This is the third instalment in a 20-part “Pushing the envelope of knowledge” series in which Mawere attempts to provide some insights into the concept of corporate citizenship and the importance of improving the body of knowledge that informs our daily conversations
IF ASKED what one would consider to be the most fundamental and foundational principles of building a progressive and dynamic society, what would that be?
What we do know is that even a capitalist system requires building blocks just like a communist system.
It must be accepted that one of the most fundamental requirements and yet often misunderstood concepts of any progressive civilisation is a system of property rights.
In the context of Africa, the majority of its citizens is poor and historically has been alienated from property to make the argument about the respect of property rights one of the most complex and difficult issues in the enterprise of nation building.
It is not unusual that social engineers complain that property rights too often take precedence over human rights requiring us to pause to reflect on what kind of society we need to see.
Although human beings are created equally, it would be naïve to assume that they have equal access to opportunities in life. Inequality is part of human existence in as much as greed is.
Is the perceived conflict between human and property rights real? Are property rights human rights?
In our collective body of knowledge in Africa, I have often wondered how much of that knowledge relates to our understanding of the definition, allocation and protection of property rights.
Although many of our founding fathers and state actors do not want to abolish property rights, a strong view exists that such rights must be transferred from private ownership to the state for efficiency to be enhanced.
In human civilisation, it has been universally accepted that abolishing property rights would undermine or be counterproductive to progress.
Yet private property is inherently distrusted in most societies and Africa is not unique.
The concept of property is a legal construction that vests the exclusive authority to determine how a resource is used in either private or public hands.
As part of a social contract that must undermine nation building, society approves the uses selected by the holder of property with the state administering the rules of the game.
The rule of law is important in giving meaning to property rights.
In cases where the resource or thing is owned by the government, the agent who determines its use has to operate under a set of rules determined by the legislature or by the executive agencies that are charged with that role.
Private property rights confer on the holder an exclusive right to the services of the resource apart from determining the use of the resource.
What does this mean? It means that the owner of a house has the right to deal with property without reference to another authority.
Such dealings may include decisions to rent the property, the right to invite other people in the house and more importantly the right to determine the use.
If the holder of the right decides, for example, to rent the house, he/she has the right to all the rental income from the property and to use such proceeds as he/she wishes.
A private property right includes the right to delegate, rent, or sell any portion of the rights by exchange or gift at whatever price the holder determines provided someone is willing to pay for the right at the asking price.
Any society that restricts the right by the holder to deal in the property as they wish will do so at its own cost.
If one is not allowed to buy some rights from a seller, and such purchaser is not allowed to dispose of rights so acquired to another, then rights are qualified and reduced.
It has often been said that if one lives in another person’s house, freedom is latent. One cannot be free in such situations even if the holder of the right is related to you.
For a market to work, the greater fool principle must work. One of the critical elements of private property is the right to exchange the resource at mutually agreeable terms.
We all know the impact of price controls on property rights. Many people who would ordinarily support rent controls would be violently opposed to similar controls in the payroll market.
A society that builds its business model on price controls and restrictions on the right to sell at mutually agreed terms has no one to blame for economic decay.
Any restrictions on property are detrimental to progress. In saying this, one has to accept that the market values of property also reflect the preferences and demands of the rest of the society.
Societal choices have a bearing on the market value of property. For instance, land that has not been designated or proclaimed for one use or another will have a different value from land that has been so designated.
Although property is called “private”, private decisions have to be informed by public or social validation.
A society that respects property rights eliminates destructive competition for economic resources as the market mechanism, invisible as it is, has the capacity to replace competition by violence with competition by peaceful means.
In an organised society underpinned by a developed property rights system, the personal status and attributes of people competing for a resource should matter less as the price mechanism can be an effective instrument for resource allocation.
At the transaction point, it should be irrelevant what color of skin, for instance, the buyer or seller is. The one who is willing to pay more should ordinarily be the market-determined purchaser.
History has shown that societies that interfere with market-based systems will exhibit market distortions that have the effect of reducing supply.
It should not be surprising that in countries like Cuba, the housing units built during President Castro’s tenure reflect the limitations of the wrong idea that informed the policies implemented.
When one looks at the secret of American progress, it must be accepted that the idea that informed the creation of America was a powerful and dynamic one.
The founding fathers of America must have been seized with the challenge of setting up a framework that would allow and incentivize risk takers fully knowing that the market and not powerful people would determine business success or failure.
Even a naïve person would accept that competition for shelter, for example, would not be eliminated by rent controls.
Restrictions on property rights reduce competition based on monetary exchanges for goods and services and increases competition based on personal characteristics.
In post-colonial Africa, we have seen a tendency to weaken private property rights forgetting that such approach increases the role of personal characteristics in inducing sellers to discriminate among competing buyers and buyers to discriminate among sellers.
Under socialism, private property rights are weakened resulting in state actors exercising control over resources and it is not unusual for investors to seek to endear themselves to holders of state power.
Resources tend to be allocated to the connected and the Chinese, for instance, have been good at endearing themselves to state actors and in so doing have the potential of converting Africa into a satellite and dependent continent where resource allocation is intermediated through opaque and less optimal arrangements.
Because state actors do not stand to gain when values of the resources they preside over increase and they do not stand to lose anything when the values fall, they normally have no incentive to respect the market.
Similarly, common ownership arrangements of resources, whether in capitalist or socialist societies, give no one a strong incentive to preserve the assets.
However, private property rights need not be held by a single person but can be shared with each person sharing in a specified fraction of the market value while decisions about uses are made in whatever process the members deem fit or desirable.
A major example of such shared property rights is a limited liability corporation governed by a legal system that entrenches the rights of shareholders to deal in their shares as they fit.
The right to decide how a corporation’s resources are used is normally delegated to management and shareholder liability is limited to the subscribed capital thereby facilitating the freedom by shareholders to sell their securities without disturbing the running of an enterprise.
In 1845, Old Mutual came to existence and yet after 15 years of independence in South Africa, we have yet to see the formation of a New Mutual. The failure to create one is not a result of “white” conspiracy but an inherent ability of our generation to think out of the box in so far as the issue of property is concerned.
A mutual allows member wealth to become uniquely dependent on other members’ behavior and property rights in the group are only transferable if members approve of the buyer.
To the extent that property rights are the rights of human beings to use specific goods and to exchange them, any restraint on property rights has the effect of shifting the balance of power towards personal attributes and more significantly toward behavior that the politically powerful approve.
When properly understood, the right to property is a fundamental human right that must be respected and protected as it protects individual liberty. - firstname.lastname@example.org