#15: On Property Rights and Pushpa
How important is ownership of property - physical, intellectual, economic - for society to grow and prosper?
The regular citizen may be forgiven for thinking that “property” only meant physical property, like land or buildings.
However, the term property can be used to describe anything that has “ownership.” Additionally, the recognition of that ownership and the safeguarding of that right often has consequences for individuals, governments, and corporations.
Simply put, a property right means the exclusive authority to decide how a particular resource can be used.
For example:
If you own a piece of land, it’s your property. You get to decide what to do with it - whether to sell it, mortgage it, or destroy it.
If you own anything tangible - like a car, a bike, a phone, a desk - that too falls under your property, and you can do with it as you wish.
Property rights also extend to the intangible realm. So if you have an idea and create something useful to society, you own the “intellectual” property right to that creation.
Music, art, books, patents, movies, etc. are all intellectual property - hence they cannot be used or reproduced unless they are licensed from the original creator.
But have you wondered why this system of property rights is so important? Why is it necessary to maintain certain resources as private property, under the realm of private individuals who can do with it what they please?
Here’s why.
Let’s imagine that you own a piece of land. Your authority to do what you want with your property is protected - in this case, by the government.
What would you do? Would you be worried about the land being stolen by someone else? Or would you do other, more productive things - like building a house, or a factory, or even using it as farmland?
When property rights are guaranteed, the owners will be confident of using the resource well, instead of being worried about protecting it from being stolen by someone else. They will then invest in improving the quality of their resource. Hence, you would be less worried about someone stealing your land, and more interested in actually using it to build a house, a shop, a factory, a farm, etc.
When property rights are guaranteed, there is more competition among owners to provide buyers with goods of the right value.
What happens without property rights?
In areas where property rights don't exist, the ownership and use of resources are allocated by force, normally by the government.
But that isn’t necessarily a good thing, because governments are usually not the best arbiter of what sells well in the market, or for how much.
The movie Pushpa, which was the rage a couple of years back, centered around a character who smuggled sandalwood trees in Tamil Nadu and Karnataka. But if you’ve wondered why the black market for sandalwood was so high in the first place - the answer lies in property rights.
Historically, the demand for sandalwood was so high that Tipu Sultan - in whose kingdom of Mysore the majority of sandalwood growing area fell - declared it a ‘royal tree’ to monopolize trade in it. He allowed his subjects to grow the trees, but all trade was to happen only through official channels.
Even after Independence, the government continued to strictly regulate sandalwood trade. The trees were technically “owned” by the government, which had exclusive authority to cut them down and sell them. Private individuals growing the trees had to sell the scented wood to the government at a price fixed by the government. Moreover, despite not owning the trees, the growers were often held responsible for the theft or damage of any trees.
With such constraints, who would want to continue growing sandalwood? The production soon fell sharply, but the demand stayed the same. This led to a thriving black market for sandalwood. Cultivators would smuggle the wood from government-controlled forests and sell it for a premium in the market.
This also meant a greater risk for the cultivators who broke the law. However, the rewards were in outsize proportion to the risk. Once a smuggler became successful, he was able to keep enriching himself by similar means. The rich get richer, while the poor (those who were unable to take a risk due to fear of the government) get poorer.
A previous post in this series dealt with the consequences of “good intentions” in public policies. Here, the good intentions of the government to regulate the sandalwood trade led to a denial of property rights, which subsequently opened up the floodgates for black market dealings which circumvented the law altogether. This eventually leads to the illegal accumulation of wealth (another resource) by a small group of people, while others are worse off.
One of the key components of economic property is money. You have the right to use legally obtained money in any way you want. So when a government denies you the right to use that legally obtained money - like in the case of demonetization - it becomes an attack on property rights.
In conclusion, the right of ownership over certain private resources can be a necessary part of economic freedom. And in today’s world, greater economic freedom automatically translates into greater liberty - something we all need to thrive.
This is the 3rd in a series of posts on the relationship between society, the state (a.k.a the government), and the market (companies). Previous posts in this series:
Example of Sandalwood is spot on. Another big example is ban on sale of alcohol bevs in certain states or private players being denied sales, which again is good intention leading to growth of black market.