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In the Absence of Private Property Rights

Why Do People See Property Rights as the Source of Economic Problems?

JULY 01, 1999 by DWIGHT R. LEE

We commonly benefit from things we neither understand nor appreciate. Obviously there are advantages in benefiting from a wide range of things without having to give them much thought. But the danger is that such neglect can often cause us great harm. Good health is an example. For most people, good health is easy to take for granted, and this often results in harmful patterns of behavior. In the case of health, however, most people know something about the risks of unhealthy behavior, and recognize the advantage of healthy habits even if they don’t practice them.

Unfortunately, this is not true for maintaining a healthy economy. The productivity and cooperation essential to economic progress depend on things that are not only easily neglected, but also commonly denounced. Private property is a good example. Instead of recognizing private property as the foundation of economic cooperation and progress, people commonly see it as the source of economic problems actually caused by the lack of well-defined and enforced private-property rights.

Pollution and Private Property

Pollution is widely blamed on capitalism, with its emphasis on profits and private property. According to this view, private property rights should be restricted to prevent firms and individuals from putting their private gain ahead of the public’s interest in a clean environment. But pollution is actually a problem caused by too little reliance on property rights, not too much. Pollution problems should teach us how much we benefit from private property by illustrating the inevitable breakdown in social cooperation in its absence.

Pollution problems would not exist if we could divide up the atmosphere, rivers, and oceans into separate units owned and controlled as private property. There would still be pollution, but not excessive pollution. If I wanted to discharge pollutants into the air that belonged to others, they would prevent me from doing so unless I paid them a price that covered the cost my pollution imposed on them. So I would pollute only as long as the value I realized from discharging an additional unit of pollutant was at least as great as the cost to others. Private property and the market prices that result would motivate people to take into consideration the environmental concerns of others.

Pollution problems exist because without private property in air sheds and waterways there are no market prices to make polluters mindful of the cost of their polluting activities. The result is that people pollute excessively; pollution continues even though the benefits from additional pollution are less than the costs.

Although we cannot easily imagine treating the atmosphere and waterways as private property, the lack of cooperation that underlies pollution problems would extend to all aspects of human action if private property were absent. Instead of seeing pollution problems as an indictment of private property, these problems should give us an appreciation of the wonderful advantages we realize from private property. And once the power of private property to promote cooperation is realized, one can see how pollution policy can be improved through the creative establishment of private property.

Instead of having political authorities dictate how, and how much, polluters have to reduce their discharges (as they do now), it would be far better to create a form of private property in the use of the environment for waste disposal. This private property would take the form of transferable pollution permits specifying how much their owners could legally pollute. These permits would establish the total allowable pollution, but not how much each polluter reduces his discharges or how he does so. With transferable permits, market prices would emerge that force polluters to consider much of the cost of their discharges. Those who could reduce discharges cheaply would reduce a lot, releasing permits to be used by those facing higher cleanup costs. The result would be a pattern of pollution reduction that yields any given level of environmental quality at far less cost than the command-and-control approach that dominates current policy. (A more detailed discussion of the advantages of such a market-based approach to pollution control has to await a future column.)

Private Property and Patience

Another common misconception is that the profits from private property motivate people to ignore the long-run consequences of their actions. Actually, the lack of private property is the biggest threat to future concerns. Consider the captain of a whaling ship who has a whale in the cross hairs of his harpoon. The captain is about to pull the trigger when his first officer points out that the whale is pregnant and if they let it live there will be two whales within a few months. Will the captain save the whale on hearing this information? Not likely. He will correctly conclude that since he has no property right in the whale, if he doesn’t kill it today someone else soon will. Being patient and allowing the whale to give birth requires an immediate sacrifice, without permitting him to benefit from that sacrifice in the future. If somehow whales were privately owned, it would then pay the captain to take the future value of the whale and her offspring into consideration, since that future value would be his opportunity cost of killing the whale today.

It is no wonder that many species of wild animals are overexploited, and in some cases threatened with extinction. The situation is very different with domestic animals that are privately owned. There is no worry that chickens, pigs, cows, or goats will be driven to extinction. The future value of these animals is fully considered by owners who can profit from maintaining them. Indeed, the more of these animals we kill, the more of them we have. In the United States alone, approximately 25 million chickens are killed and eaten every day. It has been said that the difference between chicken hawks and people is that when chicken hawks eat more chickens there are fewer chickens, but when people eat more chickens there are more chickens. The more fundamental difference is that people establish private property rights and, as a result, take the future into consideration; chicken hawks don’t.

Unfortunately, legislation such as the Endangered Species Act attempts to protect species by undermining private property rights, thereby reducing the motivation of land owners to provide suitable habitat for wildlife, endangered or not.

Private property allows us to solve problems by taking into consideration the present and future concerns of others. Unfortunately, people with good intentions but little economic understanding often call for solving problems stemming from inadequate private property by subverting rights to private property with political restrictions and mandates.

ASSOCIATED ISSUE

July 1999

ABOUT

DWIGHT R. LEE

Dwight R. Lee is the O’Neil Professor of Global Markets and Freedom in the Cox School of Business at Southern Methodist University.

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