Property Rights

For the past 20 years, there has been a movement toward more open markets and greater economic freedom. The Heritage Foundation/Wall Street Journal annual Index of Economic Freedom has chronicled these changes for the past eight years.

Greater economic freedom has brought prosperity, advanced innovation, and created wealth as never before. Expansion of trade, capital flows, and economic activity has permitted improvements in health care, longevity, education, and other social

indicators.2 Yet, at the same time, millions of people continue to live in poverty. Even worse, some countries that once were wealthy have stagnated and are

even threatened with poverty. The Index evaluates economic freedom in 10 institutional

factors, including monetary and fiscal policy, government consumption, trade openness, and regulations.It also evaluates, in the property rights factor, how strongly a country’s legal system protects private property and contractual agreements. The term “property rights,” however, has broader implications. In fact, the entire Index of Economic

Freedom can be viewed as an evaluation of property rights protection, broadly conceived, since public policy can infringe on citizens’ property rights through regulations, inflation, and government ownership of scarce resources. Unless otherwise specified, this chapter will treat property rights in its broader sense rather than simply referring to the

“property rights” factor in the Index. The more government policy facilitates the use

of private property, the more prosperity it helps bring. In contrast, when governments infringe on citizens’ property rights by implementing policies that restrict access to markets and interfere with the use of private property, they bring poverty to their

countries. Accordingly, the extent to which governments carry out their responsibility to respect and protect property rights does much to determine the extent to which economic growth is possible and individuals can use freely what is theirs and enjoy

the things that science, technology, and innovation can deliver to improve their lives.

When property rights are difficult to delimit, protecting them becomes more challenging. In the integrated world we inhabit, it is often difficult to assign rights to environmental resources that are in common use. Protecting intellectual property also poses problems because it is very hard to trace such property’s use. In any case, the fact remains that effective protection of property is the only way to ensure that individuals are able to make the most efficient use of what they own, which in turn promotes economic growth and prosperity for all.

THE IMPORTANCE OF PROPERTY RIGHTS

The ability to accumulate private property, whether in the form of income, investment, or purchases, is the driving force behind a market economy. For individuals to work, save, and invest, and for firms to begin operations or expand existing activities, they need to be secure in the knowledge that they will be the full owners of their property and that nobody will take it from them. The greater the protection of property, the more individuals and firms will embark on all sorts of economic activities, thereby propelling economic growth. The two essential elements of property rights are (1) the exclusive right of individuals to use their resources as they see fit as long as they do not violate

someone else’s rights and (2) the ability of individuals to transfer or exchange these rights on a voluntary basis. This is what we mean by economic freedom. These elements derive from the human condition, and the government’s role is to preserve them.

In his Second Treatise on Civil Government, John Locke explains this point well:

To understand political power right, and derive it from its original, we must consider,

what state all men are naturally in, and that is a state of perfect freedom to order their actions, and dispose of their possessions

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