Property Rights: Key to Generating Wealth and Stability

“Confronting Egypt is a festering economic crisis that threatens to shatter that nation’s [already] fragile social peace and alter political orientation. For too many years Cairo has postponed sorely needed structural economic reforms.” These words are a somber assessment given to Egypt’s lack of institutional reform by The Heritage Foundation 25 years ago.

Echoing a similar message, Hernando De Soto, one of the furthermost authorities on analyzing the critical linkage between property rights and economic development, has compellingly articulated in his powerful op-ed:

Bringing the majority of Egypt’s people into an open legal system is what will break Egypt’s economic apartheid. Empowering the poor begins with the legal system awarding clear property rights to the $400 billion-plus of assets that we found they had created. This would unlock an amount of capital hundreds of times greater than foreign direct investment and what Egypt receives in foreign aid.

Leaders and governments may change and more democracy might come to Egypt. But unless its existing legal institutions are reformed to allow economic growth from the bottom up, the aspirations for a better life that are motivating so many demonstrating in the streets will remain unfulfilled.

Indeed, property rights anchored in the independence, transparency, and effectiveness of the judicial system are a key determinant of economic growth and development. In other words, capital accumulation over long periods of time can occur only where effective protection of property rights is provided. This relationship is confirmed in The Heritage Foundation’s Index of Economic Freedom. As shown in the chart, property rights and economic prosperity go hand in hand. On average, GDP per capita is over 10 times higher in nations with the strongest property rights than in those with the weakest property rights.

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The facts are clear: Strong protection of property rights has proven to be the most effective means for unlocking “economic growth from the bottom up.”

Source material can be found at this site.

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