continues:

Women’s engagement in the economy is a key component of economic growth and legal recognition of their property rights is the path towards this goal. If social change cannot be effected on this issue then it will be much more difficult on issues such as the restoration of property rights to the minority Serbian community or the assertion of state control over construction.


Private property rights in the Judeo-Christian tradition

The idea that some individuals should or do possess property rights is as old as human history, and is consistent with natural law. Private property is what makes possible those virtues of charity and generosity. You cannot be generous with that which isn’t yours. The institution of private property is assumed throughout the Old and New Testaments, grounded in the idea that humans are made in the image of God and have been appointed as stewards of creation.

In the Ten Commandments, the law against stealing presupposes private property; the book of Genesis describes approvingly Abraham’s effort to purchase and own a field as a family burial site, and the Levitical code is filled with various rules for protecting people’s property rights.

Private property, however, is not considered an absolute good in the Christian tradition. Property is an instrumental good that exists to serve more essential goods such as human life. Nevertheless, it is usually only in instances of what is called “extreme necessity” (e.g., imminent danger of death) that private property should become “common” again – and even then people are called to make just restitution after the danger has passed. Otherwise, a society runs the danger of using the notion of “common good” in an ever more expansive way until the rights of private property have largely vanished. In such circumstances, neither the individual’s good nor the common good is well served. 

At the root of Christianity’s approach to property is the idea, expressed in the book of Genesis, that God has made the world for all people. In the beginning and now, God provides material goods for the use of all. This is the principle of the universal destination of material goods. This simply means that the earth is to be used by and on behalf of all people. It does not mean that human persons jointly own the material world, with each being entitled to an equal share. Rather, it means that nothing in “subhuman” creation ever comes with a label saying: “this good is predestined for this person but not that one, this group but not that.”


A prudential case for private property

Throughout history, Christianity has taught that the issue of how the earth’s resources are to be used for the benefit of all is left for people to work out rationally, in accordance with principles of justice, and with a view to promoting the common good. Christian teaching, history, and experience tells us that the institution of private property and market exchange are normally the best ways of enabling material things to serve human individuals and communities. First, people tend to take better care of what is theirs than of what is common to everyone, since individuals tend to shirk a responsibility which is nobody’s in particular. Second, if everyone were responsible for everything, the result would be confusion and tension. Third, there is a link between the ownership of property and the willingness to assume personal responsibility for oneself and one’s family.

Empirically, there is a strong association between robust, widespread private property rights and economic prosperity. There are no instances of societal-wide common ownership of goods being associated with sustained economic growth. Nor do societies where private property rights are widely undermined by crime and political corruption tend to thrive economically.

Peruvian economist Hernando De Soto has described the tendency of robust property rights to unleash economic flourishing as “the mystery of capital.” In part, this strong tendency results from the incentives linked to acquiring property. In other words, if a person has some hope of acquiring secure property, the person has a stronger incentive to work, save and acquire property, and to cultivate or otherwise improve the acquired property for long-term returns.

Robust property rights spur economic growth also because they tend to limit state power. In this regard, the institution of private property supports the rule of law inasmuch as it requires a legal apparatus that aids property’s creation, exchange and distribution. This in turn restricts the state’s ability to behave in arbitrary ways that discourage entrepreneurial initiative and investment.


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