The Importance of Property Rights

2006-07-03

In an essay-review of a recent academic paper by Acemoglu and Johnson, Clemson University economics professor Daniel K. Benjamin portrays one aspect of their argument as follows:

The authors' conclusions result from their empirical estimates of the impacts of alternative patterns of European colonization. They show, for example, that the legal systems brought by the colonists interacted with pre-existing conditions of the lands they colonized to shape the long-term institutions of each colony. Some nations happened to colonize prosperous lands where population densities were high, as Spain did in Mexico and Peru. These colonizers imposed legal institutions that would facilitate the exploitation of indigenous peoples. This yielded short-term riches for these colonial powers, but discouraged long-term investment. Other nations, such as England in colonizing North America, settled lands with few local inhabitants, and thus had to rely on investment and voluntary exchange to survive. This required strong property rights institutions, which promoted investment and yielded long-run prosperity.

These forces were amplified by local disease conditions. In locales such as sub-Saharan Africa, where settler mortality rates sometimes exceeded 50 percent per year, colonizers created legal institutions that enabled them to extract resources quickly, without regard for protecting long-term investments. This was an understandable short-term strategy. But its long-term legacy has been legal systems with weak property rights that even today enable governments to extract resources at will from their citizens.

In contrast, settlers in low mortality colonies, such as North America, opted for property institutions that would protect their investments from predation by others, especially the state. These decisions of 400 years ago have produced dramatic differences in long-term prosperity. Per-capita income levels today can differ by a factor of fifty across nations with different property rights institutions, and the people who live where property rights are strongest are the richest.

This argument puzzles me. Do Acemoglu and Johnson think that the colonizers of North America and South America, like some kind of Rawlsian shmoos, made explicit decisions about which property rights regime they would choose? Do they think that whether a colonized region's politico-economic culture is characterized by exploitation or voluntary exchange is determined by the pre-existing conditions of the region (density of population, mortality rates, etc.)? Do they think that if the Spanish had settled along the Chesapeake River whereas the English had settled along the Rio de la Plata, the institutions of modern-day Maryland and Virginia would respect property rights whereas the institutions of modern-day Argentina would not? If so, their thinking flies in the face of the historical experience of all the nations that were settled by the Spanish (at the time of colonization an exploitative, centralized, absolutist autocracy) in contrast to all the nations that were settled by the English (at the time of colonization a free, decentralized, constitutional-associative polity). I have yet to read Acemoglu and Johnson's original paper (it's not available online), but I look forward to reading it, if only to determine if their argument could diverge so far from historical facts.

[Update: Yes, I grant that there are variations here. To truly analyze the issue, we'd need to compare English settlement / colonization of North America, Australia, New Zealand, India, Singapore, South Africa, Hong Kong, Jamaica, etc. against Spanish settlement / colonization of Mexico, Peru, Argentina, Cuba, the Philippines, etc. (not to mention Portuguese, Dutch, Belgian, and French colonization efforts). Some of these happened at different times (e.g., by the time English colonization of India really got underway, British foreign policy was much more socialistic than it was during the settlement of North America). I don't doubt that the existing environment (population, climate, mortality) had some impact on respect for property rights. But I think the overall patterns (Anglosphere vs. Hispanosphere) are pretty clear, and were not driven primarily by existing conditions (compare, say, Singapore and Hong Kong against the Philippines).]


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