The Importance of Property Rights to Development

Author(s): John D. Sullivan, Jean Rogers and Kim Eric Bettcher

Source: The SAIS Review of International Affairs , Summer-Fall 2007, Vol. 27, No. 2
(Summer-Fall 2007), pp. 31-43
Published by: The Johns Hopkins University Press

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 The Importance of SAIS
Property Rights
Review vol. no.D2evelopment
XXVIIto 31
(Summer–Fall 2007)

The Importance of Property

Rights to Development

John D. Sullivan, Jean Rogers,

Kim Eric Bettcher

This article explores the difference that the institution of property rights has made to the
economic and political life of developed countries and the promise it holds for developing
countries. By shaping the incentives of individuals and undergirding the institutions of so-
ciety, a strong property rights regime lays the foundation for growth, freedom, and overall
well-being. For individuals, property ownership entails opportunity, responsibility, and
economic freedom. For society, these translate into investment, innovation, the possibility
of widescale exchange, and even improved governance.

D evelopment begins with individuals. Consider a small-scale entrepre-

neur. In order to grow a business, an entrepreneur must devise ways
to increase productivity, acquire or develop new technology, invest in em-
ployees and equipment, and plan for the future. Whether the entrepreneur
ultimately succeeds will depend on the resources employed, the availability
of markets, and the stability of society, among other things. Yet it is the in-
dividual who has the power to innovate, make decisions, and pursue goals.
A development policy that unleashes this power, motivating constructive
individual behavior, is the most likely to achieve sustainability.
What can motivate an entrepreneurial spirit in individuals? More
than any other single factor, a sound property rights regime can do this.
Property ownership induces individuals to undertake effort and risk that
they otherwise would not. Or as former Secretary of the Treasury Lawrence
H. Summers put it, “In the history of the world, no one has ever washed

John D. Sullivan, Ph.D. is Executive Director of the Center for International Private
Enterprise (CIPE), an affiliate of the US Chamber of Commerce. As Associate Director
of the Democracy Program, Dr. Sullivan helped to establish both CIPE and the National
Endowment for Democracy in 1983. He became Executive Director in 1991. He holds
a Ph.D. in political science from the University of Pittsburgh, and is an adjunct faculty
member at Johns Hopkins University School of Advanced International Studies (SAIS)
as well as at George Mason University Graduate School of Public Affairs. Jean Rogers is
Deputy Director for Programs of the Center for International Private Enterprise. She
holds a Masters Degree in International Transactions (Commerce and Policy) from
George Mason University in Virginia and is a professorial lecturer at the Johns Hopkins
University School of Advanced International Studies. Kim Eric Bettcher is Knowledge
Management Officer at the Center for International Private Enterprise and holds a
Ph.D. in political science from Johns Hopkins University

© 2007 by The Johns Hopkins University Press 31

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32 SAIS Review Summer–Fall 2007
a rented car.” For individuals, property ownership entails opportunity,
responsibility, and economic freedom. For society, these features translate
into investment, innovation, the possibility of widescale exchange, and even
improved governance.
This article explores the difference that property has made to the eco-
nomic and political life of developed countries and the promise it holds for
developing countries. By shaping the incentives of individuals and under-
girding the institutions of society, property lays the foundation for growth,
freedom, and overall well-being. The route to better property systems lies
through improved governance and regulatory reform.

The Influence of Property Over the Fates of Nations

The divergent histories of Spain and England from 1500 to 1700 illustrate
the decisive importance of property rights to long-term development. The
Spanish monarchs built and maintained an empire on the strength of
revenues from New World treasure and commerce in the Low Countries.
However, they failed to create a domestic environment that could sustain
future growth. Within Spain, the monarchy primarily taxed sheep—which
roamed across the countryside—and failed to institute a system of agricul-
tural property rights. Pressed by the expense of warfare and the revolt of
the Low Countries, the Crown increasingly confiscated property from com-
mercial, industrial, and agricultural interests and unilaterally repudiated its
debts. These burdens deterred productive activity and innovation, leading
to long-term decline.1
The English monarchy, like the Spanish, had limited respect for pri-
vate property, made grants of monopoly privileges to royalty, and presided
over guilds regulating production. The Tudor and Stuart monarchs also
sought to expand their tax revenues but never acquired the absolute power
to do so. Parliament fought the Crown on behalf of merchants and the
gentry for the right to determine taxation, for the elimination of monopo-
lies, and a property rights regime grounded in law. Parliament’s eventual
victory meant that the government would continue to receive revenues but
would henceforth defend property rights instead of expropriating property.
More than that, civil and economic liberties were expanded. The subsequent
development of competitive markets and strengthening of economic incen-
tives for innovation in the eighteenth century set the stage for the Industrial
Revolution.2
The European powers successfully exported many features of their po-
litical economic systems and institutions to several of their colonies. Those
countries that inherited strong property rights and other fundamental in-
stitutions of a market economy prospered while other countries that lacked
them—regardless of European cultural influences—experienced slow or nega-
tive economic growth.3 This is not exclusively a Western phenomenon, as
can be seen from the Korean experience. Starting with similar endowments
at the time of the Korean War, South Korea and the North adopted radically
different economic systems. Subsequently, the South thrived by respecting

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 The Importance of Property Rights to Development 33
property and encouraging markets, whereas the North, which abolished
private property, languished.
In the developed world, the role of property as a foundation for eco-
nomic growth is commonly taken for granted because it is omnipresent
and generally secure. By contrast, the effects of the absence of property are
acutely felt in many developing countries. These effects are typically mani-
fested by a disproportionately large level of informal economic activity. In
the informal sector, people still have possessions, but these possessions
are not formally recognized and therefore not protected as legal property.
“They have houses but not titles; crops but not deeds; businesses but not
statutes of incorporation.”4 Consequently, people in this sector—mainly the
poor—cannot leverage their assets for growth.
Research by the Institute for Liberty and Democracy has documented
the costs of informality and the amount of undercapitalized assets held
by the poor. In Lima, Peru, a
house with a title is valued at
nine times more than a similar In Lima, Peru, a house with a
house without one. A street title is valued at nine times more
vendor in Lima must pay a
premium of between 98 and
than a similar house without
495 percent for real estate com- one.
pared to formal merchants
just to acquire an uncertain, extralegal right to occupy his or her place of
business.5 Informal homeowners and traders—who account for a majority
of Peru’s housing and businesses—remain at risk of eviction. Despite such
costs and risks, the poor around the world have amassed an estimated U.S.
$9.3 trillion in real estate without legal ownership.6

The Benefits of Property to Individuals and Society

Owners of formal property enjoy numerous benefits, which allow and en-
courage them to engage in socially productive behavior. Property ownership
affords the exclusive right to determine the best use of one’s assets. The
security and freedom from interference that property rights entail induce
owners to invest in and improve their property. Another significant property
right is the right to transfer property, which makes it liquid and a source of
capital. This means an owner can improve a property, knowing that he or
she can later sell it and reap the added value. It also means a home can be
mortgaged to provide start-up capital for a small business. A buyer benefits,
too, from better information about an acquisition and the certainty that
the transaction will be honored. Finally, a well-defined property system frees
an owner from wasting time and resources on establishing rights to use a
property and resolving disputes over it.7
Property provides an essential foundation for market economies.
Without formal property, contracts are impossible to settle and transac-
tions may be reliably completed only among parties who personally know
and trust each other. Under strong property rights and contract enforce-

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 34 SAIS Review Summer–Fall 2007
ment, exchanges may occur between strangers and across long distances. In
addition, property ownership documents provide information about who
controls which assets. These advantages in turn expand choices, facilitate
specialization and economies of scale, and generally expand economic pro-
ductivity and efficiency. Other features of modern market economies, such
as joint stock corporations and sophisticated private capital markets, also
depend on the definition and enforcement of basic property rights.
In addition to efficiency gains in production and exchange as well
as higher rates of saving and investment, it is increasingly recognized that
property has a profound impact on innovation. The enormous growth of
market economies since the industrial revolution has been driven not simply
by gains in efficiency but by rates of innovation unmatched anywhere else in
history. Markets, in turn, have spurred competition over innovation in ad-
dition to their commonly understood role in creating price competition.
One key way they do so is through inspiring and rewarding entrepre-
neurship. Entrepreneurs change the economic landscape by introducing
new firms, technologies, products, and business methods. Property gives
entrepreneurs the freedom to try new things, market their innovations, and
earn profits that offset the risks and investments they undertake. Without
the prospect of winning a competitive advantage, entrepreneurs will not
assume these risks.8
The distinction between innovation and invention must be stressed.
Inventions can occur in various kinds of economic systems, may be moti-
vated and funded in different ways, and can occur as the result of research
and experimentation or pure
accident. On the other hand,
Leading Chinese producers of entrepreneurs, and market
consumer goods struggle to systems more generally, excel
at innovation, which involves
establish respected brand names bringing inventions to market,
because of piracy. adapting technologies for prac-
tical use, and improving busi-
ness processes and products in
myriad ways, often incrementally. For example, medieval China produced
countless inventions of tremendous potential, including paper, porcelain,
movable type, gunpowder, the spinning wheel, a mechanical cotton gin, and
ship technology. Unfortunately, the government frequently expropriated
inventions and private wealth, in turn discouraging innovative, economi-
cally productive behavior. That these remarkable inventions were not widely
applied and failed to spark growth of any historical consequence is likely
attributable to government expropriation.9
In contemporary China, businesspeople have begun to identify a need
for stronger protection of intellectual property rights (IPRs) to sustain re-
cent growth and open new avenues for dynamic businesses. While foreign
companies have complained of weak safeguards against intellectual piracy,
domestic producers have likely suffered more from this weakness. In par-

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 The Importance of Property Rights to Development 35
ticular, leading Chinese producers of consumer goods struggle to establish
respected brand names because of piracy. The inferiority of imitation goods
compromises the reputation—and the marketing investment—of the original
creators. A better system of IPRs would afford higher quality products for
consumers and opportunities to move up the value chain for producers. An
IPR system promotes the most social benefit in terms of innovation and
technological diffusion when combined with a full range of competitive
markets. China has already joined international conventions on IPRs, but
needs to improve on administration and enforcement.10

Property and Institutional Development

Although property can be credited as the leading catalyst for growth, it must
be accompanied by rule of law in order to function. That is to say, property
rights must be established and respected by government and fairly enforced
through a legal system. The case was made strongly by Jeremy Bentham:
“Property and law are born and must die together. Before the laws there was
no property; take away the laws, all property ceases.”11 In this way, prop-
erty cannot be instituted in isolation from good governance and justice.
Conversely, the widespread desire for property and the economic benefits
it brings creates powerful demand for the development of governance and
legal institutions. In other words, property reform can encourage the de-
velopment of a range of important institutions. “Property may be regarded
as a tree of which social institutions are as branches growing from a trunk
that it puts forth.”12
As a core institution, property changes individuals’ behavior in funda-
mental ways. To put it differently, property (combined with competition)
channels a common desire for material gain into socially productive be-
havior. This is the essence of Adam Smith’s notion of the invisible hand.13
Thus, entrepreneurs are encouraged to take risks and be creative about ways
to improve production and serve their customers. To repeat the Lawrence
H. Summers quote, “In the history of the world, no one has ever washed a
rented car.” In contrast, owners are made to be accountable for their pos-
sessions and be careful how they handle them. Everyone who is given an
opportunity to own some property acquires a stake in society.
What’s more, secure property rights can discourage rent-seeking, a be-
havior manifested when producers seek privileges, protection, and resources
from the government in a bid to shield themselves from competition. This
behavior burdens the government and shifts resources away from their op-
timal productive uses. In its extreme, it can smother private initiative and
foster an unhealthy dependency on government. Instituting secure property
rights can divert the rent-seeking attention of producers away from govern-
ment and toward efficient and innovative activities. When a multitude of
private producers enjoy secure property rights and government ownership
is limited, fair competition ensues.14
Sovereigns, too, change their behavior when constrained to respect
property rights. Historically, sovereigns made little or no distinction be-

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36 SAIS Review Summer–Fall 2007
tween their private holdings and public land and revenue. They could arbi-
trarily reassign or expropriate private land and wealth. This changed with
the evolution of modern property systems, which roughly paralleled the
evolution of constitutionalism. Governments could no longer violate civil
liberties. They had to rule by and respect laws, consequently being held ac-
countable by taxpayers. Taxpayers and property owners would henceforth
dictate the appropriate division and use of public and private properties.
Since then, the world has witnessed both the expansion and destruc-
tion of political and economic freedoms, but property has been recognized
as a fundamental right in the Universal Declaration of Human Rights,
Article 17. Property serves as a pillar of democracy in four ways. It provides
protection for the security and civil liberties of the individual. Second, it
limits governmental control of economic resources while fostering pluralism
and competition. Third, it requires and is associated with constitutionalism
and the rule of law. Finally, it makes possible opportunities and prosperity
that give individuals a stake in democracy and enhance democratic legiti-
macy.

The Transition to Formal Property Systems

Property is by its nature an exclusive right. The extension of this right

beyond an elite class serves to include the majority of the population in
the formal economy—indeed in the global economy. In developing and
transitional countries, the creation of a fair, effective property system ex-
pands opportunities and breaks down hurdles to growth. Creating such a
system involves much more than devising a comprehensive, consistent set
of laws and regulations. Laws must be harmonized with local customs and
economic realities and backed by the necessary degree of administration
and enforcement.
In Russia, for instance, international experts were brought in to craft
a state-of-the-art corporate law when state-owned enterprises were priva-
tized. Because this law and others were not enforced, the privatization had
perverse effects. The new controlling owners, who took advantage of po-
litical connections, stripped the assets of the privatized corporations while
the rights of minority shareholders were ignored. Small business owners
in Russia were also denied secure property rights, since the buildings they
own must be leased from the government. In this environment, corruption
expanded and undermined the development of an independent, legitimate
private sector.
In many developing countries, the property laws on the books have
been written from the perspective of those already inside the formal
economy. Consequently, these laws neglect the reality of the majority of
economic activity in the informal sector. In these countries, the expansion
of regulations and heavy-handed enforcement usually fails to achieve its
intended objectives. This only pushes more economic activity underground
and makes it harder for informal entrepreneurs to join the formal sector
and make a living.

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 The Importance of Property Rights to Development 37
Hernando de Soto found an elegant solution in Indonesia to the
problem of defining adequate property rights for the informal majority.
He discovered that each time he crossed an invisible property boundary in
the rice fields, a different dog would bark. So by listening to the barking
dogs, one could map out existing property boundaries. De Soto’s insight is
that people everywhere establish local conventions for their property needs.
By investigating these conventions and integrating them into formal law,
their holdings can be converted into assets with value that extends beyond
the immediate community. Laws founded on local norms and conventions
enjoy greater legitimacy as well practicality and thus are better recognized
and enforced.15
It has in fact proven possible to expand legal ownership on a large
scale by issuing titles for homes and deeds of incorporation for businesses.
Since the 1980s, reforms have allowed 6.3 million poor Peruvians to acquire
legal ownership of their real estate, according to the Institute for Liberty
and Democracy. ILD further estimates that formalization of 380,000 busi-
nesses generated 560,000 new jobs and raised annual tax revenue by $300
million.
Entitlement has encouraged families to invest more in their houses.
At least 40 percent of newly entitled households in Buenos Aires have in-
stalled relatively high quality walls and roofs. These families also invested
more in the education of their children.16
Residents of Peruvian urban squatter set-
tlements invested in housing renovation
Property rights, not
at a 68 percent higher rate after receiving credit, play a crucial
title.17 Possession of a title, though, has r o l e i n d e t e r m i n i n g
not necessarily resulted in increased ac-
cess to bank credit, which often depends entrepreneurs’ levels of
on income from a formal job.18 Although investment.
these findings suggest mortgages may not
become a primary source of financing for
entrepreneurs in poor countries, it should be recalled that property rights,
not credit, play a crucial role in determining entrepreneurs’ levels of invest-
ment.19
It should be clear that formalization of housing and businesses ben-
efits the poor via greater reliability and security of these assets. This for-
malization also raises new and worthwhile challenges. Further institutional
developments and adjustments will be required to facilitate exchange of
property, contracts, extension of credit, resolution of bankruptcies, and
effective enforcement. It is this complex of institutions, combined with
liberalization, that makes possible the emergence of a true market economy.
The granting of basic property rights, however, is absolutely necessary and
an excellent place to start.

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38 SAIS Review Summer–Fall 2007
Programs to Strengthen Ownership and Reduce Informality

The Center for International Private Enterprise (CIPE), an affiliate of the

US Chamber of Commerce, assists private sector organizations around the
world that advocate for stronger property rights and a better business cli-
mate. In focusing attention on property rights reform, CIPE promotes the
institutional foundations of both free market economies and democratic
political systems.
CIPE’s programs encompass much more than the definition of prop-
erty rights through titling and business incorporation. These rights can be
defended and exercised only when complementary institutions are in place.
For instance, a statute of incorporation would not benefit the owners of a
business if excessive licensing requirements inhibited the actual operation of
the business. The value of ownership to businesses can be compromised by
regulatory burdens, government harassment, corruption, inefficient courts,
and weak corporate governance. CIPE addresses these various institutional
failings in order to strengthen ownership, reduce informality, and encour-
age entrepreneurial growth.
The best way to approach these complex problems, in CIPE’s experi-
ence, is to involve representatives of formal and informal businesses in the
identification of reform priorities and mobilize them around solutions that
benefit the business community as a whole. A concerted advocacy campaign
gets the attention of policymakers and builds momentum for reform.20 CIPE
has helped private sector leaders undertake a wide variety of campaigns to
resolve property-related issues—three of these campaigns are described be-
low. The common elements of these efforts have been a focus on advocacy
and local ownership of the reform process itself.

Russia
Small and medium-sized enterprises in numerous Russian regions faced dif-
ficulties in gaining access to nonresidential building stock. Although many
factories and buildings had been privatized, the land on which they rested
was still owned by regional or municipal authorities intent on maintaining
a revenue stream from rental payments. Rents were high, lease agreements
short-term—typically one year with no guarantee of extension and no op-
tion to buy—and lessees saw no incentive to invest in the maintenance and
repair of premises. In Primorsk region, for example, one in three business-
people cited renting property as the most labor-consuming and expensive
task they faced. Steep increases in rental rates, a lack of sound procedures
to calculate rent, no accounting system for repairs, and unfair practices in
contracts rendered the property market opaque and strongly detrimental
to business activity.
From 2003 to 2005, CIPE brought together business associations and
leading individuals in eight regions to develop a series of business agendas
for improved private sector growth. Participants worked with colleagues
from their region to identify common obstacles and key development ob-
jectives. They then mapped out strategic coalitions to address individual
issues with regional public officials.

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 The Importance of Property Rights to Development 39
The Krasnodar coalition, to cite one example, submitted a model
agreement on the rental of municipal premises, featuring provisions for
the cost of capital repair and preferential extension of rental agreements for
tenants in good standing. The coalition also proposed the establishment
of an accessible municipal property registry and economically justifiable,
competitively based rates for rental of municipal property. Specialists pro-
vided technical assistance to entrepreneurs on leasing documentation. The
coalition pushed for the revision of municipal leasing rate factors, which
were lowered for some entrepreneurs, such as small trading businesses. Else-
where, the Primorsk coalition successfully campaigned on behalf of small
businesses for the cancellation of a 250 percent increase in rental rates in
Vladivostok.21

Montenegro
An economic think tank and CIPE partner, the Center for Entrepreneurship
and Economic Development (CEED) analyzed the business registration
process in Montenegro. This analysis exposed the need to simplify the reg-
istration process, make it less costly and less time consuming, and reduce
the amount of capital required. CEED established that it took 45 working
days or more to register a firm, through a maze of institutions and at the
discretion of government bureaucrats. In addition, firms had to re-register
every year. CEED widely distributed its study “Barriers to Doing Business
in Montenegro” among the private sector and policymakers, and success-
fully advocated for changes through the working group appointed to draft
the new Enterprise Law. “Barriers to Doing Business” earned CEED a 2005
Templeton Freedom Prize for free market solutions to poverty.
The Enterprise Law—largely drafted by CEED—was passed in January
2002. Under the new law, it now takes four days and one dollar to register
a firm, whereas previously it took 5,000 dollars. A firm is automatically re-
registered if not called within one day by the government. Today over 15,000
entrepreneurs and 14,500 other legal entities have registered. CEED helped
over 4,000 companies register free of charge.22

Kenya
In Kenya, millions of smallscale entrepreneurs and workers in the jua kali
sector supply goods to local markets using predominantly manual labor
and little capital, often making do with handmade tools. Local authori-
ties continually harass these small businesses by arbitrary arrests, chasing
them from their temporary business locations, confiscating their goods and
tools of trade, causing property damage, asking for bribes, and at times,
even assaulting the entrepreneurs. As business owners are unable to secure
ownership over their shops and land, they have difficulty accessing credit.
Cumbersome laws and regulations further inhibit the growth of jua kali
businesses.
To protect themselves from government abuse and improve the condi-
tions under which they operate, jua kali businesses have banded together and
formed their own associations. Several of these associations have capitalized

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40 SAIS Review Summer–Fall 2007
on skills and strategies their leaders acquired during a workshop held by
CIPE in Nairobi in 2004. They have subsequently improved the profession-
alism of their organizations and enhanced benefits for their membership.
Normally, jua kali operators are expected to pay many taxes that they cannot
afford, as well as obtain multiple licenses for the same business. However,
the associations have negotiated single licenses for their members at a rea-
sonable cost.
Participating associations from the 2004 workshop have joined to-
gether to form a new grassroots coalition, the National Informal Sector Co-
alition (NISCO). NISCO has advocated that the government allocate titled
land to members, renovate shed structures housing jua kali businesses, and
provide basic utilities such as water and electricity. So far, besides govern-
ment commitments to financing and procurement opportunities, NISCO
has obtained a large hawkers market in Nairobi, expected to be completed
by the end of 2007. The President of Kenya presided over the ceremony
launching the market.23

From Informal to Formal: “Top Ten” Priorities

During a workshop hosted by CIPE at the November 2000 assembly of

the World Movement for Democracy, participants generated a list of ten
priorities to legalize the informal sector and to tap its growth potential.
These priorities outline a set of integrated measures to develop property
rights regimes, allow owners to make good use of their rights, and improve
democratic governance. While the problem of informality involves more
than just property rights, it takes an integrated, institutional approach to
solve these problems.
1. Instituting transparent, inclusive decisionmaking procedures and pro-
viding regular opportunities for the public to comment on existing and
proposed laws and regulations.

2. Clarifying and streamlining legal and regulatory codes by eliminating

duplicative, superfluous laws that increase the cost of doing business
and invite corruption.

3. Making private property rights accessible to all citizens, clearly defined,

and strongly enforced.

4. Simplifying business permits and licenses and making them afford-

able so that becoming part of the formal economy is within reach for
entrepreneurs of modest means.

5. Reforming tax systems in order to encourage profitable economic activ-

ity and promote widespread compliance.

6. Overhauling labor laws to allow for more flexibility.

7. Reforming economic systems through improved corporate governance

legislation to encourage open markets rather than crony capitalist
systems. These include adopting internationally accepted accounting

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 The Importance of Property Rights to Development 41
principles, standards of disclosure, and anti-trust & anti-conflict of in-
terest measures, as well as prohibiting insider trading and overhauling
bankruptcy laws.

8. Reforming excessively bureaucratic government agencies and strength-

ening their administrative and enforcement capacity so that laws and
regulations are administered and enforced efficiently, effectively, and
inexpensively.

9. Making available to all citizens such business-related information as

how to obtain a license or permit, how to start a business, how to form
commercial entities, and how to run a business.

10. Bringing about a high quality, efficient, and cost-effective infrastructure

essential for a democratic, market-based system so that entrepreneurs
benefit from joining the formal sector.

Conclusion

There is a growing consensus among development agencies, academic ex-

perts, and developing country governments that fundamental institutional
reform has to be built in partnership with local agents of change, especially
those in civil society and the private sector. Certainly, CIPE’s experience
in developing countries, like that of many others who support democratic
and market oriented reforms, validates the idea that civil society and the
private sector have to be the drivers of reform. They can provide pertinent
information about how new rules and institutions will affect them, and who
can build political support for beneficial changes.24 They must take owner-
ship of institutional reform to establish a well-governed, growth-oriented
environment.
As has been shown, the development of an effective, fair property
rights system has broad, positive ramifications for development. Across
different eras and different parts of the world, the formal institution of
property has been an essential element of sustainable growth. It has also
contributed to the development of other institutions of good governance.
There is, however, no single property regime that can fit all societies. Prop-
erty systems are complex, and therefore must be adapted to local conditions,
not simply dropped in place. Cultural and historical factors influence what
may be acceptable. Because property laws must be enforced in order to be
effective, they must be aligned with the judicial system and other relevant
institutions and laws.
What should be kept in mind in devising any property system is that
property must be dynamic, not static. Property is not simply treasure that
can be stored away, like gold in a vault. Gold does not generate new wealth
or improved well-being; rather, productivity gains and innovations do. As a
dynamic asset, property enables the creation of new investment and wealth.
Similarly, property is not simply extracted or redistributed from one party
to another. It plays an essential role in expanding the total wealth available
in socially beneficial ways.

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 42 SAIS Review Summer–Fall 2007
A strong property rights re-
T o h a v e a c o m p l e t e , gime should be regarded as a key
functioning market system, component of sustainable, long-
term growth, not a short-term
other key institutions must panacea. To have a complete, func-
be in place, such as the legal tioning market system, other key
institutions must be in place, such
system, contract law, laws as the legal system, contract law,
that ensure competition, and laws that ensure competition, and
even representative political insti-
even representative political tutions. There are costs in insti-
institutions. tuting property reform, including
administrative costs and disputes
to resolve. Still, the process of
establishing a property system and overcoming these challenges can itself
help a society to develop. Every society begins from a different point, but
all societies can benefit from respect for property and the promotion of
investment, commerce, and innovation.

Notes
1
North, Douglass C. and Robert Paul Thomas. The Rise of the Western World: A New Eco-
nomic History. Cambridge: Cambridge University Press, 1973.
2
Ibid.
3
Acemoglu, Daron, Simon Johnson, and James Robinson. “Institutions as the Funda-
mental Cause of Long-Run Growth.” In Handbook of Economic Growth, edited by Philippe
Aghion and Steven N. Durlauf. Boston: Elsevier, 2005.
4
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Everywhere Else. New York: Basic Books, 2000, 7.
5
De Soto, Hernando. The Other Path: The Economic Answer to Terrorism. New York: Basic Books,
1989, 69, 160.
6
De Soto, Hernando. The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Ev-
erywhere Else. New York: Basic Books, 2000, 35.
7
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8
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Capitalism. Princeton: Princeton University Press, 2002.
9
Baumol, William J., The Free-Market Innovation Machine: Analyzing the Growth Miracle of Capi-
talism. Princeton: Princeton University Press, 2002, 254–257.
10
Maskus, Keith E., Sean M. Dougherty, and Andrew Mertha. “Intellectual Property
Rights and Economic Development in China.” In Intellectual Property and Development:
Lessons from Economic Research, edited by Carsten Fink and Keith E. Maskus, 295­­–331.
New York: World Bank and Oxford University Press, 2005.
11
Jeremy Bentham quoted in Richard Pipes, Property and Freedom (New York: Vintage Books,
1999), 104.
12
Mercier de la Rivière quoted in Pipes, 1999, 43.
13
Baumol, William J., The Free-Market Innovation Machine: Analyzing the Growth Miracle of
Capitalism. Princeton: Princeton University Press, 2002, 13–15.
14
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History. Cambridge: Cambridge University Press, 1973; Baumol, William J., The Free-Market
Innovation Machine: Analyzing the Growth Miracle of Capitalism. Princeton: Princeton University
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 The Importance of Property Rights to Development 43
15
De Soto, Hernando. The Mystery of Capital: Why Capitalism Triumphs in the West and Fails
Everywhere Else. New York: Basic Books, 2000, 162­­­–163.
16
Galiani, Sebastian and Ernesto Schargrodsky. “Property Rights for the Poor: Effects of
Land Titling.” Universidad Torcuato Di Tella, Escuela de Negocios, Centro de Investigación
en Finanzas Working Paper 06/2005.
17
Field, Erica. “Property Rights and Investment in Urban Slums.” Journal of the European
Economic Association 3 (April/May 2005): 279–290.
18
Galiani, Sebastian and Ernesto Schargrodsky. “Property Rights for the Poor: Effects of
Land Titling.” Universidad Torcuato Di Tella, Escuela de Negocios, Centro de Investigación
en Finanzas Working Paper 06/2005; Field, Erica and Maximo Torero. “Do Property Titles
Increase Credit Access Among the Urban Poor? Evidence from a Nationwide Titling Pro-
gram.” Mimeo, March 2006.
19
Johnson, Simon, John McMillan, and Christopher Woodruff. “Property Rights and Fi-
nance.” National Bureau of Economic Research Working Paper 8852, March 2002.
20
A wealth of advocacy resources may be found at [Link]
21
Center for International Private Enterprise, “Strengthening Local Democracy in Russia:
The Case for Business Associations,” CIPE Case Study No. 0505 (February 16, 2006, avail-
able at [Link] See also William E. Pomeranz,
“Whither Russian Property Rights?” Economic Reform Feature Service (Washington, D.C.: CIPE,
11 March 2004); William Pyle,
“Russia’s Business Associations: Who Joins and Why?” Economic Reform Feature Service
(Washington, D.C.: CIPE, 17 July 2006).
22
Center for International Private Enterprise, “Creating a Voice for Entrepreneurs in Mon-
tenegro,” CIPE Case Study No. 0601 (August 1, 2006, available at [Link]
tions/papers/pdf/[Link]).
23
Bani Orwa, “Jua Kali Associations in Kenya: A Force for Development and Reform,” CIPE
Case Study No. 0701 (January 25, 2007, available at [Link]
pdf/IP0701_juakali.pdf).
24
Sullivan, John D., Kim Eric Bettcher, and Aleksandr Shkolnikov. “Business Associa-
tions, Business Climate, and Economic Growth: Evidence from Transition Economies.”
Paper presented at the annual conference of the International Society for New Institu-
tional Economics, Boulder, Colorado, September 23, 2006.

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