Karol C. Boudreaux: Property rights, free enterprise create prosperity

By Karol C. Boudreaux

Published: Friday, Sept. 28 2012 12:00 a.m. MDT

This week, Mitt Romney told the American people what he might do to improve U.S. foreign aid: encourage free enterprise, expand partnership opportunities with the private sector and support property rights.

The rationale for supporting free enterprise and private-sector partnerships is clear: the private sector does a great job of satisfying consumer demands, creating jobs and driving most of the innovation in our economy.

Because markets reward innovation we in the developed world get a lot of innovation. One reason, but not the only one, that poverty persists in many countries is because the private sector is severely hamstrung by policies and political imperatives that discourage innovation and investment. Problems that get solved by people in the market don't get solved when markets are choked off. One example is fertilizer: farmers in Africa have a hard time purchasing fertilizer because government policies often limit distribution to few companies, driving up costs. A more competitive market would reduce these costs and encourage people to develop useful substitutes.

Focusing on improving the property rights of people around the world is every bit as important. Insecure property rights are pervasive in the developing world and they contribute directly to poor economic growth, reduced agricultural productivity and human suffering — much of sub-Saharan Africa's violence is directly tied to conflicts over property.

Here's a thought experiment that highlights the problem: imagine what would happen if the U.S. government owned all the land in the country, 100 percent of it. And imagine further that the government owned every subsurface resource — all the oil, natural gas, minerals, etc. Now imagine that the Department of Interior was put in charge of allocating all this land, surveying it and marking boundaries, handing out legal documents to allow people to use the land, and approving all the transfers between users. Is it likely that the DOI could do all this work effectively? Would politically well-connected people get preferential treatment? What would happen to our economy, our communities, our resources?

This is the reality that people in much of the developing world face each day. Governments legally own all or most of the land as well as the sub-surface wealth, but they are not able to manage these systems effectively. Huge informal settlements develop in and near cities because formal procedures for buying, selling and renting land and housing are complex and costly. In rural areas, customary leaders often have de facto control of surface land, but because they aren't true owners, they have trouble protecting their communities from outsiders. Though they may try to protect their communities, customary leaders do a poor job of protecting the rights of the wives and daughters who live among them.

Helping people and communities strengthen their land and property rights would give them positive incentives to improve their farms and build businesses, creating stronger economies that reduce poverty. It would empower women and help them feed their families, reduce hunger and participate more effectively in their communities. Finally, it would limit one of the most pernicious causes of human suffering, the violence that comes when farmers kill herders, when neighbor fights neighbor, when warlords seize land to extract minerals, and when governments forcibly resettle people. Peaceful and prosperous societies rest on the foundation of more secure property rights.

Karol C. Boudreaux is Affiliated Senior Research Fellow at the Mercatus Center at George Mason University and lead researcher for Enterprise Africa!, an international initiative to promote successful business development in Africa. She is an internationally recognized expert on the role played by private institutions to alleviate poverty and promote prosperity.

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