Time to re-establish a property rights ethic

Our perception of reality and the role of government in our lives greatly influences how we view a subject like the issue of “property rights.”  This nation’s founders believed that life, liberty, and property were inalienable rights and that governments were instituted primarily to protect and ensure that those rights would not be taken away by force.   The “land of the free” is the prosperous nation it is today – and the beacon of light to oppressed billions the world over – largely because of these underlying principles.  


Today, however, we are in danger of abandoning our founding principles and suborning our own future prosperity to an alien philosophy which under the guise of “group rights” concentrates power in the hands of elites.  And we have no one to blame but ourselves.


In a land in which power is derived from the consent of the governed, we have allowed our public schools to eschew teaching children about foundational U.S. Constitutional history and the principles on which our nation was founded and instead to assert that principles that derive from the French Revolution of 1789 are akin to our own.  We have even brought these alien principles into our legal system and bowed to them via international agreements.


At a time when the US should be leading the charge for expanding property rights throughout the developing world, we are instead are fast becoming a double-minded people, torn between two very different worldviews, and incapable of leadership.  Sadly, most Americans do not even realize that our accommodation of this alien worldview has the potential to disrupt the very form of government that has made America a truly great nation.


The two philosophies that have been struggling for supremacy for the past 250 years, those of John Locke and Jean Jacques Rousseau, are diametric opposites that cannot work well together.. America’s Constitution is deeply rooted in the thought of John Locke (1632-1704), whose Two Treatises on Government (1689) provided a framework for England’s Glorious Revolution of 1688 and the American Revolution of 1776.


Locke’s political philosophy promotes individual rights and limited constitutional government as the basis of freedom and economic security. Jean-Jacques Rousseau (1712-1778) opposed Locke’s model in the name of the wholeness of man, arguing that it divides man by focusing on self-interest, individual rights, and property. Rousseau sees “man as a malleable creature” to be molded by an “enlightened” government.


In 1762 Rousseau wrote the Social Contract, which focused on the abstract “general will” of the people. Today the same concept, typically expressed as the “public good” or the “public interest,” forms the heart of socialism. Rousseau’s philosophy therefore inevitably leads to a “statist” approach to government, one in which the individual is subordinate to the government and all individual rights are derived from the state – including property rights.


While Rousseau’s model of governance condemns individualism and self-interest, Locke’s model depends on private property rights and self-interest to motivate individuals to do something a better way or create a new product or service that serves a human need. To prevent abuse, both Locke and our founders held that private property rights do not allow property owners to cause real harm to other people or their property. Historically, common law remedies were deemed sufficient to prevent abuses of property rights, and governments would have had to pay just compensation to acquire property – or restrict its use – to achieve any collective or societal goal.


Unfortunately, environmental and planning laws passed at all levels of government over the last thirty years have moved thousands of towns, cities, counties and states away from the Lockean model of “governance by the consent of the governed” to the Rousseauian model in which the government aggressively manages the property of its citizens. This trend has dramatically weakened private property rights, resulting in negative consequences that few people understand.


Legal property rights are the key factor in the success of capitalism in the West. The legal structure in the West documents every parcel of land, every building, every piece of equipment, or store of inventory in some form as property. Property can be used as an asset to finance a new business, expand a business, or facilitate another investment. The process of legally registering property takes only a few days at most and connects all these assets to the rest of the economy. In the United States, for instance, about 70 percent of the credit new businesses receive comes from using formal titles as collateral for home mortgages.


In his compelling book The Mystery of Capital, Hernando de Soto accurately identifies formal private property rights as the key to reducing poverty and producing wealth. Legal title to use property represents equity. In turn, this equity can become collateral to create the capital needed to start, expand or buy into a business, which then yields income and wealth. The amount of equity can be stunning, even in the United States. In 2002, the average net worth of home-owning Americans was $132,100 versus $4,200 for American renters – nearly thirty times higher!  Other factors can also play into these numbers, but property is by far the key element in creating wealth.


The developing nations of the world perhaps provide the most striking example of how the lack of legally secured private property rights can destroy the wealth-building capability of property. In these nations, de Soto found that the simple act of legally transferring the title to property is very costly. It can take years, even decades, because of a sea of bureaucratic corruption and regulations. Few people have the time or resources to own property legally. The resulting “extralegal” property arrangements provide no legal asset value.


De Soto has shown that the total value of this kind of extralegal property within developing nations and former communist countries is at least $9.3 trillion! This is ninety-three times as much as all development assistance to the developing nations from all advanced countries during the past thirty years. There would be little need for development assistance if these poverty-stricken people could have access to the asset value of their own property.


Yet, the United Nations and the international community are presently putting together a series of international treaties in the name of “sustainable development” that would systematically prevent citizens in the third world nations from ever attaining the formal property rights that would give them wealth and liberty.


Denial of private property rights has been the policy of the United Nations and other international institutions since the 1970s.  The Preamble of Agenda Item 10 of the UN Conference on Human Settlements (Habitat I) held in Vancouver, May 31 – June 11, 1976, states that:



Land…cannot be treated as an ordinary asset, controlled by individuals and subject to the pressures and inefficiencies of the market…. The provision of decent dwellings and healthy conditions for the people can only be achieved if land is used in the interests of society as a whole. Public control of land use is therefore indispensable…. Governments must maintain full jurisdiction and exercise complete sovereignty over such land…. Change in the use of land…should be subject to public control and regulation…of the common good.


In his book Globalization and Its Discontents, Joseph E. Stiglitz, winner of the Nobel Prize in Economics and former Senior Vice President of the World Bank, identifies the desperate need for the poor in the third world nations to have property rights. Stiglitz understands that a free market system “requires clearly established property rights and the courts to enforce them.” The poor and middle class must have legally protected private property rights to benefit from a market economy. Yet, some international treaties require just the opposite of what Stiglitz says is necessary. It is equally of concern that his advice is being ignored by most environmental and planning laws passed in the United States as well. 


Thousands of US communities are implementing smart growth and growth-management planning that does exactly the same thing that Hernando de Soto found to be so devastating to people in third world nations. Rather than days, it often takes years to get a permit to do anything in these communities because of regulatory restrictions. Many cities having smart growth and growth-management for more than twenty years are already experiencing consequences. Such regulations can have debilitating impacts on investment and growth.


If strangling regulations encumber property rights, there is little to no equity, and therefore little to no capital with which to create wealth. Without wealth, a nation cannot protect the environment. A family whose primary focus is to put food on the table is not going to be interested in protecting the environment. The contrast between the United States, Europe and the Third World is striking. The CIA World Factbook notes that the U.S. has historically had some of the best-defined property rights in the world, giving its citizens a per capita Gross Domestic Product of $42,000 in 2005. In contrast, the average per capita GDP in 2005 was only $28,100 for Europeans and less than $10,000  for people in developing nations, according to the CIA.



Figure 1. There is a high correlation between the relative index of legal property rights and per capita Gross Domestic Product between nations. Source: Adapted from James Gwartney and Robert Lawson. Economic Freedom of the World – 2005 Annual Report. Fraser Institute, 2005. Per Capita Data from the CIA World Fact Book

Research done at the Fraser Institute of Canada provides an “Economic Freedom Index” that defines this relationship further. They use thirty-eight variables to determine the relative economic freedom of any nation in the world. Several of them concern the legal security of private property rights. At a minimum, the data show that property rights play a very significant role in per capita GDP in countries around the world (Figure 1). Impoverished third world nations having limited property rights have less than $8000 per capita income, while those having little to no property rights fall below $1000.


Conversely, Western nations having legal property rights have incomes of greater than $12,000, usually greater than $20,000. There is a 74 percent correlation between the Fraser Institute’s property rights index and per capita GDP of 126 nations.


Other factors besides property rights obviously contribute to the per capita GDP. . For instance, the property rights index for the United States is 7.9 while that of South Africa is 7.1 – not much lower. Yet the difference in the per capita GDP is huge — $42,000 versus $12,100. Some analysts surmise that this disparity may well stem from Apartheid, a former system that has partly skewed the data from South Africa because it kept the black population from enjoying the same property rights as whites until the early 1990s.


If true, the South Africa example would appear to validate the argument that artificial limitations to the property (and other) rights of every citizen have serious ramifications on the economic prosperity of an entire nation. It would obviously also take decades to erase such disparity. One thing is clear; nations moving in the direction of greater economic freedom, including property rights, generally prosper, while those moving in the opposite direction stagnate. They lose out on the rich rewards freedom and property rights offer.


Numerous studies show there is a negative impact on communities where government imposes growth management and smart growth regulations. For instance, the Harvard Institute of Economic Research at Harvard University published a study that found that “growth management” and “smart growth” zoning dramatically affect housing costs. The study found that in communities where regulatory zoning does not artificially drive up the price of land, the cost of an extra quarter-acre in a single lot is very similar to a separate and independent quarter-acre lot that is zoned to permit construction. This condition exists in urban Kansas City. (Figure 2)



Figure 2. Harvard Institute of Economic Research reports that cities have minimum zoning or no growth management regulations exhibit little evidence of excessive price increases. Those having heavy zoning and growth management regulations see prices artificially inflated by a thousand percent or more. Source: Edward L. Glaeser and Joseph Gyourko. “The Impact of Zoning on Housing Affordability,” Harvard Institute of Economic Research, Discussion Paper No. 1948. March 2002.

However, in San Francisco, Los Angeles, Anaheim, San Diego, New York City, Seattle and other smart growth cities, the difference between the cost of an extra quarter-acre in a lot, and a separate quarter-acre lot in an area zoned for such building, is in the hundreds of thousands of dollars. In these areas, note the authors, “Measures of zoning strictness are highly correlated with high prices…. Only 10 percent of the value of the land comes from an intrinsically high land price.” The authors found that their evidence “suggests that zoning and other land use controls play the dominant role in making housing expensive.” Although many other variables were tested, land-use regulation was the only one correlated with the huge cost increases.


As Randal O’Toole said in The Planning Penalty, “It is hard to imagine that more traffic congestion, higher taxes, lower urban services, increased consumer costs, and unaffordable housing add up to a more livable city.”  Indeed, environmental regulations, urban planning and smart growth policies that undermine the private property rights of American citizens are creating a nightmare for urban people across America.  Other policies based on the same principle of the “public good” (almost always as defined by elites) are thwarting efforts to bring prosperity to the developing world.


From a few academics and environmentalists to the media, state and local officials, and high-level federal officials of all ideologies and party affiliations, this misguided vision of land use control has spread despite overwhelming evidence that it does not work.  The persistence of these beliefs despite all facts to the contrary is a tribute to the power of a fashionable idea favoring federal intervention, however illogical it may seem in practice and experience.


At a time when few Americans in power are championing the property rights of individuals (and even the Supreme Court ruled that governments can take private property from one person and give it to another just to increase tax revenues), voices from the developing world are calling upon us to help them implement our own founding principles of life, liberty, and property rights into their governmental structures.  Clearly, Americans need to return to their roots – to re-learn John Locke’s concept of private property rights and its sidekick, free markets, and to reestablish the property rights ethic both in our schools and in our laws and treaties.  


Duggan Flanakin serves as a CFACT environmental programs officer.

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