Private Property Benefits Whose General Welfare?

April 8th, 2013

One of the toughest concepts (for me at least) to convey in property class is the notion of the general welfare, with respect to land use. Always, competing groups have competing notions of the general welfare. For example, I teach one nuisance case (from Dallas!) where a few home-owners complain about the jet-engine-decible-level noise from air-conditioning units that cool an entire apartment complex. The court has a choice. If they enjoin the apartment building from running the AC, the entire building would have to shut down (it’s too hot to live in Dallas in the summer without it) and the people would have to move out. Also, it would cost a ridiculous amount of money to repair the AC, and take a long time.

Nuisance law looks to the general welfare. Well, whose welfare trumps here, I ask my class? The welfare of the few home owners, or the welfare of the thousands of people (mostly low income) who live in the apartments. Which way do private property rights cut. Some students say that the homeowners were there first, and they shouldn’t have to move. Others say that the equities weigh in favor of benefiting those living in the apartments. The George Mason grad in me says that the apartment-complex owners should simply pay the home-owners to move, and indeed, that is what the Coase Theorem would dictate. Yet, it still tees up the question nicely of whose welfare we are considering.

Same with cases like Southern Burlington County NAACP v.  Township Mt. Laurel, where the NJ Supreme Court told the wealthy suburb of Mt. Laurel that they needed to consider the low-income population of neighboring communities, such as Camden, when taking affirmative action to create low-income housing. Whose general welfare must the people of Mt. Laurel consider? In the Garden State, the answer becomes everyone else’s, but their own.

The Economist had an interesting article that raises a similar question. In developing nations, do private property rights benefit the welfare of the natives, or the welfare of foreign investors. And are these interests always in line?

Does it matter whose property rights are secure?

This is the subject of a recent study* by Terra Lawson-Remer, an economist at the Council on Foreign Relations in New York. She argues that economists have tended to take a simplistic view of the security of property rights, which assumes that if foreign investors and local elites have security, so does everyone else. The most commonly used measures of property security include the PRS Group’s International Country Risk Guide, a property-rights index produced by the Heritage Foundation, and the World Bank’s Worldwide Governance Indicators. All extrapolate from the experiences of foreigners and elites, she says. Economists then take evidence of secure property rights as a proxy for the quality of a country’s governance and rule of law.

That may not reflect the experience of all inhabitants, however. Ms Lawson-Remer has developed an alternative property-insecurity index that focuses on the experience of minority groups. The index uses a database of minorities at risk compiled by the University of Maryland. To be counted as at risk, a minority group must have at least 100,000 people or be 1% of a country’s population and, among other criteria, currently experience discrimination, suffer from past discrimination, or support political organisations advocating greater rights for the group. The property-insecurity index looks at certain economic risks faced by these minorities, including expropriation of land and forced resettlement in another part of the country. The countries with the worst property insecurity for minority groups include Burundi, Iraq, Israel, Sudan, Turkey and, yes, Myanmar.

There is a strong correlation between economic growth and secure property rights for foreign and elite investors. But when Ms Lawson-Remer looked for a relationship between property security for minority groups and economic growth, she could find none. Nor was there any correlation between property security and a country’s ranking on the UN Development Programme’s Human Development Index. Securing the property rights of minorities seems to have no clear consequences for economic growth.

That has big and uncomfortable implications. If elite groups are the only ones with the expertise and access to capital to make more productive use of property, and if, as at Letpadaung Mountain, they often acquire those rights at the expense of marginalised people, it may be that greater property security for the likes of the villagers of Ah Lay Daw would actually result in slower growth, says Ms Lawson-Remer. If growth at all costs is desirable, in other words, it may pay to strengthen the property rights of foreigners and elites, if need be at the expense of other groups.

So whose welfare should trump when allocating property rights?

Fascinatingly, the concept of the police power plays a much bigger role in property than in con law. Indeed, courts are much more willing to scrutinize the police power in the context of land-use regulations, than in any other aspect of health-safety-welfare-morals I’ve seen in other disciplines. Another reason I really like property law.

H/T Steve R.