I N T E R N A T I O N A L P R O P E R T Y R I G H T S I N D E X 2011REPORT Study conducted by Kyle A. Jackson, 2010 Hernando de Soto Fellow with contributions by: Marius Doksheim, Joseph Quesnel, Krishna Neupane Marcos Hidding Ohlson, Martin Krause and Nicole Alpert A Project of the Property Rights Alliance 2 0 1 0 I P R I P A R T N E R O R G A N I Z A T I O N S Institute of Public Affairs Australia’s Leading Free Market Think Tank (cid:35)(cid:44)(cid:36)(cid:51)(cid:1) LIBERALLES IINSTIT UT ● ● 1979 INTERNATIONAL PROPERTY RIGHTS INDEX 2011REPORT Study conducted by Kyle A. Jackson, 2010 Hernando de Soto Fellow with contributions by: Marius Doksheim Joseph Quesnel Krishna Neupane Marcos Hidding Ohlson and Martin Krause Nicole Alpert A Project of the Property Rights Alliance Copyright © 2011 by the Americans for Tax Reform Foundation/Property Rights Alliance. Published by: Americans for Tax Reform Foundation/Property Rights Alliance 722 12th Street NW, Suite 400 Washington, D.C., 20005 Phone: (202) 785-0266 Fax: (202) 785-0261 www.atr.org www.propertyrightsalliance.org For more information contact PRA’s Executive Director, Kelsey Zahourek, at [email protected] Authored by Kyle A. Jackson Edited by Ryan Balis Designed by Instinct Design LLC., Fairfax, VA Americans for Tax Reform Foundation (ATRF) performs research and analysis in order to educate taxpayers on the true causes and effects of legislation and regulatory affairs. ATRF’s efforts inform debate, initiate conversation, and emphasize the importance of fundamental tax reform and spending restraint. In turn, Americans for Tax Reform (ATR), a 501(c)4 non-profit lobbying organization, uses this research and analysis to track initiatives beyond the traditional tax increase model. In addition to the International Property Rights Index, ATRF also produces and publishes the Cost of Government Day® Reportand the Index of Worker Freedom. Property Rights Alliance (PRA), an affiliate of Americans for Tax Reform, stands as an advocacy organization dedicated to the protection of physical and intellectual property rights, both domestically and internationally. Printed and bound in the United States of America Digital copy and data are available at www.internationalpropertyrightsindex.org Study conducted by Kyle A. Jackson, 2010 Hernando de Soto Fellow Table of Contents Letter from Hernando de Soto.........................................................................................................................................3 Letter from the Executive Director of the Property Rights Alliance..................................................................................4 Foreword by Richard E. Wagner.......................................................................................................................................5 Acknowledgements...........................................................................................................................................................7 Premise of the Hernando de Soto Fellowship Program.....................................................................................................8 About the Author.............................................................................................................................................................8 About the Contributors....................................................................................................................................................8 About the 2011 International Property Rights Index .....................................................................................................10 Partners..........................................................................................................................................................................11 Chapter I: INTRODUCTION..................................................................................................................................19 Chapter II: PROPERTY RIGHTS AND ECONOMIC DEVELOPMENT..............................................................20 Chapter III: INDEX COMPOSITION AND COVERAGE.......................................................................................21 Chapter IV: RESULTS.................................................................................................................................................27 IPRI Ranking.....................................................................................................................................27 Ranking by Index Core Components................................................................................................32 Changes in Scores (2009–2010) .......................................................................................................32 Regional Distribution of IPRI..........................................................................................................40 IPRI and Economic Outcomes..........................................................................................................41 Regression Analysis............................................................................................................................48 Conclusion ........................................................................................................................................48 Chapter V: CASE STUDIES......................................................................................................................................49 Immigration and Property.................................................................................................................49 By Marius Doksheim Creating Indigenous Property Rights: The Nisga’a Landholding Transition Act ...........................52 By Joseph Quesnel A Half Century of Land Reform: Nepal’s Experience.......................................................................55 By Krishna Neupane The Coase Theorem and Informal Property Rights..........................................................................58 By Marcos Hidding Ohlson and Martin Krause Hong Kong: Sidestepping Property Rights in Preservation ............................................................61 By Nicole Alpert Chapter VI: IPRI AND GENDER EQUALITY..........................................................................................................64 Chapter VII: DATA SOURCES....................................................................................................................................69 INTERNATIONAL PROPERTY RIGHTS INDEX | 2011 REPORT 1 Table of Contents, Continued Appendix I: COUNTRY PROFILES ..........................................................................................................................72 Appendix II: DETAILED METHODOLOGY AND DATA SOURCE INFORMATION ......................................138 Appendix III:REGIONAL DIVISION OF COUNTRIES ..........................................................................................41 Reference List ..............................................................................................................................................................143 Endnotes......................................................................................................................................................................143 LIST OF FIGURES AND TABLES Figure 1: Structure of the IPRI ................................................................................................................................22 Figure 2: Ranking by IPRI Score Figure 3: IPRI Ranking by Quintile ........................................................................................................................28 Figure 4: Ranking by LP Score ................................................................................................................................32 Figure 5: Ranking by PPR Score..............................................................................................................................34 Figure 6: Ranking by IPR Score ..............................................................................................................................35 Figure 7: Average Scores by Region and Component ..............................................................................................40 Figure 8: Average Per Capita Income by IPRI Quintile............................................................................................41 Figure 9: Relationship between IPRI and GDP Per Capita......................................................................................42 Figure 10: Relationship between LP and GDP Per Capita..........................................................................................42 Figure 11: Relationship between PPR and GDP Per Capita ......................................................................................43 Figure 12: Relationship between IPR and GDP Per Capita........................................................................................43 Figure 13: Relationship between IPRI and FDI Inflows as a Percent of GDP ............................................................44 Figure 14: Relationship between LP and FDI Inflows as a Percent of GDP.................................................................44 Figure 15: Relationship between PPR and FDI Inflows as a Percent of GDP ............................................................45 Figure 16: Relationship between IPR and FDI Inflows as a Percent of GDP..............................................................45 Figure 17: Relationship between IPRI and GDP Growth ..........................................................................................46 Figure 18: Relationship between LP and GDP Growth..............................................................................................46 Figure 19: Relationship between PPR and GDP Growth ..........................................................................................47 Figure 20: Relationship between IPR and GDP Growth............................................................................................47 Figure 21: Structure of the Gender Equality Component (GE)..................................................................................64 Table 1: Scores by Country ....................................................................................................................................29 Table 2: Top 10 by Component (Number Indicates Rank) ....................................................................................30 Table 3: Bottom 10 by Component (Number Indicates Rank) ..............................................................................30 Table 4: Summary Statistics....................................................................................................................................33 Table 5: Changes in the IPRI Score (2009–2010) ..................................................................................................36 Table 6: Changes in the LP Score (2009–2010)......................................................................................................37 Table 7: Changes in the PPR Score (2009–2010) ..................................................................................................38 Table 8: Changes in the IPR Score (2009–2010)....................................................................................................39 Table 9: Ranking by IPRI(GE) Score......................................................................................................................66 Table 10: Ranking by GE Score................................................................................................................................67 2 INTERNATIONAL PROPERTY RIGHTS INDEX | 2011 REPORT Chapter xx LETTER FROM HERNANDO DE SOTO I n 2007, the Property Rights Alliance (PRA) established the Hernando de Soto fellowship as a means of producing the International Property Rights Index (IPRI). Now in its fifth edition, the IPRI remains the most comprehensive international measurement of property rights around the world. The first edition compared the efforts of physical and intellectual property rights protection in 70 countries. The 2011 Index has grown to examine 129 countries. With each new year, the link between economic prosperity and property rights protection becomes increasingly clearer. The 2011 IPRI once again emphasizes the evident connection between countries with the greatest economic strength and countries with the strongest protections of property rights. Looking at the trends found in the past four editions of the IPRI, the latest Index continues to show advancements in property rights protection around the world, while drawing attention to the improvements that must be made, especially the extension of more universal property rights. Now that the correlation between economic well-being and property rights has been established, it is imperative to continue improving property rights on a global level. Weak property rights are most commonly seen in the developing world. As the citizens of these countries are in the greatest need of economic growth, it is crucial that their physical and intellectual property be granted protection. This Index, and similar efforts, seek to educate politicians, economists, academics, and entrepreneurs about the necessity to protect property rights around the world. Due the vast quantities of data necessary to compile the IPRI, the task of doing so is far from easy. I congratulate Kyle Jackson, for his efforts in developing, researching, and producing the 2011 edition of the International Property Rights Index. Warmest regards, Hernando de Soto President of the Institute for Liberty and Democracy Lima, Peru INTERNATIONAL PROPERTY RIGHTS INDEX | 2011 REPORT 3 Study conducted by Kyle A. Jackson, 2010 Hernando de Soto Fellow LETTER FROM THE EXECUTIVE DIRECTOR OF THE PROPERTY RIGHTS ALLIANCE Property Rights Alliance (PRA), in collaboration with our international partners, is proud to present the fifth edition of the International Property Rights Index (IPRI). With regard to private property rights, PRA has and continues to subscribe to the notion that the protection of both physical and intellectual property is equally important in nature. Individual freedom, economic expansion and job creation depend on securing property rights. Patents, trademarks and copyrights provide inventors and great thinkers with the ability to be rightly rewarded for their innovations. Likewise, land rights provide empowerment through ownership, allowing citizens to utilize and prosper from their investment. Economic growth only occurs when property, in all forms, is respected and protected. As property rights continue to face challenges around the world, we hope this study will be a useful tool for policymakers, think tanks, academics, and investors by highlighting the importance of property rights as a key building block for economic growth. We would like to thank all of the partners and other contributors for all of the hard work that they put into the development of the 2011 IPRI. Additionally, I would like to thank the author of this year’s index, Kyle Jackson, for his time and dedication to the success of this project. We would also like to give a special thank you to Hernando de Soto whose commitment to furthering the cause for property rights has inspired PRA’s Hernando de Soto Fellowship program. His vision has helped make the 2011 IPRI possible. Best regards, Kelsey Zahourek Executive Director of the Property Rights Alliance Washington, DC 4 INTERNATIONAL PROPERTY RIGHTS INDEX | 2011 REPORT Foreward FOREWORD Private Property and Collective Action: Managing a Faustian Bargain By Richard E. Wagner, George Mason University If you go to Google Images and type in “Korean Peninsula at night,” you will see a variety of satellite photos that show South Korea brightly illuminated, while North Korea is dark. Some of those photos will also take in surrounding territory from China and Japan. Those territories, too, are brightly illuminated, though China not so much as Japan. It is said that a picture is worth a thousand words. In this respect, those pictures from space tell a tale of how private property promotes human flourishing, while collective property impairs it. This tale is not new. It is ancient, going back at least to the classical Greeks and the debate between Plato and Aristotle over the raising of children. Plato proposed that children be raised collectively to prevent some children from gaining advantage because their parents reared them in particularly good fashion. The trouble with Plato’s scheme, Aristotle pointed out, was that all children would be treated with equal indifference, leading to the degradation of all children. This ancient debate is alive in the comparison of North and South Korea. North Korea is based on communal property; South Korea on private property. People have generally weak incentive to develop common property, while having strong incentive to abuse it. Suppose a lake is held in common by a thousand adjoining residents. Someone who catches immature fish will have strong incentive to keep the fish rather than return for someone else to catch. It is better to have a small fish than no fish. Thus, communal property undergoes degradation unless it is managed in voluntary fashion, as Elinor Ostrom’s Governing the Commonsexplains. While the world presents us with numerous particular arrangements of human governance, the apparent surface complexity rests upon two simple principles. One principle is private property, which entails individual responsibility for the value consequences of one’s actions. The other principle is communal property, where value consequences are diffused throughout society. Grounding in private property gives us the illumination of South Korea; grounding in communal property gives us the darkness of North Korea. Late in the 18thcentury, Adam Smith concluded that “little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things.” Smith’s conclusion presents us with a puzzle. There would surely exist universal agreement that liberty and opulence are superior to servility and destitution. Yet liberty and opulence have not dominated human history and are far from universal today. Human interaction is only incompletely governed by principles of private property. In the presence of a universal desire for liberty and opulence, how can we account for the limited place of private property in the organization of human governance through- out the world? Both technical and moral issues are involved in limiting the range of private property. As a technical matter, private property requires a suitable administrative apparatus. Objects of ownership must be established and recorded. Transfers of ownership must likewise be recorded. Such recordation is necessary to help resolve disputes over ownership that will inevitably arise. Dispute resolution, in turn, will require the development of institutional arrangements and their associated processes and procedures. There are different paths this development can follow, and these can operate with varying quality. This administrative apparatus, moreover, will be operated by people who may undertake their activities with varying degrees of skillfulness and rectitude. The talents and capacities required to accommodate governance through private property are many and varied. While the significance of these technical matters should not be underestimated, the most severe impediments to private property are surely moral. Human governance through private property requires both that people embrace responsibility for the value consequences of their actions and that they forbear from interfering with the similar actions of other people. You may open a INTERNATIONAL PROPERTY RIGHTS INDEX | 2011 REPORT 5 Study conducted by Kyle A. Jackson, 2010 Hernando de Soto Fellow business, but you must also forbear from interfering in the equal right of other people to open businesses, even if their businesses compete with yours for customers. If your business does not do well, it is you who will bear the loss. Forbearance entails a morality of individual responsibility for both losses and gains. This morality is invariably undermined by governmental action, more fully in some countries than in others. Governmental power inescapably involves a form of a Faustian bargain: a government can use force to accomplish good, but it will also accomplish harm. Good is secured to the extent a government uses its powers to secure rights of private property, as illustrated by the efficient keeping of records and the impartial administration of justice. But power is never used just for good; this is the Faustian bargain at work. Governments will require modest amounts of taxation to support their universally beneficial activities. But governments are never modest in their appetites for revenue, or for power. An impartial administration of justice requires but modest revenue and leaves government as a background participant in the life of a society. Government officials are like stagehands. But governments can use their taxing and regulating powers to propel their officials onto center stage. This happens all too easily, always with harmful consequences, as illustrated by the recent credit crisis. At base, credit is a simple contract regarding the use of private property. A lender gives temporary custody of property to a borrower. If the borrower does not return the property according to the terms of the contract, the government should assist the lender by en- forcing compliance with the terms of the contract. That the object that is rented is intangible, in contrast to the tangible character of a contract to rent a house or a car, does nothing to change the simple nature of a credit transaction. All complications that arise over credit contracts are manifestations of governmental stagehands forcing their way onto center stage. Credit contracts are no longer simple relationships between borrowers and lenders. Governments have become active participants in those relationships and in many particular ways, all of which move away from the impartial administration of justice. Some gov- ernmental actions protect borrowers who do not repay their loans. Other governmental actions force lenders to make loans they would not have made under an impartial administration of justice. Yet other governmental actions offer rewards to lenders who support the movement onto center stage of government officials. In her masterful Systems of Survival, Jane Jacobs described a well working society as involving carriers of two distinct moral syndromes: the commercial and the guardian. Within this societal architecture, carriers of the commercial syndrome occupy center stage and carriers of the guardian syndrome support the commercial carriers through the impartial administration of justice. Power might be reasonably contained in such a well working society but it can never be tamed. To the extent power breaks its containment, hybridization results between commercial and guardian syndromes, which Jacobs described as “monstrous moral hybrids.” Rather than seeking to compete by developing better products, businesses come to compete by supporting governmental efforts to restrict the ability of others to compete. Rather than being content with enforcing commercial contracts, governmental officials move onto center stage by becoming participants in commercial activity. Despite the immense complexity we see in systems for governing human relationships throughout the world, there are really only two contrasting principles by which that governance can be secured. One operates through private property and individual respon- sibility. The other operates through common property and collective responsibility. With private property, we are the director of our actions, and our relationships with other people follow the principle of equality under law. With collective property, by contrast, our actions are to a significant degree directed by those who possess power over us, and with relationships among people thereby mired in positions and attitudes of deference and supplication. Neither principle operates in its pure form, of course, and nor could it. There is good reason to think, however, that the work of the Property Rights Alliance in promoting awareness that property rights are the true foundation for genuine human rights will help to spread the blessings of liberty and human flourishing throughout the world. 6 INTERNATIONAL PROPERTY RIGHTS INDEX | 2011 REPORT