The courts

The protection of property rights requires:

  1. a system of contract law and tort law that upholds real, personal and intellectual property rights;
  2. a rigorously enforced criminal code that outlaws theft, fraud, trespass, vandalism, and other deliberate violations of property rights; and
  3. a system of registers that identify and record property rights.

Civil courts must be efficient and affordable and criminal courts swift and relentless. Both should be equally diligent in addressing both small and large infringements of property rights. Legal costs arising from mistakes and delays by the court (including erroneous judgments overturned on appeal) should be paid for by the state. This is because the swift and cheap vindication of property rights is in the interests of all society, not just the parties to the litigation. If the courts are slow and expensive, the wrongdoer will calculate that he can act with impunity because the wronged party will not go to the expense of seeking justice from the courts. But if the tiniest infractions are swiftly and cheaply avenged by the courts, then wrongdoers will have no choice but to respect property.

Under-resourced courts tend to deliberately delay bringing matters to trial; they correctly calculate litigants will settle once they are financially exhausted. However, under these circumstances, the party in the right is just as likely as the party in the wrong to capitulate. Encouraged by this outcome, the infringer will be unrepentant in his future behavior. Thus businessmen will continue to lie and cheat, software and intellectual property theft become a national pastime, insurers stonewall claims, and society as a whole suffers.

Intangible property

The law plays a vital role in protecting intangible property, in defining new categories of intangible property, and, where necessary, in maintaining registers, such as trademark and patent registers. This includes recognizing and protecting patents, copyright, frequency rights, trademarks, condominium title, domain names, mooring rights, and oil and mineral rights.
Real property

A home serves as a physical shelter, but also in its representation in the form of a title, it can be burdened to obtain finance, to obtain credit, or to further investment or to become an address where one becomes accountable. But that requires that around the assets you build a legal system which people can access. It just so happens that in most developing countries, to enter the law is a huge problem. For example, in Peru, it used to take 22 years to title a home in the outskirts of Lima. In Egypt, to title a sand dune and obtain a home takes you 17 years working eight hours a day, and in the Philippines, it can take up to 52 years.

—Hernando De Soto. Hernando De Soto, PBS News Hour, October 17, 2000, commenting on his book, The Mystery of Capital: Why Capitalism Succeeds in the West and Fails Everywhere Else.

The euphemism ‘developing country’ is a misnomer because Third World countries are not developing, and they will never develop until they implement secure property rights. What defines Third World countries is their complete or partial failure to respect property rights, the absence of the rule of law and the abundance of socialist experiments (economic alchemy) that are part of an endless misguided quest to dig themselves out of the hole they are in but which simply drags them in deeper.

The governments of such countries never seem to realize that significant economic development is impossible without secure property rights. A person will not spend twenty years of hard-earned savings to buy a home unless he knows he will not be arbitrarily evicted the following week. A mortgage lender needs to know that if a borrower defaults on his loan, the lender can sell the house to recover his money. Purchasers and lenders need to know the exact boundaries of the land they invest in. Secure land tenure is thus a vital property right that the government must define and uphold. This requires not just secure title, but also that taxes and transaction costs are minimal.

New fields of endeavor

The law must be alert to the emergence of new fields of human endeavor so it can create a legal framework for them. However, it should never restrict the number of entrants into a new field. The argument that the market is not large enough to support more than a certain number of entrants is always spurious. What a market can support is determined by market forces. Nor should the government seize upon these new fields and use their need for a legal framework as leverage to exploit them for revenue, as this will only retard growth in the new area. Thus, license fees should only be as high as is necessary to cover administration costs.

One of the greatest historical wrongdoings in this regard was the restriction on television licenses in Britain to state-owned television stations. By communizing their airwaves, the British insulated themselves from the marketplace of free thought and instead they were immersed in socialist propaganda for several generations. This was a major contributing factor to that people developing a culture of dependency, whereby they desired to be looked after ‘from cradle to the grave.’ Even today, any suggestion that hospitals be privatized is considered with horror by this nation of helpless dependants, for whom health care comes before pride. They judge political initiatives by their perceived utility, rather than their morality. Thus, having no moral compass, they continue to struggle along, gaining neither utility, nor the pride that comes from living morally.

This article is an extract from the book ‘Principles of Good Government’ by Matthew Bransgrove