Property rights are the basis of economic development as they are what activates dead assets into capital. Hernando De Soto argues that the reason for the massive success of capitalism in the West lies in their well-developed property system and rights (De Soto 37). All assets lack an intricate ability to generate surplus value and rely on an external process to break them down into capital. Economist De Soto argues that the external process that guarantees the extraction of capital from assets is the formal property system (De Soto 38). The formal property system, also known as proprietary rights, is what legally fixes the economic potential of assets so that they can be used to generate greater value in the economy. Hernando De Soto claims that through proprietary rights the economic value of assets is captured and organized enabling property to be utilized as capital in the generation of wealth.
Proprietary rights have various effects that enable property owners to utilize their assets to generate capital. Per De Soto, the formal property system of the West generates effects that are essential in regulating the economic potential of assets. The property rights of assets fix the economic value of assets by representing in writing the most economically and socially useful qualities about properties (De Soto 43). By taking into consideration the economic and social utility of an asset, property rights transform it from dead assets into live capital. Additionally, formal property systems consider an asset from the economic and social perspective of the property in question. Another effect of property rights, according to De Soto, is that it integrates dispersed information into one system. Capitalism proper results in the formation of a singular formal representation system that records and evaluates all assets of a given nation (De Soto 45). Developed capitalist nations of Europe and America have a unitary proprietary system that enables their citizens to easily obtain the unique economic and social characteristics of their property.
De Soto also argues that the property system inculcates accountability that spurs economic growth enables assets to be fungible and easily used to facilitate business transactions. The property system enables people to use their assets to borrow loans and mortgages as security (De Soto 47). The use of assets as security encourages commitment as a failure to meet one’s economic obligations results in forfeiture of the secured assets. Moreover, by uncoupling the economic feature of assets, the formal property system allows individuals to combine, differentiate, and divide assets (De Soto 48). By establishing the economic value of assets property rights enable individuals to invest their property as they deem fit.
I concur with economist De Soto on the importance of the formal property system on assets. Through the use of a single formal system, the capitalist nations of the West, such as Europe and America, have generated massive wealth for themselves using their assets. This is the diametrical opposite of the economic situation in Africa and other developing countries that still have multiple and ill established property systems.
The Glorious Revolution of 1688 in England resulted in the creation of various political institutions that ensured commitment to undeterred economic development in the nation. Before the Glorious Revolution of 1688, the Crown held total political power in England with little interference from parliament. The Stuarts, who had held the Crown in England since 1603, funded the British government in a manner of an extended household (North and Barry 805). Moreover, the Crown collected and utilized revenue without any parliamentary consent or oversight, which resulted in massive abuse of power and misappropriation of England’s wealth. By 1617 the revenue problem in England had worsened to the point of the Crown being unable to sufficiently finance the operations of its administration (North and Barry 807). This situation forced the Crown to seek alternative ways of financing its administration.
The Crown resorted to infringe on the proprietary rights of property owners in England to avert a revenue crisis. The Crown sought forced loans from lenders and reneged on payment terms and arbitrarily altered private property rights by selling monopolies rights originally designed to protect and promote the invention of new processes (North and Barry 810). Moreover, agents of the Crown seized private property for public purposes under the guise of purveyance. For example, in 1640, the Crown seized 130,000 pounds of bullion belonging to private businessmen driving many to bankruptcy (North and Barry 828). These acts of the arbitrary abuse of power led to massive opposition to the Crown and the onset of the 1688 revolution.
Architects of the 1688 Glorious Revolution aimed at limiting the arbitrary powers of the Crown, more so in the ambit of private property. Consequently, they established novel political institutions and changed the political and administrative system of Britain by constraining the powers of the Crown (North and Barry 815). The political institutions also ensured that the British government committed to the promotion and protection of private rights, which is the basis for economic growth. The Star Chamber was abolished by an act of parliament requiring that all cases involving property be tried at common law to limit the Crown from meddling in matters private property (North and Barry 823). The act of parliament ensured that monopoly rights were enforced and protected by the state. Furthermore, the Glorious Revolution initiated the era of parliamentary supremacy that ensured that the Kings would never claim to be above the law (North and Barry 825). Parliamentary supremacy enabled members of parliament to check the excesses of the Crown. The revolution also affirmed parliament’s central role in financial matters in England while limiting the amount of financial control under the ambit of the Crown (North and Barry 828). Therefore, the parliament could audit how the British government utilized its allocated resources.
The credible commitment to economic independence and the sanctity of private rights in England achieved after the Glorious Revolution are essential for economic development. A country cannot attain economic development when the proprietary rights of its citizens are not safeguarded from the impulses of the state (North and Barry 816). Stable and well-guaranteed property rights are important in economic development as they promote foreign investments and creates a suitable environment for domestic trade. Economic growth depends on a state making credible commitments to the property rights of its citizens.
My leadership of the World Bank will focus on promoting the development of formal property systems in the developing nations to combat poverty in less developed nations. Most developing nations possess vast amounts of economic resources, such as arable land and minerals; thus, they have what they need to achieve development. Moreover, developing nations have accumulated trillions of dollars in dead assets that they are not able to convert into capital (De Soto 45). My strategy of tackling poverty will focus on coming up with relevant approaches to exploiting the dead assets into capital that can be invested and utilized to generate wealth in developing nations. For example, each developing nation could establish a unitary and formal property system to convert the dead assets into capital. The property system will legally fix the economic and social utility of the vast property in developing nations and enable their use as capital. Moreover, it will enable citizens of developing nations to utilize their property in a capitalist economy to generate wealth for themselves and their countries.
I foresee two potential objections to my approach to establishing formal property systems in developing nations. The first one concerns the financial and technical resources to be used in actualizing my strategy. Indeed, coming up with a unitary and formal property system in each developing nation will be a costly and protracted process. However, this issue can be resolved by issuing financial aid and loans to these developing nations, specifically for the development of a legal property system. The World Bank can avail the loans and financial aid to the developing nations willing to create their indigenous property systems. Moreover, the World Bank can offer technical support to the developing nations to fasten the process of establishment of the property systems. Such aid could involve the hiring of legal and financial experts to help steer the development of property systems in third world countries. The property systems that will be built in these developing nations can be based on the quite successful systems built in Europe and America.
The second potential objection arises from the communal setting of many developing nations. These countries, more so in Africa, are communal, thus repugnant to individualistic tendencies. The need for the creation of a unitary formal property system may be deemed to be a form of entrenching individualism, and thus the conservatives in the developing nations may oppose it. I believe that this challenge can be addressed through the promotion of indigenous property interests. The World Bank will focus on fostering the development of autochthonous property systems that take into consideration the unique cultural and economic practices of each developing nation.
De Soto, Hernando. The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. Civitas Books, 2000.
North, Douglass C., and Barry R. Weingast. “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England.” The journal of Economic History, vol. 49, no. 4, 1989, pp. 803-832., https://doi.org/10.1017/S0022050700009451