Peruvian economist Hernando de Soto is the recipient of this year's prestigious 'Milton Friedman Prize for Advancing Liberty' (cash award of $500,000). The first winner of this biannual prize, which was started in 2000 by the Cato Institute, was the late LSE economist Lord Peter Bauer. Mr. de Soto has been awarded this prize for his groundbreaking work on property rights.
According to Mr. de Soto , the people of the less developed countries seem to be poorer than they actually are because their wealth is often not formally recognized. As he has pointed out in his 1986 book The Other Path, 'They have houses but not titles; crops but not deeds; businesses but not statutes of incorporation . . . .'
Take India , for example. The Constitution of India does not recognize property rights as a fundamental right. In the year 1977, the 44th amendment eliminated the right to "acquire, hold, and dispose of property" as a fundamental right. However, in another part of the Constitution, Article 300(A) was inserted to affirm that "no person shall be deprived of his property save by authority of law." The result is that the right to property as a fundamental right is now substituted as a statutory right. The amendment expanded the power of the state to appropriate property for 'social welfare purposes.'
Or in other words, the amendment bestowed upon the Indian Socialist State a license to indulge in what Fredric Bastiat termed 'legal plunder.' This is one of the classic examples when the 'law has been perverted in order to make plunder look just and sacred to many consciences.'
The saddest part of the story is that very few people in India can fully appreciate the benefits of property rights. This is expected because the predatory state has taken all the precautionary measures needed to ensure that such knowledge does not permeate to its citizens. In his satirical masterpiece movie, 'Hirok Rajar Deshe' (In the Land of the Diamond King), the noted filmmaker of India , Satyajit Ray had brilliantly exposed this false philanthropy and the rapacious nature of our Indian State . In one of the dialogues, the King orders his education minister to close down all the schools in the country because he fears that the more the citizens gain knowledge, the more they ask uneasy questions and the lesser they obey the tyrannies of the king, which is an imminent threat to his existence!
Now what exactly are property rights? Why are they so important? Let us proceed to investigate these questions in a step by step method.
Property rights are defined as a bundle of entitlements defining the owner's rights, privileges, and limitations for use of a resource. In a country that has eschewed the free market for more than half a century, property rights make little sense to the elite socialist planners, simply because of the fact that almost all the factors of production were concentrated in the hands of the state until the recent decade. Private property in India has been looked upon with the utmost disdain and has been considered the root cause of disharmony among fellow citizens. But for countries that have astutely embraced capitalism, property rights form one of the three most important pillars for running the system successfully, the other two being free trade and liberty.
If we observe carefully, we will find that the numerous disputes we encounter relating to resources arise from the fact that no one owns them, or maybe because everyone owns them, as in the case of public property. It is not difficult to see that people care for their own property much more than they care for the public property. A lot of environmental problems that we face today--ranging from pollution, the depletion of the rainforest, and animal species becoming extinct--is largely due to the absence of formal property rights. However, these disputes could be resolved if the unclaimed resources were divided up as private property. Now if someone wants to use your property, you could charge them a fee. Or if they exploit your property, you can sue them in court. Assigning property rights greatly enhances the ability to resolve disputes over the use and abuse of resources.
A recent spate of studies, pioneered by William Easterly of the Centre for Global Development, and Ross Levine of the University of Minnesota (I would like to thank Mr. Swaminathan Aiyar profusely for bringing this paper to my notice) has pointed out that sound institutions such as political stability, property rights, legal systems, and patterns of land tenure are more important for development than the geography of the country or economic policy!
India is a country that has been gifted with nature's bounty, be it in natural resources, or favourable geographical climate. It has learnt the lessons (though in a hard way) that the Socialist pattern of society is incapable of delivering and making a nation prosperous. The current economic policies of opening up the Indian economy to the world have proved to be judicious and has established the Indian economy as one of the potential economic superpowers of the world in the near future.
But what needs the most attention in India today is the development of sound institutions, which can uphold the law and order in an unbiased manner and thus create a conducive environment for sound economic policies to take over.
The recognition of Hernando de Soto 's work on property rights could not have come at a better time. It points out to all the legislators and policymakers of the less developed countries the immense efficacy of sound institutions such as property rights. The Indian politicians and legislators should take a lesson from this remarkable feat and waste no more time in incorporating property rights as a part of the Indian constitution if it really wants India to be counted as one the developed countries of the world. I urge all my fellow Indians and all the citizens of the less developed countries, where property rights are not formally recognized to stand up for this basic fundamental right of theirs.