Malaysia – A Crisis of Norms and Institutions (3)

Property Rights

Another insightful piece from John Kay today:

Property rights and the wrong path to democracy

Financial Times 01 May 2007

There are two methods of allocating property rights: Top down – by the dictates of a central administration – or bottom up – rights to land are acquired by working it.

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In Argentina – as in Latin America generally – the top-down mechanism dominated. The beneficiaries were not, in the main, good landlords. The process of assignment established an indissoluble link between political influence and personal wealth.

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The English-speaking countries of settlement, rather than colonisation, were different. The bottom-up mechanism – the principle that the strongest claims to the land belonged to those who worked on them – came to dominate… historical events arose from, and reinforced, a democratic political culture and an individualistic social one. Property rights were allocated, and personal success determined, by talent and effort not connections and ancestry.

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Bottom-up allocation supports democracy, consensual politics and economic development that emphasise enterprise over the search for political favour. Top-down allocation leads to polarisation and dictatorship, yielding short-run stability and occasional violent disruption…

Note: John uses land to represent factors of production/economics assets in general.

Elanor