My Say: Rethinking property rights for sustainable development

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This article first appeared in Forum, The Edge Malaysia Weekly, on February 8 - 14, 2016.


A recent Oxfam International report stated that the 62 richest people in the world own as much as the poorest half of the world’s population. While the methodology of the report has its caveats, the main point of the report still holds — global wealth is increasingly concentrated in the hands of a few.

This can have several consequences. Extreme wealth inequality, according to Oxfam, is dangerous for democracy, inclusive societies and social mobility. Furthermore, if wealth is highly concentrated among a few individuals, it is easy for those wealthy individuals to skew political outcomes in their favour, forever twisting political systems towards the preservation of wealth as opposed to access to wealth.

Yet, inequality — wealth or income — is not a root problem per se. Inequality is typically a symptom of something else at work. Rather than lambast inequality for inequality’s sake, we should take great care in finding out how that inequality came to be.

This is best described by Harvard professor Lant Pritchett, who states that, “When we complain about inequality in the abstract, we aren’t thinking about what is or isn’t fair or just or equitable … So let’s stop talking about inequality and talk directly about the things we ought to care about: absolute deprivation, abusive power, rigged markets and unearned privilege.”

At the base of it, when it comes to inequality, rather than employ a blanket anti-inequality stance, we have to tackle the philosophy of social justice and fairness. For instance, depending on one’s world view, one may be comfortable with Bill Gates’ method of wealth accumulation as he is the founder and creator of a global product but that same person may not be as supportive towards those who accumulate wealth via corruption and rent-seeking, such as in the case of Robert Mugabe of Zimbabwe.

Another instance is that there may also be some who say that equality of opportunity is not enough, and equality of outcome is what matters — the gap between the wealthy and the non-wealthy should be minimised as much as possible.

Therefore, in thinking of the philosophy of social justice and its relationship with inequality, it is worth reconsidering one of the prime causes of “absolute deprivation, abusive power, rigged markets and unearned privilege” — property rights.

For centuries, property rights have been at the core of capitalism. Indeed, the Enlightenment philosopher John Locke, in his magnum opus Two Treatises of Government, considers property to be one of man’s “inalienable” rights, alongside life and liberty.

More recently, Peruvian economist Hernando de Soto has argued, convincingly, that the exclusion of the poor from enforceable private property rights holds them back from participating in the global economy. This is why, he argues, capitalism is more successful in the West than it is in most of the rest of the world. As long as people are not able to account for their assets in a credible and transferable way within a legal system, they are therefore “invisible” to the market place. This prevents them from taking on loans to start businesses, purchasing new assets and becoming entrepreneurs.

Despite their key importance to capitalism — which I am still a big fan of — and poverty alleviation — which I am also a big fan of — I think it is time for us to revisit the notion of private property rights and their relevance in today’s world.

As the global population continues to grow exponentially while land as well as resources remain finite, it is therefore mathematically true that total resources per capita is shrinking. This would be true regardless of ownership of these resources.

Furthermore, according to the Future Earth Research for Global Sustainability, the bulk of scientific studies believe that Earth’s capacity for “hosting” humans tops out at 8 billion to 16 billion people. We are not too far away from 16 billion and we are very close to 8 billion. Thus, it is not difficult to envision a world in which our resources can no longer sustain human life, even with technological advances. For all we know, perhaps we are already there.

Property rights ensure that whatever resources a given person “owns”, that person has the right to refuse access of that resource to other people. From an economic justice consideration, some may say (indeed, I would tend to agree) that this makes sense.

However, consider two objections to that notion. First, as I have briefly outlined above, resources per capita is shrinking and will continue to shrink. If we value human life, from an ethical perspective, can we really deny access to resources — and the products of those resources — to those who do not “own” resources? This may be all well and good in a world where there is plenty to go around for everyone, but it is not so true of today’s world.

Secondly, ownership of resources can be entirely arbitrary. Going back to the point on the causes of inequality, there is perhaps nothing arbitrary about a person who gained her wealth from building her own global product or delivering, to the market, a service that the market needs.

However, for many owners of resources, how they came to “owning” those resources may be entirely arbitrary, such as by virtue of being born to the right parents, or by a loophole in the tax code and so on. This is even more pronounced for natural resources. Most of land ownership and natural resources ownership can be traced back to this question: Who got there first? If you “own” the land on which your house stands, how did you acquire that land?

Perhaps from the property developer, which acquired it from the state. Yet, what gave the state the right to sell that land? If we trace the “ownership” of that land back to its first claimant, I am willing to bet that the first “owner” was simply the person who was there first. Property rights are man-made — natural resources and land are not. What right does man have to “own” things he did not create? Is “first come, first served” really the best way to maintain the current system of resource ownership? Or any other system, such as immigration, for example?

The grounds on which the hallowed property rights, particularly natural resources, stand are shaky. As the global need for access to resources increases, if we value human life, can we really maintain the current format of “ownership”? Some would say that population “control” in this form is necessary for the survival of the human species.

I would call this genocide and, moreover, I would shift funding towards greater space exploration for habitable planets à la the movie Interstellar. Furthermore, should we really propagate a system that was based on “first come, first served”? I am not saying that the property rights system should be abolished. I am arguing that they be re-evaluated and redesigned given the context of today’s world. The current system may have worked well in the 1600s to the 1900s but it may not work as well for our coming future.

There are two ways I would begin in redesigning the system. The first is based on Sultan Nazrin Shah’s special address at the Khazanah Megatrends Forum in 2014. He made the same point on property rights as in this essay, though he calls it the “paradigm of resource ownership”.

Sultan Nazrin posits that, “It is essential for this paradigm to be altered in favour of the world view of individuals as stewards, rather than owners, of resources. Implicit in this view is the proposition that our right to derive profits from these resources are temporary and that it is our duty to ensure that they remain undiminished and uninjured for future generations.”

J R R Tolkein, in The Return of the King, describes the concept of “stewardship” perfectly via the white wizard Gandalf — “But I will say this: the rule of no realm is mine … great or small. But all worthy things that are in peril as the world now stands, those are my care. And for my part, I shall not wholly fail of my task … if anything passes through this night that can still grow fair or bear fruit and flower again in days to come. For I also am a steward.”

The second is, as I argued in two separate articles in this column, for us to think more as a collective than as individuals. As members of a global commons — indeed, the preservation of our habitat and our species is a global collective action issue — we are obligated to participate and contribute to that community.

It is only via collective action that we can achieve community-optimal outcomes. Perfect competition in markets, while desirable in some instances, may fail to achieve that. Therefore, property rights in their current conventional form — though solutions to the standard tragedy of the commons they may be — must be redesigned to reflect our changing global context and the need for our global collective mindset.

Nicholas Khaw is an economist with the Khazanah Research and Investment Strategy division