Property and Prosperity, a Demythifying Story

Authors

Xiaoqian Hu

Document Type

Article

Abstract

(Excerpt)

Economic development is fundamentally a property law story. Prominent thinkers―from Adam Smith and Jeremy Bentham, to Douglass North and Richard Posner―tell us that protection of private property rights is essential for economic growth and wealth accumulation. Clear and freely alienable property rights reduce transaction costs and allow private bargaining to produce efficient results. Property rights allow owners to internalize the costs and benefits of their own behavior, reduce production costs, and encourage innovation. Secure property rights protect owners from arbitrary confiscation by the government, foster owner expectations, and facilitate investment, trade, and the development of financial markets. The idea that economic prosperity requires protection of private property is so entrenched in American thinking that it has become common sense. It is cited in popular investment advice and in United States Supreme Court opinions. It is used to explain the West’s success, and to safeguard that success from the assumed ruination by redistributive policy. Not surprisingly, ideals of secure and freely-alienable private property rights have been imposed upon developing nations who aspire to achieve prosperity too.

But is this commonsense belief true? Can it explain the biggest economic development story of the past forty years, and one of the biggest in human history? In the past forty years, China has transformed from one of the poorest countries to the second-largest economy in the world; in purchasing power parity terms, China has been the world’s largest economy since 2014. Between 1980 and 2020, China’s per capita GDP multiplied by twenty-four times from $431 to $10,358, lifting the country to upper-middle income status. Projections of China overtaking the United States as the world’s largest economy—in nominal GDP terms—in the coming decade have become plausible enough that President Biden vowed to defend America’s leading status on his watch, and that members of Congress, despite disagreeing on almost everything else along party lines, collaborated to pass laws to counter China’s rise.