Ignoring property rights catastrophic

ALLOW me to contribute to Alex Magaisa’s article, “Constitutional amendment spells doom for economy” (Zimbabwe Independent, August 5). I couldn’t agree with that notion more other than to add a few comments.

face=”Verdana, Arial, Helvetica, sans-serif”>I am a strong believer in property rights and their upholding, be it ownership of land, shares in a company or household. The real problem, I think, is that our people in government simply don’t understand how economies work, and how successful economies get wealthier over time.

It’s easy to suggest that the haves benefit only at the expense of the have-nots. This “static” view simply assumes that each of us is struggling to get our hands on a decent share of a fixed pie.

But the real big issue, the one that matters in explaining the difference between rich and poor, is how the pie can be made bigger and bigger over time. In an investment scenario one may want to know why companies exist. The answer lies with the role of savings and investment. There is no real point in saving unless someone does something with the money.

If I stuff my cash under a mattress, I am simply refraining from spending today in exchange for spending tomorrow. My total spending, taking today and tomorrow together, is unchanged.

If, on the other hand, I give my money to someone who has a clever wheeze to organise resources in ways that will increase output tomorrow relative to today, and both of us are able to benefit from this, then my savings have helped more people than myself.

And if that someone with a wheeze is able to raise money from lots of people and delegate responsibility for the production of the wheeze to lots of people, then he has created a joint stock company – one that creates jobs, earns profits for its shareholders (property owners) and delivers revenue to the government.

Companies, though, will only be able to survive and flourish in certain circumstances. Property rights have to be established and a legal framework has to be put together to protect those rights. Otherwise, why would one become a shareholder?

Without that legal protection, the wheeze that you are investing in might be no more than an elaborate form of theft. Of course, even with laws, there are still those who embark on a life of fraud!

More generally, proper enforcement of property rights and legal protection is pivotal to success of any economy that is based on capitalist principles.

Otherwise, stock markets and credit markets would never exist. Without those, there would be no easy way, other than discredited state planning, to connect savers and investors. And if that connection is lost, there is no easy way to ensure that the pie expands in ways that can benefit us all.

True, capitalism has nothing to say about distribution of income and wealth and its concern is only limited to the efficient allocation of resources. Yet the joint stock company, underpinned by the legal rights and framework that allow and protect its existence, has been one of the most successful institutions in the history of mankind in creating wealth for the many rather than for the few.

Live8’s open letter to the G8 leaders was absolutely right: “African governments must be free from corruption and thuggery and put in place recognised practices of good governance, accountability and transparency towards their own people and towards the world.”

Corruption undermines the very principles of trust that allow contracts to be drawn up, that allow credit to be advanced, and that allow stock to be issued. Enshrining a proper legal code is vital – and that means respecting people’s property rights, among others. And indeed, any loss of this respect, as Magaisa rightly put it, will spell doom for the economy.

Hillary Chindodo,