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Property Rights: Key to Africa’s Prosperity

Part 1

Wolfgang Kasper argues that secure private property rights and the freedom to use them forms the foundation of all freedom- even in Africa, where life, liberty and property are all too often poorly protected. Societies in which property rights are respected and protected tend to enjoy prosperity and social harmony.

When Were Property Rights Invented?

It seems appropriate to ask when in human history the institution of individual property was invented. In other words, when did people accept the notion of an exclusive, socially respected relationship between individuals, or groups, and specific assets? When did communities acknowledge that certain assets belonged to individuals who had the right to exclude others from access to these assets and who could use them as they saw fit, as long as this did not harm others?

At the dawn of humanity, some 130 000 generations ago, when bands of apemen roamed the savannahs of East Africa, individuals may have had possessions, like dogs possess a bone. But possession was always challenged by others, so that the costs of defending it often exceeded the benefits. According to Nicholas Wade in Before the Dawn, Recovering the Lost History of Our Ancestors, this condition changed little for some 3.5 million years, not only for homo erectus, when he migrated out of Africa (and in Europe became Neanderthal man), but also the many generations of paleolithic homo sapiens who spread from Africa around the world. For some 130 000 generations, none of these distant ancestors knew property rights. The material circumstances of human life changed little, except for adaptations to different places and climates.

Property rights were only discovered and cultivated during the 'neolithic revolution', a mere 350 and 200 generations ago, when groups of humans moved from nature exploitation (hunting and gathering) to wealth creation (agriculture and animal husbandry) –– a revolutionary transition. It happened independently in several places on earth, when the stresses of global warming during the incipient Holocene triggered these changes. In the Fertile Crescent, some 10,000 years ago, emmer wheat, barley, olives, grape vines, sheep and goats were first put to systematic human use. People settled in hamlets. In their mutual interest, they learnt to respect each others' property rights. In the wake of this neolithic revolution, they gradually developed formal governance structures to protect property and trade. They specialised and improved the arts. They developed writing and accounting systems. They began to deal much more with strangers and interacted with them to discover new, useful knowledge.

Not much after the neolithic revolution in the Middle East, swamp grasses were cultivated in what now is northeastern Thailand, planting the seed for the rice-growing civilisations of the Far East. Later still, the cultivation of tubers and sugar cane was invented in Papua New Guinea; and millet, sorghum, lentils, and cotton began to be cultivated in tropical Africa. And some 100 generations ago, people in Central America and the Andes developed corn, quinoa, peanuts, beans, cotton, squashes, potatoes, and a few animals into systematically cultivated sources of sustenance for human life.

Wherever these developments occurred, they were accompanied by the discovery of property rights. We can find vestiges of exclusive property – such as fences, store houses, locks, written accounting systems, and formal governance arrangements to protect property – in all these places. Everywhere, the neolithic revolution soon produced settlements, cities and civilisations. Material progress has not stopped since. Another consequence of this transition was that violent, xenophobic tribal attitudes were abandoned to make way for more peaceful, less barbaric ways of interacting with strangers according to Nicholas Wade in Before the Dawn, Recovering the Lost History of Our Ancestors. The relevant institutions emerged spontaneously as internal institutions of society. They were rarely created and imposed from above, although priests and rulers often obtained legitimacy and treasure by protecting property rights (imposing external institutions).

In Isaiah Berlin: A Hero of Our Times, Vargas Llosa argues that we have to realise that these fundamental changes happened only very recently in human history –– in no more than the last 3-4 minutes of the day that humans have so far spent on earth. Little wonder that these civilising, rational institutions form no more than a thin and brittle crust over the churning magma of our subconscious, our sentiments and emotions.

Without secure property rights, the transition to wealth creation would have been – and often was – impossible. Indeed, agriculture failed to materialise where people did not respect the property of others. For example, paleolithic Australian Aborigines traded garden produce with neolithic (Melanesian) Torres Straits gardeners in northeastern Australia for millennia, but never managed to grow their own crops. When crops and animals are opportunistically appropriated by anyone and when there are no sanctions, the exclusion costs exceed the benefits of production.

Property Rights Defined 

Thus, property rights are the foundation for civilisation and material progress. Property gives owners the right to exclude others from access to their assets, to use and benefit from their use and to dispose their assets, in part or entirely. Assets are not only physical things, such as land or mobile goods, but also useful ideas (intellectual property rights). Assets may be owned by individuals, but also by groups of people, such as families and firms. When the size of the group of joint owners grows, problems of agency and control arise (agent opportunism; 'tragedy of the commons'). Assets are then used less effectively and creatively in production and exchange. When assets belong to groups as big as a modern nation, they effectively belong to no one, or are de facto appropriated by small elites. Controlling socialised property and its legitimate use is a task, which invariably eludes poor societies with limited institutional and administrative resources; it frequently even overtaxes well-organised communities.

Ownership is not merely the possession of a valuable asset. Rather, it constitutes an open-ended bundle of rights, for example the right to till the land, to rent it out to others, to grant a right of way or to let someone explore for minerals on one's land, and so on. Most of these uses occur in voluntary cooperation with others, who combine some of their property with ours in production and exchange, for example, when a mining company contracts to install its machinery on my land with the aim of both of us sharing the returns. Such cooperation fosters the division of labour and specialisation, which is the foundation of rising productivity. In a free economy, property owners are ceaselessly challenged to make use of their assets and risk new uses. They are of course not forced by any authority to engage in such competition. But if they decide to rest on their laurels, they are sooner or later likely to find that the value of what they own declines. This ceaseless challenge may often be uncomfortable, but it is the motivational force behind the amazing creative power of capitalism.

According to Hernado de Soto in The Mystery for Capital, one important right of secure ownership is that assets can be used as collateral for loans. In this way, additional resources are shifted to enterprising people, who are thereby empowered to risk creative experiments. Where property titles are insecure and unprotected, this potential is not mobilised. How much economic potential is then lost has, for example, become evident from what we have recently learnt about the creative blessings of micro finance. It has empowered the poorest to raise their material conditions, often by amazing margins.

Property rights – like human life, liberty and other human rights – are protected primarily by internal institutions of society, rules which have emerged from experience and which are spontaneously enforced. Honesty is, for example, often enforced by reprimand, by tit for tat, or by the shunning of dishonest people. As mentioned, rulers have also often protected property rights, for example by legislation, policing, courts and other such external institutions. As we shall see later, rulers often also pose major risks to secure private property.

Expected profits motivate property owners to risk what they own –– together with their labour and knowledge –– to discover new, rewarding asset uses. Often, the outcomes of such searches are not accepted by the market. Losses are then incurred, and the signal of red ink induces owners to discontinue this particular line of exploration. But, sometimes, the search through product and process innovation produces a bonanza of pioneer profits. Such successes are then imitated by others. In this way, humans have discovered more and more beneficial property uses. The sum of these discoveries is called 'economic growth'. It is therefore no coincidence that economic growth and high living standards occur in economies where property is secure and its voluntary, spontaneous use relatively free.   

Property rights – like all human rights – are autonomous: Rightful owners do not have to prove anything to anyone to use, benefit from, or dispose of their assets. No permission from others and no government permits are needed to exercise these rights, as long as others are not harmed. When someone else claims that someone's specific property use causes him harm, he has to prove the case with reference to a defined, accepted catalogue of rules. And he, the claimant, has to bear the burden of proof. This is the very definition of economic freedom. It is diminished when the burden of proof is reversed, for example when property owners are required to apply for licenses or other approvals to use what is rightly theirs. Where such interferences proliferate, economies are unfree and property is of limited usefulness. 

What constitutes harm to others and how conflicts over such externalities of property use are avoided or – should they occur – are sorted out in non-violent ways has been the subject of many centuries of creative judicial endeavour. Civilised societies have rule sets, which deal with such consequences of individual property use, for example rules, which determine compensation or prohibit certain property uses outright. Such rule sets are highly productive; we therefore call them 'institutional capital'.

By Wolfgang Kasper
An emeritus Professor of Economics at The University of New South Wales, and a Senior Fellow at The Centre for Independent Studies.

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