TAKING STOCK: Secure our rights to property There is a fundamental framework within which economic progress occurs. The government’s role is to provide the framework, the people will do the rest. One of the key elements of this framework is ‘secure private property rights’. In economics we learn that incentives matter. People will respond to incentives: it’s human nature. If people feel secure about what they own, be it houses, other property, businesses, shares, or bank balances, they will work hard to increase the value of those assets. If people feel insecure about their possessions then they will respond either by cutting back on their work to build assets, or by transferring their capital to a country where they can hold it without fear of losing it. This is the reason why no country has progressed without strong property rights. In his book, ‘The Mystery of Capital: Why capitalism triumphs in the West and fails everywhere else’, Hernando De Soto, president of the Institute for Liberty and Democracy, explains why poverty is so endemic in countries with a record of poor protection of private property. De Soto says that the poor have assets. The value of their savings collectively may be immense; many times all the foreign aid and investment received since 1945. This is true of all developing countries including Nepal. In Egypt alone the assets of the poor are 55 times greater than all foreign investment ever recorded including the funding of the Suez Canal and the Aswan Dam. Why then are Egypt and Nepal poor while the Western economies soar into prosperity. The answer, De Soto says, is the lack of property rights - rights which are taken for granted in the West are absent in all underdeveloped countries. In America, people can’t even imagine the state of affairs in a developing country like Nepal. No clear titles, no easy way to go to the bank and convert your property into liquid cash, no way to resolve property disputes quickly and no way to make people pay their debts — it takes for ever in the courts to settle property matters or recover debts. As against this, in the West, you can buy a piece of land, a house, a business, anything, with the confidence that your money will change hands only when you get a clear title, there will be no liens or mortgages that you are unaware of. Disputes, if any, will be resolved quickly in the courts. Government maintains computerised records of all property and title searches are quick. Your property can be mortgaged or converted into cash with ease and speed. This flexibility adds greatly to the value attached to what you own. Another fundamental principle is that you and I take care of what belongs to us; what belongs to no one or everyone (government or public property) quickly falls into disrepair. This explains so much about the failure of the communists in the old Soviet empire and socialists in India. The old Soviet Russia produced one economic basket-case after another. Inspite of holding the most fertile lands in the world, the Russians had to suffer famines because government, by taking over the farms, converted the farmers land to ‘people’s land’. What was once the entrepreneur’s factory became the ‘people’s factory’ and goods produced became so shoddy that no one outside of ‘closed’ Russia bought them. When Indira Gandhi nationalised banks the profitable and efficient private, tax-paying banks became slothful ‘public’ organisations with most of their ‘public’ money going to shady businessmen where there was and is no hope of recovery. Takeover, of the Tata’s Air India by the government resulted in India’s pride becoming India’s shame. Today the top priority of some members of Manmohan’s cabinet is to return these ‘public’ organisations back to private hands. It is not going to be easy or fast to privatise ‘public’ enterprises or to provide the strong property rights which are needed for Nepal’s economic progress. But the rewards of this effort will be well worth it and will be available to all the citizens of this great nation. (The writer can be contacted at: everest@mos.com.np)