Freedom and property rights are inseparable
Finland comes out on top of this year’s International Property Rights Index (IPRI). Sweden comes in at a close second. Luxembourg shares 6th place with Denmark and New Zealand. The IPRI is an annual study that compares 130 countries in terms of their protection of property rights– both physical and intellectual. According to the index, an effective property rights regime strongly impacts the economic performance of a country.
In the introduction of this study, the Arab Spring is showcased as a clear example that an emerging class of entrepreneurs will no longer accept being deprived of their property and business rights. The research outlined in the study revealed that in Tunisia 92 per cent of the population holds its real state extra legally - without formal property rights - while 99 per cent of entrepreneurs operate outside the law.
In Egypt, it takes up to 10 years to get authorisation to build on a vacant plot of desert and one and a half years to incorporate a bakery. The result is an astonishing amount of dead capital languishing in the region’s informal economies.
Needless to say, countries with high property rights scores tend to be much wealthier than those with low scores. On average, countries in the top quintile - like Sweden or Luxembourg – enjoy a per capita income almost eight times that of their counterparts in the bottom quintile, such as Libya or Yemen.
Additionally, countries with strong property rights regimes attract more direct foreign investment, as the economic environment is more supportive for business. Property rights also play an important role in alleviating poverty and promoting rapid economic growth.
Independence is a trademark
This year’s report compares 130 economies using three variables as core components and ranks them accordingly. The legal and political environment is the first of the three core components. Judicial independence is one of its key elements. Judiciary’s freedom from influence by political and business groups is examined. Another variable measured is the extent to which people have confidence in and abide by the rules of society and their government’s laws.
Several indicators are combined, including fairness, honesty, speed and affordability of the court system. Political stability and corruption are other elements that have been examined. The higher the likelihood of government instability, the less likely people will be to formally obtain property and to develop the rights attached to it.
Physical property is the second core element. The access to loans is one of the variables measured. Financial institutions play a significant role, along with a strong property rights system in bringing economic assets into the formal economy. Registering property is another important issue; registration barriers discourage the movement of assets.
Intellectual property rights protection is the third and last of the three core elements examined. Patent protection, for instance, reflects the strength of a country’s patent laws based on various criteria like the restrictions on patent rights and the duration of protection. Copyright piracy is an important indicator of the effectiveness of the intellectual property rights enforcement in a country.
As in previous years, the index has revealed an important relationship between property rights, economic freedom and a country’s level of development. Luxembourg maintained its high score in 2012. The country ranks 6th in the legal and political environment ranking, 9th in physical property rights and 4th in intellectual property rights.
Overall, the Grand Duchy is in 6th place along with Denmark and New Zealand. Germany is in 15th, Belgium in 18th and France in 20th place. Finland comes out first in this year’s index. One of the key messages of this study is that it is important to remind world leaders that eroding property rights will undermine economic recovery. CW