Leeson and Harris on Wealth-Destroying Private Property Rights
We live in a capitalist society. As a result, most of us generally believe that private property is a good thing. More so, we believe that the institution of private property is the foundation of our economy and is essential to producing high rates of economic growth. I completely share these beliefs.
Yet even in a capitalist society, there are common assets that are shared by everyone.
a) No one owns the air we breathe. Someone may own the land we are standing on when we breathe that air. But the air itself is for everybody.
b) No one owns the ocean. Particular points of access to the ocean may be privately owned. Individuals or corporations can own beaches or marinas or harbors. There may be limits on who can fish in particular waters. But, in general, anyone who wants to swim or sail a boat can swim or sail anywhere they like on the seven seas. The ocean is for everybody.
c) Streets and thoroughfares are generally open to everyone. A city or county may technically own the street. A small number of streets are within private gated enclosures. Toll roads exist where drivers are required to pay a fee. However, in most cases, anyone can walk or drive on any street. Streets are for everybody.
* * *
In the United States, most property is private property. Commonly held assets represent a small share of our economy. (For the love of God, don’t call me on this and ask me for rigorous numbers here. What percentage of our national worth is represented by the air we breathe? I won’t even go there.) That said, most of the productive assets used to manufacture goods and services are owned by somebody.
There are other societies where more is shared. Factories and industrial workplaces aren’t shared very often. Workers’ cooperatives do exist. (They are often unstable and short-lived.)
Land, however, is shared frequently. This is particularly the case when populations are sparse and the land is not suitable for intensive farming. On most forest frontiers, nobody owns the forest. Indigenous people just hunt or gather as they please. Before Western settlement, the American Great Plains were open territory. The First Nations people who lived there had villages where particular homes and gardens were private property. The plains themselves were open to all. Both England and Russia in the 1500’s had common land that was owned by everyone in the village. People did not grow personal crops on the commons. The commons were reserved for grazing animals. In historical Switzerland, the mountain meadows above the villages could be used by anyone. Even in colonial Boston, the center of the city was Boston Commons, which anyone could use. It is a public park today.
The concept of the commons is relevant to development because when Europeans or Americans start administering the economies of the Global South, they tend to take land held in common by local people and privatize it, dividing it up among individual single owners. Most European colonialists set up land registers and attempted to convert economically useful land into private holdings. There has been a comparable private property movement that started in the 1990’s with the rise of the free-market-oriented policies associated with the Washington Consensus. The Washington Consensus was an agreement by the wealthy nations that economic growth in the Global South could be increased by privatizing public and common assets, by opening up local economies to foreign trade and foreign ownership of productive assets, and by reducing government regulation of the economy. The neoliberal policies associated with the Washington Consensus have been at best a mixed success. In many cases, they backfired badly, dramatically increasing poverty.
Which brings us to Leeson and Harris’s excellent discussion of wealth-destroying private property rights. In a 2018 article in World Development, titled fittingly, “Wealth-Destroying Private Property Rights”, Peter Leeson and Colin Harris examine the privatization of common land in Kenya. That privatization was a disaster. Not counting England’s earlier smaller attempt to privatize land when it was administering Kenya as a colony, the big push for privatization in Kenya came early – starting in 1968 and continuing through the 1970’s.
A large proportion of Kenya is semiarid. Land quality is very marginal, suitable only for grazing animals and light gardening. The tenuous nature of the water supply means that animals have to be moved around a lot to obtain enough pasturage to survive. Regions can go dry and then come back to life. The Maasai herders who live there are always looking for the next viable green patch, and calculating how long the patch they are on can last before their animals eat up the supply of ground cover.
Land in the semiarid was held in common. People owned houses and gardens. Technically different Maasai tribes had exclusive rights to different parts of the semiarid. But, as Leeson and Harris point out, “exclusive” was actually not so exclusive. The constant tendency of land to go bad meant that neighbors often had to “borrow” other neighbors’ land just to get through a dry spell. So de facto everyone’s flocks were sent to pasture pretty much everywhere, regardless of which tribe owned the land or which tribe owned the animals.
Land HAD to be common. If the forage-generating acreage of the semiarid were to be divided among families strictly mathematically, people would not have enough room for the flocks they held. Nor could herders move their flocks from a dried out spot to a fresh green spot, if they had to stay on the same land all the time.
So, no doubt, the reader can guess exactly what happened when Kenya privatized its land, dividing up the semiarid among the herders. No one had enough land to take care of their animals. Herd size fell precipitously. Standards of living crashed. The land had been privatized presumably to allow people to invest in the land, improve the land, use the land as collateral for agricultural loans or even sell the land for a net profit. Other than selling out, very little of the other good things happened. With herd sizes down to untenable levels, nobody was in suitable financial shape to invest.
Leeson and Harris note cynically, that although the Maasai did very badly when their land was privatized, the politicians and their friends did very well. Candidates running for office promised their supporters preferential access to land or even free land in return for electoral support. Not surprisingly, the politicians carved out large estates for themselves. Family members of the politicians also did well. Note that in dubious land deals, there are multiple interpretations of land going to a family member of an insider. It could be that the insider is making a generous gift to the children or cousins that he loves. It can also be that this is a financial cover for the politician creating a giant estate for himself. Dividing land among wives, uncles, daughters-in-law and other cronies – keeps any one individual from owning suspiciously large tracts of land. This is especially the case if the land is registered to shell corporations. Tax obligations are suitably reduced. Potential attempts by some future administration to seize the politician’s assets are complicated by the lack of transparency as to who owns what.
Lower-level government functionaries got action as well. The officials running the transfer of land from common to private had some discretion as to who got what. A substantial amount of bribery occurred as competing families and tribes bid on who would get the most desirable parcels. In an underdeveloped pastoral economy, herders typically did not have a lot of cash with which to pay bribes. Privatization was associated with substantial transfers of the ownership of animals. There is anecdotal evidence of government officials requesting “entertainment” in return for favorable treatment.
Leeson and Harris have a sophisticated theory about when land gets privatized and when land does not. Privatization occurs in waves – since it is a form of real estate speculation. Just as real estate booms have multiple causes – waves of privatization have multiple causes as well.
Causes of privatization are complex. The effects of privatization are simple. Politicians dispossess less powerful people who are poor and vulnerable. Inequality goes up. If the land was being shared for common sense reasons, output collapses. Sometimes a new wonderful export cash crop can be developed that will make someone rich, if not necessarily the original people using the land.
Often, to quote the words of Michael Levien, there is “dispossession without development”. Land is chopped up for the immediate benefit of the land choppers with no credible economic improvement plan once the transfers are made.
Private property is the foundation of everything that works well in capitalism.
But some things have to be shared.
Random privatization is like random surgery.
You cut someone up.
You cause them great pain.
You charge a huge fee for your efforts.
Unnecessary surgeries harm the patient.