Private Property in China--Posner's Comment

One would have to know a great deal more about China than I do to be able to evaluate the law that the Chinese legislature has just approved ("Property Rights Law of the People's Republic of China," March 16, 2007, available in English translation at http://www.lehmanlaw.com/fileadmin/lehmanlaw_com/Laws___Regulations/Propoerty_Rights_Law_of_the_PRC__LLX__03162007_.pdf) codifying private (and also public) property rights. Law on the books often differs from law in action (the Soviet Constitution of 1936 is a famous example), and so the new law may turn out to have rather limited significance--or may not. If property rights are understood in practical terms, then socialist and even communist countries invariably recognize and enforce some private property rights (as well as of course the property rights of public entities). For a property right is simply a right to exclude other people from the use of some thing of value. So a tenant has a property right, and even in a communist country if someone enters without your permission the apartment you've rented from the state you can get the police to eject him. Firms buy factories in China without worrying, or at least without worrying much, that other firms might hire thugs to seize or burn down the factories; the police would prevent that kind of private expropriation. Even in its heyday, socialism (as distinct from communism) connoted merely redistributive taxation and public ownership of a handful of major industries; most property was privately owned and the owners had the full panoply of legal protections of those rights. A socialist country such as the United Kingdom once was (though it was a distinctly watered-down socialism, despite the pretensions of the British Labour Party) might provide greater practical protection to rights of private property than a disordered capitalist state that had incompetent or corrupt judges and police. The problem is less socialism versus capitalism than statism versus private ordering. The threat to private property in a statist country is that the government will expropriate it. Apparently a good deal of that goes on in China, with local Chinese governments taking farmers' land and selling or leasing it for industrial or urban development. A major aim of the new property law appears to be to curb this practice. But whether the aim will be achieved will depend on implementation "on the ground," as it were. As Oliver Wendell Holmes argued in his famous article "The Path of the Law," from the standpoint of a lawyer and his client the law is merely a prediction of what government will do to the client if he does some act. That the act may appear to violate a law is just the beginning of the predictive inquiry. If because judges and police are corrupt or incompetent or inaccessible nothing very bad will happen to the client if he does an act that may be illegal, he is likely to go ahead and do it. So maybe local governments in China will continue seizing farmers' property. In a country of more than a billion people that despite its rapid development is still poor, has a weak legal infrastructure, and is rife with corruption, it must be difficult to implement national laws at the local level. The new law may turn out to be largely aspirational. But there is more to property law, including the new Chinese law, than limiting governmental expropriation of private property. Becker rightly emphasizes the importance of a well-functioning system of property rights to the growth of developed economies. In an underdeveloped economy, with economic activity largely local, family ties and reputational concerns may be such effective substitutes for legal enforcement of formal rights that the costs of such enforcement may exceed the benefits. Some economic activities do not require investment, such as hunting and the gathering of wild fruits, nuts, or berries, and so the function of a property-rights system of encouraging investment may be unimportant. And a country that consumes but does not produce intellectual property may be better off refusing to enforce intellectual-property rights. And finally a poor country may not be able to afford the kind of legal infrastructure required to enforce complex property rights. This can create a chicken and egg problem, if the absence of such rights keeps a nation so poor that it cannot afford the necessary machinery of enforcement. A notable feature of the new Chinese law (which occupies 45 pages in the English translation that I cited) is its detailed provisions regarding secured lending. Enforceable security interests enable lower interest rates, facilitating borrowing and lending, essential activities in a modern economy. These and other provisions of the new law should reduce transaction costs and--to the extent enforced, a key and open question--enable China to continue its rapid economic growth.

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