Introducing the 2012 International Property Rights Index

Wednesday, March 28, 2012 8:42 PM. by Gaurav Tiwari

Over the last twelve months, the world has seen the most dramatic turn of events in the political, economic and social life of the common man in the Middle East. It is a story of enterprise – one that is lost in regulatory red-tapism and overshadowed by government control and corruption. One can trace the beginning of such events to December 17, 2010, when Mohamed Bouazizi, a street vendor in Tunisia, immolated himself. Bouazizi’s attempted suicide (he later died in early 2011) is indicative of the repression that millions of entrepreneurs face in shadow economies across the world. Largely illegal, the shadow economy operates outside the purview of the legal system. Corruption and lack of property rights make it harder for entrepreneurs like Bouazizi to move into the formalized economic framework. To that end, recent events reflect the rebirth of Hernando de Soto’s pioneering work and original ideas that stress the need for legal empowerment of the poor to achieve economic success.

According to recent research by Hernando de Soto and his team of scholars at the Institute for Liberty and Democracy (ILD), Bouazizi would have found it to be a herculean task to become part of the formal economy.In the Financial Times, a U.K. based newspaper, De Soto writes about Bouazizi’s plight:

To create a legal enterprise he would have had to establish a small sole proprietorship. This would require taking 55 administrative steps during 142 days and spending some $3,233 (12 times Bouazizi’s monthly net income, not including maintenance and exit costs). Even if he had found the money and the time to create a sole proprietorship firm the law did not enable him to pool resources by bringing in new partners, limit liability to protect his family’s assets, and eventually, issue shares and stocks to capture new investment.

At the heart of it, this story of Bouazizi’s struggle is a microeconomic perspective on the problem of missing property rights in the Middle East. But the impact of the Arab Spring has also shaken the macroeconomic foundations of several countries across the region. In other words, what happens at the firm or individual level in developing countries (the so-called Bottom of the Pyramid), impacts the GDP accounts of national economies. It still remains to be seen whether the Arab Spring will bring greater economic freedom to the Middle East and beyond. But one thing is clear – secure property rights are fundamental to economic and political freedom. Needless to say, a lot of questions are now being asked by people across the world: What can a state do to promote greater economic inclusion through secure property rights? What is the impact of corruption on the spirit of enterprise? Some of these questions point to the fun- damental inter-relationships between economic freedom, enterprise and secure property rights.

This year’s edition of the International Property Rights Index will attempt to better understand the underlying factors that affect the micro- and macroeconomic conditions in a nation’s economy. By ranking countries on the level of security of physical and intellectual property rights, it is hoped that the index will serve as a barometer of a nation’s competitiveness and economic freedom. As with any study, there are limitations to our approach. Data limitations prevent ranking of every country for example. But the author remains confident that this study clearly demonstrates the positive relationship between property rights and economic development.