Property rights and economic development – Newspaper

Property rights and economic development – Newspaper

The phrase “property right” refers to the owner’s legal entitlement to use an asset for personal consumption or the production of income. It is also possible to include the right to give it to another party through a sale, gift or inheritance.

Classical economists such as Smith and Marx accorded property rights a central position in economic development. However, it has only been relatively recently that mainstream economics has come to the view that property rights play an important role in this process.

The fundamental findings of economics with regard to the function of competitive markets are predicated on the assumption that property rights are both well-defined and easily and effectively enforced. The literature on economic growth has generally centred its attention on savings and the accumulation of wealth in a society devoid of institutions and characterised by flawless property rights.

Property rights are essential to prosperity. Economists and politicians understand the importance of well-defined property rights. A private property system offers people exclusive use of their resources.

The prevalent colonial era system suits the power-hungry elite because it offers them unimaginable political and financial rents

Even if officials in affluent countries and international agencies appreciate the importance of private property, they can do little to help emerging countries develop one.

In a nutshell, the private property rights system plays a significant role in the economy’s ability to allocate resources effectively and create prospects for wealth creation. The stronger the system, the better.

Studies conducted by The New Institutional Economy School showed that an increase in welfare is observable in a scenario where law and regulations are applied. This is due to the fact that corporations or individuals who are willing to make investments feel safer when laws and regulations are in place.

In a society where people feel safe and there are no eruptive changes in the context of political and economic areas, an increase in welfare can be observed. Therefore, it is also possible to observe the opposite of this phenomenon: when businesspeople believe that the government of a country does not adhere to restrictive regulations or that it may be willing to change those regulations, investment decreases as a result of a lack of confidence in the scenario.

In Pakistan, property rights are undoubtedly in shambles whether you read the reports prepared by international organisations or observe the actual situation on the ground. The property rights index prepared by the Heritage Foundation puts Pakistan in 156th place out of 175 countries, with a score of just 29 out of 100.

More alarming is that the situation has worsened after briefly improving from 2016 to 2020. According to the Heritage Foundation, a low score represents a greater likelihood of expropriation of private property by other public or private parties, lack of an independent judiciary, corruption in the judiciary, and an inability of individuals and organisations to get the contracts enforced.

Most developed countries like Japan, the US, and the United Kingdom score above 90 on the property rights index. Even our bigger neighbour is 20 points ahead of us. It is better to remind you that India surpassed the UK as the world’s fifth-largest economy just weeks ago, and better property rights are indeed one contributor.

Another property rights index prepared by the Property Rights Alliance paints a similarly bleak picture. It ranked Pakistan at 108th place out of 129 countries and 18th out of 19 countries in the Asia/Oceania region, with a score of 3.814 out of 10. The self-explanatory breakdown of the index is shown in the second figure.

Successive Pakistani governments, since its inception, have failed to bring in the necessary political, legal and structural reforms to protect private property rights. It has more to do with the will than the state’s capability to initiate these reforms. The prevalent colonial era system suits the power-hungry elite more because it offers them unimaginable political and financial rents.

Changing finance ministers will not change the country’s economic fate unless the state starts to prioritise protecting private property rights. A good property rights regime will bring in the necessary investments to spur industrial innovation to prop up exports. Pakistan cannot grow unless we are able to massively increase exports of high-value items. Before the exports, we need to produce these items, which is impossible without secured property rights.

The writer holds a PhD from Lee Kuan Yew School of Public Policy, NUS Singapore and currently serves as a faculty member at the Department of Public Administration, University of Kotli AJK.

Twitter: @masoodthinketh

Published in Dawn, The Business and Finance Weekly, October 24th, 2022

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *