Traditionally, three resources of production–land, labour and capital–are utilized to create finished goods and services. The effective utilisation of these resources creates wealth (finished goods and services), and makes a society prosperous; if ineffectively used, societies remain stagnant and poor. Therefore, the next natural question that arises is: What makes
The short answer: well-defined and secure property rights over these resources and finished products.
When a society decides and demarcates who owns what and how much of the scarce economic resource, property rights are defined. When individuals can consume their demarcated resource, earn income from it, transfer it to others and enforce their right over it (also called
Conversely, when it is unclear who owns what resource, there is no incentive for anyone to care for it. The result is neglect and over-exploitation of the scarce resource. Similarly, when the rights are insecure, the resource is not utilized efficiently. The result? Wasted opportunities to create wealth and spawn prosperity.
How do secure property rights help people to work hard and create wealth?
Individuals have a natural tendency to expend effort to acquire resources and fulfil their wants
Compare this to a system where individuals have little right over their property. Such individuals have little incentive to produce beyond what is needed for survival—lest their property gets stolen or expropriated. As a consequence, wealth is not created; they stagnate and remain poor.
Secure property rights are a necessary condition for creating wealth, but are they sufficient?
Yes. Secure property rights also mean low taxes and restrictions, free trade, and access to justice.
Property rights include the right to keep and consume one’s property. Therefore, securing them means lowering taxes to allow individuals to keep more, and lowering restrictions to allow use without permissions. This gives rise to
The street vendors in India are effectively deprived of the right to consume their property. Despite a law to protect them, the authorities often evict and confiscate their property in the
investing in their shops and ‘acquiring more’, and hence, from growing.
Property rights also
Both the owners and pullers of cycle rickshaws in India are barred from transferring their property. Owners are prevented from leasing their rickshaws to pullers (non-owners), which prevents their effective utilisation; the owners cannot lease their additional rickshaws, and the pullers who are typically too poor to own a rickshaw are deprived
Property rights also
Land in
Meaning of prosperity may extend beyond
Although the literal definition of prosperity is
Therefore, well-defined and secure property rights not only create the initial incentives for wealth and peace creation, but it also helps their extension and preservation.
The author is grateful to Barun Mitra and Bhuvana Anand for the valuable discussions.
Read more: https://spontaneousorder.in/why-the-property-rights-solution-finds-no-mention/
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The opinions expressed in this essay are those of the authors. They do not purport to reflect the opinions or views of CCS.