March 26, 2007
Private Property and Socialism: A Contradiction? BECKER
In March the National People's Congress of China passed a law to take effect in October that legalizes private property and gives it equal status to public property. As a matter of principle this is a revolutionary measure since the abolition of private property is a basic tenet of traditional socialism. However, de facto, China has long ceased to be a socialist country as the private sector has grown rapidly to produce about two-thirds of its GDP.
In 1989 I visited Poland as that country was beginning a transition from a socialist state to one based on private enterprise and private property. In a meeting with the head of the ideology department of the Communist Party, I asked whether private property is consistent with communism and socialism? His answer was that they were still debating that! The Polish Communist Party was shortly afterwards swept out of power before the ideologues could provide an official answer, but China has now given its own answer.
It is clear from the contentious debate over legalizing private property that its official recognition is a major step away from China's claim to be a socialist state. Although a law legalizing private property was proposed years ago, it was delayed until now by vocal opponents who correctly believe that widespread ownership of private property is inconsistent with socialism. Dissent this time, however, was not welcomed, and the 3000 delegates to the Congress overwhelmingly passed the law with only a few votes against. This legalization of private property, when added to the admission not long ago of entrepreneurs into the Communist Party, completes China's official recognition of the dominance of capitalism in its economy.
I will concentrate my remaining comments on likely consequences of the new law for the economic development of China. That nation has had an extraordinary development during the past 30 years, with an average annual growth rate of its GDP exceeding 7 per cent without any laws fully legalizing private property. The inference I draw is that official protection of private property is not essential in generating rapid development from low levels of income, and that China has had enough de facto protection of property to allow its private sector to grow rapidly from negligible levels to the predominant form of economic organization.
Despite limited official protection, houses, land, businesses, and corporate shares are privately bought and sold. Strong profit incentives encourage the formation of new businesses, investments in farms and companies, and improved productivity. Recent calculations indicate that the efficiency of China's economy improved at over 4 per cent per year since 1993, while the growth in capital per worker contributed an equal amount to its annual growth of 8.5 per cent in labor productivity. These are unprecedented achievements, especially when one recognizes too China's large improvements in output per worker during the 15 years prior to 1993.
I would qualify this very rosy picture in three ways. Studies indicate that long-term investments in agriculture have been discouraged by uncertainty among farmers about whether they can maintain possession of their land in the longer run. Numerous riots and other violent incidents have taken place in rural parts of China in protest against the forced expropriation of land by local governments that provide little compensation. Even the new law will not give farmers fully marketable rights over the land they now will own in principle but not fully in fact. City dwellers have also been increasingly concerned about the security of the ownership of their homes since they have faced expropriation of their land by city governments in need of land for other purposes. The new law states that compensation has to be offered for houses and land taken by governments, but is silent on how big the compensation should be,
I believe property rights that are much more secure than in the past are necessary to enable China to grow much further, and begin to join the club of higher income nations. The advanced economies that China would like to emulate protect software, patents, franchises, buyback provisions, complicated leases and property ownership clauses, and still other forms of tangible and intangible property. This protection is necessary if investment is to be encouraged in such forms of property that are increasingly important as an economy progresses.
Even with laws officially protecting private property of the type just passed, full protection requires an independent judiciary that enforces these laws in a reasonable and efficient way. Anglo-Saxon countries have been the best protectors of property rights in good part because that is how their legal systems operate. China lacks such a judiciary, and so enforcement of contracts of all types through the courts has not been guaranteed. Chinese courts are an arm of the central government, and have judges who do not even claim to be independent. Courts in China are known to be often arbitrary, which means that enforcement of laws and contracts is sometimes capricious.
If effectively implemented, the new law legitimatizing private property will have important implications for the future direction of the Chinese economy. That these implications are evolutionary rather than revolutionary is indicative of how far China has come from its socialist past
Posted by becker at 12:09 AM | Comments (10) | TrackBack (0)
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How convenient that China's Communists have suddenly "discovered" property rights just after having forcibly removed 300,000 people from their homes and businesses to make room for the 2008 Olympics.
It's quite simple, really: Comunists lie. The entire history of Communism demonstrates it. Contrary to popular wishful thinking, China is no different.
Posted by KipEsquire at March 26, 2007 06:36 AM | direct link
the new property law of China is nothing more than a confirmation of the current economic environment of China which forced the government to act. even if there were no such a law, all the Chinese still did what that law speaks. nothing realy changed except this paper work. with regard to the defects within Chinese legal system, i do not think a new property law can do something. however, better than nothing.
Posted by Liyang Hou at March 27, 2007 06:14 AM | direct link
Dear Prof. Becker, I would say that China's formal recognition of property rights -- even if it is a merely symbolic gesture of the de facto changes that have already occurred in China -- also shows that all legal-economic systems (whether 'capitalist' or 'socialist') rely on a mix of both private and public (state-owned) property rights. That is, there is no such thing as a pure 'capitalist' or a pure 'socialist' system but rather a continuum in which there is a mixture of both private and public property. This is implicit in Judge Posner's analysis of the new Chinese law.
-- Paco
Posted by F.E. Guerra-Pujol at March 27, 2007 12:23 PM | direct link
Although China obviously has a long way to go, this does seem like a step in the right direction. Perhaps it's better that China progresses slowly and carefully. Afterall, it is a behemoth, and no one can expect a country of that size to make quick turnabouts.
Posted by Andrew at March 30, 2007 06:53 PM | direct link
Something that bears thought is that it was not judges, but jurys which drove the English economic explosion. A jury trial is self-government.
The common law did not have discovery. Unlike today, cases were tried and the jury made the decision. In modern times we crush the parties with the expense of discovery so they have to settle.
Posted by Billy Bonehead at March 31, 2007 03:25 PM | direct link
Billy, Well... actually the jury as trier of fact was made up of locals in good standing who probably knew both the defendent and the plaintiff personally and the facts of the case before the bar. And many times went out into the community under the authority of the court to investigate both allegations and facts by themselves. That being the case, there was no need of "discovery" as we know it. ;)
Posted by n.e.hat at March 31, 2007 04:14 PM | direct link
"When China awakes, the world will tremble."
http://pitruth.blogspot.com
Posted by John Smith at March 31, 2007 10:46 PM | direct link
very very nice blog thansk your informations... mr silici
Posted by evden eve nakliyat at April 1, 2007 08:07 AM | direct link
Let's just hope China emulates only the capitalism of Anglo-Saxon countries and the West in general, and not also their rampant interventionism, which brings about only stagnation and poverty.
Posted by Joel Pinheiro at April 1, 2007 05:34 PM | direct link
Joel, You don't like the likes of U.S. Marines interfering in a country to protect the property rights of company like the United Fruit Company? Beware, we may have to do that yet in China. Only time will tell. BTW, why do guys always blame the West for problems of your making? If you guys took the time to solve them yourselves; we wouldn't have to be bothered with solving them for you.
Posted by n.e.hat at April 1, 2007 08:30 PM | direct link
