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Management and Economics
PRIVATE PROPERTY RIGHTS
AS A FIRST ESSENTIAL COMPONENT
OF THE INDEX OF ECONOMIC FREEDOM
Pavel Angelov ANGELOV
G. S. Rakovski National Defence College, Sofia, Bulgaria
[email protected]
ABSTRACT
Over the last few decades in theoretical economy and in
practice, research has been done into economic freedom, the
importance of economic freedom for the economic development and
the increasing of the potential of national economy and welfare of
citizens in a market society. Attempts are made to research and
measure economic freedom through an evaluation of a set of its
components. World ranking systems of countries are formed in terms
of the index of economic freedom. The two most famous indexes are
The Economic Freedom of the World of the Canadian institute Fraser
and the index published by the Wall Street Journal and the Heritage
Foundation, Washington's number one think tank. The private
property right as a basic element of the index of economic freedom of
the Wall Street Journal and the Heritage Foundation is the object of
the current article.
KEYWORDS: economic freedom, property right, private property right
1. Introduction
In recent years, when it comes to
freedom in the economic sense, people
usually refer to the index of economic
freedom (Economic Freedom). Freedom in
terms of the index of economic freedom is
understood as “the absence of government
restrictions on the production, distribution
and consumption of goods and services
beyond those necessary to protect citizens
and their property” (Ministry of economy,
2008). Nowadays in market societies there
is a widespread notion that economic
freedom is directly related to and depends
on: the right to private property;
freedom of the market subjects to
negotiate; the inextricable link between
economic and political freedom, the
supremacy of law.
2. Definitions of Property
From the standpoint of the traditional
understanding of economic liberalism,
economic freedom is understood primarily
as emancipation of the market subjects from
the state, from its dominance and the
restrictions which the state imposes. For
instance, Ludwig von Mises says:
“Together with the Industrial Revolution,
important rights and freedoms are
developed – the concept of economic
freedom in domestic and foreign trade,
solid money and abstinence of state
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intervention” (von Mises, 2010, p. 59). For
Mises, as well as his followers and many
other authors, economic freedom is exposed
only in relation to the state and with regard
to and of benefit for the subjects of capital.
Besides, there is a traditional viewpoint that
when the state intervenes in the relations
between the subjects of the capital and the
subjects of labor within the labour and
social legislation, this is a restriction of the
freedom of capital. In this case, it is
obvious that there is a different treatment
and meaning of freedom for the benefit of
the subjects of the capital compared to the
subjects of labour.
But along with this, Mises and his
followers do not pay attention because for
them this is not an interesting viewpoint;
the relatively greater economic dependence
is not worked out, prejudices and limitations
which are traditionally imposed by the
subjects of the capital on the subjects of
wage labor.
2.1. Тhe Right to Private Property
Private property (Propriete privee/
Privates Eigentum) in a market economy is
the first and most essential part of economic
freedom in the context of the liberalism
doctrine. Defining “property” is a
particularly tough and delicate task. The
difficulty is not only in the field of theory;
this is not only a scientific problem.
Along with the presentation of the
property, its definition is inevitably linked
with ideology. Since the ideas, insights, the
interpretation of “property” is deeply
connected with the interests of various
social subjects, groups, classes and political
parties.
In economy, we can try to identify
different types of economic ideology. A good
example is the economic ideology called by
Giulio Tremonti “pazarnizam” (marketism
– the illusory belief that the market has the
exclusive role of regulator of the public and
social processes) which is characteristic of
today’s liberals. In Tremonti’s opinion,
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“marketism” represents an exaggeration of
the so-called by him “technofinance” and
the too much increased role and meaning of
finances in today’s globalisation which is in
the interests of the influential finance
subjects (Tremonti, 2011). One can provide
a lot of examples of the influence of
ideologies on both scientific knowledge as
well as social practice. However, this is not
our topic here. It is more important for us to
realise and become aware that it is too
dangerous when ideology prevails, when
theory is subordinated to ideology and even
when it “absorbs” or subordinates scientific
knowledge to the characteristic interests of
various groups of subjects. In such cases,
science becomes meaningless, turns out that
it is “hanging” on the altar of a given
ideology and once it turns into a preudoscience it is impossible to reach an
objective reflection of the subject of the
socio-economic reality.
Often in literature 'property' is defined
in terms of the relations involving people in
society. For example, it is assumed that
“property” is a type of relationship between
the various subjects, elements in the economy
and society. In this sense of reasoning it is
assumed that “property” is a relation of man
to goods (as if goods in the socium, nature
are subjects) which is generally based on
some natural right (the right to live, the
right to personal freedom, etc.).
The other main option to define
“property” as a relation, is that it is
determined as a relationship between
people in view of their belongings. Thus the
relations between people in terms of
property are linked to the appropriation of
nature (Dimov, 1994), its adaptation to the
needs of the people. In this sense, “property”
is inseparable from the appropriation of
certain goods without which human life is
unthinkable. On the other hand, the
appropriation of certain goods suggests that
they belong to certain subjects and
accordingly – to others they are not available
by law. Therefore, although “property” is
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Management and Economics
fundamentally an economic category, it is
very often connected and defined together
with law and legal terminology. Quite often
in literature there is a treatment of the
content of private property without first
defining what the concept of “property”
means. For instance, “private property
involves three things:
(a) the right to an exclusive use;
(b) legal protection against violators
of this right and;
(с) the right to transfer it.
‘Property’ is a broad term which
includes the ownership of work force,
ideas, literature, natural resources as well as
physical assets such as buildings,
machinery and land” (Gwarthney & Stroup,
2009). The expert researcher of property
rights, Armen A. Alchian (2003) claims
that the allocation and protection of
property rights comprise a sophisticated and
most complex sets of issues that each
society resolves in some fashion. In
Alchian’s opinion, the three basic elements
of private property are:
(1) The exclusive authority to choose
the use of the resource
(2) The exclusive right to determine
the services of a resource and
(3) Rights to exchange the resource at
mutually agreeable terms (Alchian, 2003)
With a careful comparison and
reflection, it can be assumed that in terms
of the meaning of property rights they are
better formulated by Armen A. Alchian,
compared to those of J. D. Gwartney and R.
L. Stroup.
2.2. Private Property Right and
Market Competition
However, the question is interesting:
why not logically start with defining
property first and then continue with private
property rights. Or why is it so important to
emphasise the property rights and their
contents in liberal and libertarian literature
before defining “property” first? In practical
terms, the main consequence of allocating
property rights is the termination of the
destructive competition for resources,
competition by violence between people.
In the place of the removed violence one
may introduce the competition between the
market subjects in accordance with the law,
written norms and the rules of the market
game. The direct relation to violence between
people over resources is replaced by indirect
economic pressure, pressure which is
regulated by written and unwritten (rules
that acquired a character of being commonly
accepted and by tradition) rules of the
market game.
By applying law, the direct competition
between individuals and personalities in the
“jungle” or horde is re-formulated, removed
and placed in the field of market rules, rules
worked out with prior consent in society.
This is why the indirect competition at the
market among the market players seems
peaceful compared to the direct competition
in the “jungle”. In this sense Alchian found
out that the more fully the rights to private
property in a society are defined, the more
important the market exchange values
become compared to one’s personal status,
the personal attributes of the market
subjects. In other words, the more fully the
property rights are defined, the more the
prices of goods and services are established
and dominate over the personal attributes of
the subjects (Alchian, 2003). Thus the
market value established by the dance in the
field of the market between the aggregate
demand and aggregate supply of goods, or
the value dominates and substitutes the
direct relations among people.
This is why not by chance in today’s
literature within the frame of the theoretical
doctrine of economics the inextricable link
between law and property is emphasised.
For example, the Institute for Market
Economy website alleges under “basic
concepts, principles and assumptions of the
economic science” as number thirteen
“capital” as general term in the economy
(http://www.easibulgaria.org/glossary.php
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01.02.2012). There is the following
information about private property (which
is anticipated when taking into consideration
the profile of the Institute for Market
Economy): “the right to private property is
an exclusive control over certain resources.'
By resources should not be understood only
natural or material goods, but also
everything which in a given environment
and time people find valuable and useful”.
Of course, as it can be seen, among
the object of property, namely resources,
one should also include hired human
workforce as an essential and most
significant part of the resources from the
perspective of the subject of capital. I. e. the
human work force is a kind of commodity
(resources are bought and sold at the
market) on which the right to property is
exercised. So, before us stands the dual
nature of man under capitalism: on the one
hand, man is the subject of property of their
own work force and, on the other hand,
theirs or the human work force represents
an object of private property of the subject
of the capital. This duality of man under
capitalism deserves deliberate analysis. In a
preliminary plan, we can assume that such a
duality is probably a prerequisite for
problems in theory and the realisation of
private property, but it can also be an
opportunity for both the subject of hired
labour as well as the subjects of the capital in
the process of communication among them.
Let us here mark that in terms of
contents, private property is understood as
the right to control certain subjects and the
use of objects (physical, spiritual,
intellectual, organizational) of property and
the right to transfer these objects from the
eligible entities of their own will to the
other people. Milton Friedman, (Friedman
D. Rose, Friedman Milton. 1998) as one of
the strongest advocates of the market,
claims that property is the most fundamental
human right and an essential foundation for
other human rights. This statement is widely
shared among adepts of economic liberalism.
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But if one looks more carefully, one notices
a significant overexposure of the importance
of property rights. Because property should
not be overpowering over the human right
to live, equality of all people, freedom,
security, as well as other human rights
formally adopted by the United Nations
(UN, 1948). It is rather the opposite way –
the right to live, personal freedom, security,
equality among people is a prerequisite for
the realization of the right of property over
materialised objects, items, goods. In this
line of reasoning can and shall we as
modern people question the famous
statement of Protagoras (485-410 BC) that
“Man is the measure of all things – of the
existing ones, because they exist and of the
non existing because they do not exist”
(Plato, 1921). The materialised relations, or
goods make sense (consumers value) for
the living people; after that, they have no
value and importance to them. In this sense,
it is not true and it is an excessive claim
that private property should be understood
as “the most basic human right and an
essential foundation for other human rights”
in the modern market society. Of course, as
far as we assume that people are the more
important (USA Constitution, 1791) than
the way of usage, benefits and provision of
all kind of other resources or any
materialised relationships, whether they are
private or public.
The retreat of the direct force to the
indirect economic pressure of the market on
the market players which takes place during
the transition in the ex-socialist countries
does not occur spontaneously. The retreat
could be the result of a certain policy and of
deliberate effects on which citizens insist
and as far as the former socialist builders
gained awareness of being individual subjects
within the new modern sovereign. Such a
state policy and impacts make sense as far
as they are held under the pressure and
control of the civil society not only on the
state but also on the emerging market
subjects which are common to developed
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Management and Economics
market societies. In this re-formation of
capitalism in Bulgaria and the other
ex-socialist countries, or the realization of
capitalist relations of production can be
expected to be successful as far as it is built
on a natural basis of its own national
capitalist culture (Trompenaars & HampdenTurner, 1995; Trompenaars & HampdenTurner, 2004). Because the terrain of the
building the next form of capitalism is
precisely here, in particular in Bulgaria (the
Czech Republic, Hungary, Poland, Romania,
etc.), rather than the west or beyond the
ocean or south or north of the equator in
Africa, America and Asia.
The indirect economic violence and
the corresponding restriction of the freedom
of people is characteristic of the classic
primitive accumulation of capital by the end
of the XVIII century in Britain. For this
state of human freedom the famous phrase
of Thomas More in his work Utopia “sheep
ate people” is used. But the economic
violence and restriction of freedom is typical
for each particular transition to capitalism,
although with its own peculiarities, including
the second so called primitive accumulation
of capital during the second Bulgarian
capitalism after 1989. In fact, without going
deeply into the subject, it seems to us that
any transitional non-evolutionary stage of
the development of a country is characterized
by a kind of “primitive accumulation of
capital”. For example, after September 9
1944, in Bulgaria is implemented a
centralization of the capital in the “hands”
of the state through a nationalization of the
bulk of private property. This is a kind of
an economic violence carried to the mid50s of the last century. In the next turning
point period after November 10, 1989, a
new kind of an economic violence is carried
out and a new repeated primitive
accumulation of capital in the opposite
direction - from the state to private property
to its atomization in comparatively small
“hands”.
On the other hand, if we look at
private property in the context of transition,
we will probably notice that the western
economic point of view is overexposed in
the argument that countries in the so called
“Third World” are poor, because they lack a
universally accepted right of private
property (De Soto, 2003). At least since
wealth, welfare, does not have only a
material expression or consumer rating.
Each capitalist culture taken separately can
be successful in its own way, or not realized
as such for political, ideological, social or
other reasons. We can hardly expect real
success if a foreign economic doctrine is
imposed, for example, the US one on
Japanese conditions, or vice versa – Japanese
collectivism to be imposed instead of the
American individualism in American
conditions. The realisation of private
property in the conditions of one concrete
capitalist culture has significant meaning as
well as its use in various forms, their
implementation in the public plan and the
interests of various subjects, etc.
3. Conclusion
From an extreme left (in the political
sense) position, private property looks like
the implementation of the dominance of
physical or legal persons on the occasion of
the property objects over the other persons.
For the extreme left, the dominance of
private property is an expression of a
monopoly on certain wealth and an
obstruction to the majority of society from
benefiting from it. The right political
spectrum is strongly influenced by authors
like Milton Friedman, or Ludwig von Mises
– here we do not comment on the
interpretations of property in the far-right
“objectivism” of the fashionable and pretty
much published in recent years in Bulgaria
– Alisa Zinovyevna Rosenbaum, known as
Ayn Rand. But the inquisitive reader can
judge that the extreme left as well as the
extreme right claim about private property
is in fact a prerequisite for limiting the
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economic freedom of the people. The far left
ideological position suggests the limitation
of economic freedom regarding the subjects
of capital and the far-right ideology –
regarding the subjects of labour. Therefore,
on such grounds it can be claimed that both
extreme ideological, political theses (left and
right) are not acceptable in the conditions of
a modern concrete market society particularly
at the beginning of the XXI century with its
characteristic definite capitalist culture.
Under the conditions of capitalism, capital
and labour mutually presuppose each other;
the relative freedom of the subjects of
labour and the subjects of capital is an
essential condition for their characteristic
relationships and the normal functioning
and development of the market society. The
overexposure or the excessive freedom of
one or other type of subjects is reflected
adversely, or even threatens the existence of
the market and society.
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