30 July 2010
Property and not aid is the key to economic development in Africa
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An Institute of Economic Affairs research report* published today argues that the creation of a sound framework of property rights, and not development aid, is the key to economic progress in Africa. The economic data are very clear, argue authors Karol Boudreaux and Paul Dragos Aligica**, from the Mercatus Center at George Mason University, that sub-Saharan Africa is poor because it lacks the legal and economic framework that business and enterprise needs to thrive.
The average income level in sub-Saharan Africa is one tenth of the average level in the Americas and Europe. The region also ranks last in seven out of the ten categories that are commonly used to measure economic freedom*** and performs especially poorly in relation to the protection of property rights, freedom from corruption and business freedom.
Without proper enforcement of property rights and contracts, businesses cannot raise capital and cannot conduct business except with people they know and trust intimately. In the extreme, as in Zimbabwe, all economic life can grind to a halt.
The research shows that where effective property rights have been allowed to develop in African countries they contribute to the creation of “social capital”. Paradoxically, people are more aware of their social obligations when property is privately owned.
The study explores how property rights can best be developed and enforced in very poor countries. Sometimes specific legislation is the most effective way. In Namibia, for example, the development of private game reserves has made a significant contribution to both conservation and allowing people to make a sustainable living from the land. In South Africa, the sale of municipal and state-owned housing has led to a dramatic improvement in the standard of the housing stock in poor townships – as people who own their houses care for them and invest in them.
The authors also find that simply creating property rights through a process of legislated privatisation is not always effective as it centralises the control and enforcement of property rights in remote political authorities, often undermining the very effective mechanisms of control that have been developed by local people. Action to “rationalise” property rights through legislation in Plateau, Nigeria has led to corruption and resource conflicts, with thousands of people losing their lives.
The authors conclude that the role of government should be to formalise the informal systems of property rights that develop organically within communities. Developing country governments and Western agencies should not create privatisation “blueprints” that ride roughshod over traditional norms and customs. The study finds that the “easy option” of agencies entering less-developed countries and using blueprints to try to recreate institutions in Africa that work effectively in the West often fails miserably. Indeed, the failures of such approaches can give the whole privatisation and property rights process, vital for sustainable economic growth, a bad name.
To listen to Karol Boudreaux talking about Paths to Property click here to download a short audio presentation.
To listen to Paul Dragos Aligica talking about Paths to Property click here to download a short audio presentation.
Notes to editors
The IEA is a registered educational charity and independent of all political parties. It accepts no corporate funds linked to research areas and allows no corporate donor to exceed more than 2% of annual income.
* Paths to Property: Approaches to Institutional Change in International Development by Karol Boudreaux and Paul Aligica.
** Karol Boudreaux is a Senior Research Fellow at the Mercatus Center, George Mason University, USA. Paul Dragos Aligica is a Senior Research Fellow at the Mercatus Center and an Adjunct Fellow at the Hudson Institute, USA.
*** See, for example, the 2007 Index of Economic Freedom, published by the Heritage Foundation in association with the Institute of Economic Affairs.
This publication is part of the Enterprise Africa! project financed by the Templeton Foundation. The views expressed in the publication are those of the authors and do not necessarily reflect those of the Institute of Economic Affairs or of the Templeton Foundation.
Contacts
Karol Boudreaux Tel: 001 703 993 4899 (-5 hrs)
Paul Dragos Aligica Tel: 001 703 993 4899 (-5 hrs)
Philip Booth (IEA) Tel: 020 7799 8912
Richard Wellings (IEA) Tel: 020 7799 8919
See also:
Half a Cheer for Fair Trade by Philip Booth and Linda Whetstone.
Institute of Economic Affairs, 2 Lord North Street, Westminster, London, SW1P 3LB | tel: 020 7799 8900 | fax: 020 7799 2137 | email: iea@iea.org.uk
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