A flawed understanding of the concept of 鈥減ublic good鈥� hampers the fight for equitable access to the upcoming COVID-19 vaccine

The term 鈥済lobal public good鈥� has been used in very different ways by policy makers, economists and others. The term 鈥済lobal鈥� is not particularly controversial, and in this context is generally understood to involve cases where the benefits of the service or good impact residents of more than one country, even if not necessarily the whole world. The term 鈥減ublic good鈥� is subject to more diverse uses, often depending upon one鈥檚 educational or professional training.

For many people, perhaps most, the term 鈥減ublic good鈥� is loosely defined to include cases where governments are willing to undertake measures to expand access, with universal access at least an aspirational goal. However, among the other influential definitions of 鈥減ublic good鈥� is one that is exceptionally restrictive. A proposal by Paul Samuelson first published in 1954, meant at the time as an extreme and polar case, has found its way into countless articles, textbooks and academic courses, and has parameters that are rarely met in practice. At times, Samuelson鈥檚 66-year-old paper is actually an obstacle to collective efforts to supply and distribute goods that have considerable impact on society.

The COVID-19 pandemic presents an astonishing global challenge regarding the control of the pandemic and the reduction of harm. The health impacts are large, particularly for older patients, and growing unpredictably, and the pandemic has had an enormous social and economic impact on everyone, with no obvious end in sight.

Biomedical technologies to combat the pandemic are important, particularly diagnostic tests, drugs and vaccines, and the world needs innovation, testing, evaluation, access and affordability. A number of political leaders, health groups and other entities have called for COVID-19 vaccines and drugs to be treated as public goods. For example, the South Centre issued a听听on the launch of the World Health Organization鈥檚 COVID-19 Technology Access Pool (C-TAP), noting that 鈥渁ims at ensuring that the technologies needed to address the pandemic are considered, as a matter of principle, global public goods.鈥� The MSF Access Campaign听听that 鈥淐OVID-19 medical tools should be considered 鈥済lobal public goods鈥� and should be 鈥榓ffordable, safe, effective, easily administered and universally available for everyone, everywhere.鈥欌�� The Secretary-General of the United Nations, Ant贸nio Guterres, issued a听听on May 20, 2020, which said that 鈥淎frican countries should also have quick, equal and affordable access to any eventual vaccine and treatment, which must be considered as global public goods.鈥�

鈥淭he benefits of a COVID-19 vaccination accrue not only to the person being vaccinated, but also to the community, as widespread vaccination eliminates hosts for the virus, and contributes to the control of the pandemic.鈥�

In the negotiations over a World Health Assembly (WHA) resolution on the COVID-19 pandemic, the European Union submitted an听听The draft 鈥淩ecognizes population-wide immunization against COVID-19 as a global public good for health and the crucial role of quality, safe, and efficacious vaccines therein.鈥� The United States objected to the inclusion of 鈥減ublic good鈥� in the text, on grounds that it was not well-defined, and proposed that global public good be changed to 鈥済lobal benefit.鈥� There was also a discussion in the drafting process about the distinction between vaccination being a global public good, and the vaccines themselves. The Third World Network听听that the Chair of the WHA drafting committee on the resolution 鈥渃larified that it recognized that 鈥榩opulation-wide vaccination鈥� was a global public good for health but the vaccine itself was not.鈥�

The distinction between vaccination and the vaccine was based upon the definition that Samuelson proposed more than six decades ago. The benefits of a COVID-19 vaccination accrue not only to the person being vaccinated, but also to the community, as widespread vaccination eliminates hosts for the virus, and contributes to the control of the pandemic. In this sense, the benefits of vaccination have an external benefit for the community, and that benefit is non-excludable. But the vaccine itself, as a product, is neither non-rival in consumption, nor non-excludable, the two key features highlighted by Paul Samuelson in his original definition of public goods, as set out in听听听in 1954 and 1955. If individuals cannot be effectively excluded from the use of a good, it is non-excludable in nature; if its use by one individual does not reduce availability for others, the good is non-rival. While first proposed as an 鈥渆xtreme鈥� or 鈥減ure鈥� case for public expenditures, the definition has become widely quoted without an appreciation for its limits.

In the mid-1950s, the world was deeply engaged in a cold war between governments that were extolling the virtues of either market or non-market models for the production and distribution of goods. Samuelson was interested in presenting a mathematical model where private markets would not exist, as 鈥渁n extreme polar case鈥� that would be used to contrast 鈥渢he admittedly extreme polar case of traditional individualistic general equilibrium.鈥� The 鈥済rand Walrasian model of competitive equilibrium鈥� was the extreme polar case at which Samuelson was aiming, in which markets and market prices were efficient, and in some simplified versions, perfectly efficient.

Samuelson鈥檚 1955 paper provides ample caveats regarding the relevance of this model, which was illustrated by the examples of 鈥渁n outdoor circus or national defense鈥� as two goods that were non-excludable and non-rival in consumption. He acknowledges that 鈥減ublic expenditure and regulation proceed from considerations other than those emphasized in my models,鈥� redistribution of incomes, paternalistic policies, where 鈥渁tomistic competition鈥� is not realistic, and 鈥淢yriad 鈥榞eneralized economic and diseconomy鈥� situations, where private pecuniary interest can be expected to deviate from social interests.鈥� Notably, in his 1955 paper, Samuelson states 鈥淚 regret using 鈥榯he鈥� in the title of my earlier paper.鈥� In a 1958 paper on 鈥減ublic expenditure theories,鈥� Samuelson notes that a good that 鈥渞efuses to fall in my polar case for a pure public good will not thereby obligingly go into the other polar case of a pure private good,鈥� using the example of an information good with a zero marginal cost to make his point.

鈥淚n the context of COVID-19, Samuelson鈥檚 1950s definition of a 鈥減ure鈥� public good is a poor fit, whereas everything about the development, manufacturing and access to diagnostic tests, drugs or vaccines fits his broader framework for public expenditures quite well.鈥�

The two characteristics Samuelson used in his 鈥減ure theory of public expenditure鈥� benefit from some reflection, since they capture such a small subset of goods that governments actually spend money on. Goods that are both (1) non-rival in consumption and (2) non-excludable exist, but are rare.

The phrase 鈥渘on-rival in consumption鈥� eliminates drugs or vaccines as products, as well as hospital beds, services of health care workers, and much of what governments subsidize or directly provide. Knowledge is one good that is often held out as an important good that is non-rival in consumption, and in the context of COVID-19, this would include the inventions, data and know-how to make diagnostic tests, drugs or vaccines, as well knowledge gained by the evaluation of the efficacy and safety of products.

For knowledge goods, non-excludability can be a hard condition to meet. Some of the knowledge from the evaluation of the safety and efficacy of products will also have a non-excludable quality, although recent developments in regulatory policies on test data have made even that an ownable and excludable asset in many jurisdictions.

Intellectual property is a term given to a growing set of rights, often exclusive, that are granted to inventions, expressions, designs, data, know-how and clinical evidence used for regulatory approvals. The primary mission of laws governing intellectual property is to make knowledge goods excludable鈥攅ven when expressions are published, patented inventions disclosed or data is cited by governments or published research, or through various technical protection measures or secrecy, including restrictions on worker mobility, and non-disclosure and non-compete agreements.

Samuelson anticipated and also reacted to criticism of his definition by arguing that 鈥渋n almost every one of the legitimate functions of government that critics put forward there is to be found a blending of the extreme antipodal models.鈥� However, Samuelson also ventured that 鈥渁ny function of the government not possessing any trace of the defined public good (and no one of the related earlier described characteristics) ought to be carefully scrutinized to see whether it is truly a legitimate function of government.鈥�

In the context of COVID-19, Samuelson鈥檚 1950s definition of a 鈥減ure鈥� public good is a poor fit, whereas everything about the development, manufacturing and access to diagnostic tests, drugs or vaccines fits his broader framework for public expenditures quite well.

There are certainly non-excludability aspects of both herd immunity and the elimination of the colossal cost of the pandemic responses, as well as robust non-rivalry in consumption characteristics of inventions, data, know-how and knowledge from testing and evaluation of products. When you include, as Samuelson did, 鈥渞edistribution of incomes, paternalistic policies, where 鈥榓tomistic competition鈥� is not realistic, and 鈥淢yriad 鈥榞eneralized economic and diseconomy鈥� situations where private pecuniary interest can be expected to deviate from social interests鈥� then the case for public expenditures is very strong for COVID-19 biomedical inventions.

In the case of COVID-19 policy makers and policy experts should refrain from using Samuelson鈥檚 鈥渆xtreme鈥� case for a 鈥減ure鈥� public good as one that is both non-rival in consumption and non-excludable as the working definition for global public good. This can be difficult, given the attractive elegance of Samuelson鈥檚 鈥減ure鈥� case, and the need for authors to acknowledge Samuelson鈥檚 influential earlier work. For example, consider the struggles by contributors to听Providing Global Public Goods, a听听edited by Inge Kaul, et al, in 2003, to find ways to label all sorts of obviously useful global interventions as 鈥済lobal public goods.鈥�

For COVID-19, what does it mean to treat a biomedical innovation such as a diagnostic test, drug or vaccine as a global public good? As a practical matter, and in the context of this pandemic, it would mean, as听, that policies should facilitate a diversity of manufacturers, and the open licensing of intellectual property rights for drugs and vaccines effective against the virus, since the 鈥渨orld has an overwhelming interest in ensuring these will be universally and cheaply available.鈥�

We fully expect that in the coming months governments with the most resources will seek preferential access to new drugs or vaccines for the virus, as they already have with regard to personal protective equipment and therapeutics, and through advance purchase commitments with vaccine manufacturers. The hoarding of scarce products is deplorable, but predictable, and policymakers will at best moderate the hoarding. What is completely indefensible is to hoard the intellectual property rights and the know-how necessary to manufacture and ensure quality for an effective therapeutic or vaccine. The non-rival nature of the knowledge necessary to make a product is a compelling reason to treat this as a public good, even though intellectual property rights and secrecy make it possible to be exclusionary.

James Love is Director of Knowledge Ecology International. His work focuses on the production, management and access to knowledge resources, as well as aspects of competition policy. He tweets at .听This article first appeared in , a blog co-published by the India China Institute and the Julien J. Studley Graduate Programs in International Affairs at The New School.

In this article I remind readers about the existence of 鈥渟acrificial generations鈥� within global capitalist history. By sacrificial generation I mean a group of people at a point in time that experiences suffering with the immanent or intentional effect of changing economic, political or social conditions, which are in turn disproportionately enjoyed by another group of people at a later period in time. I identify four areas in which there systematically exists sacrificial generations:听 three stages of capitalist development (state formation, capitalist property rights transition and early industrialization) and a cyclical aspect of capitalism (Polanyian-Marxian cycles). It could also be argued that the future generations which would disproportionately experience the environmental costs of past and present generations鈥� consumption are 鈥渃limatic sacrificial generations鈥�, but this will not be explored.

Constructing the Modern State (Weberian sacrificial generations)

Charles Tilly (1975) has famously shown that the creation of the modern state in Europe since the 14th century was associated with territorial aggression, wars and empire-building. The monopolization of the legitimate use of violence and the mobilization of taxes, were strongly influenced by the need to defend against foreign aggression and to engage in such aggression as well, involving a lot of deaths. Thus, Jeffrey Herbst (2000) argues that due to lower population densities in pre-colonial Africa (which decreased pressure for territorial aggression), strong states were not as prominent in this region as they were in Europe and Asia. Some might also argue that reconfiguring the state involves altering distributions of power and hence sacrificing the dominant class, as Atul Kohli (1994) shows was the case with the Yangban elites in Korea under Japanese colonization.

Instituting Capitalist Property Rights (Polanyian sacrificial generations)

The property rights characterizing capitalism which are supposed to be enforced by the state are supposed to serve at least the three functions of creating security for investors so that they have extended time horizons; to make asset transfers efficient, and to create incentives and compulsions for productivity growth (Khan, 2009). However, pre-capitalist social relations do not rapidly and automatically respond to price signals and capitalist profit and wage opportunities (and these signals may not exist or may be distorted). Therefore, the transfer of land from pre-capitalist social and economic embeddedness to capitalist embeddedness has often involved violence and dispossession, as and Karl Marx (primitive accumulation) observed. Mushtaq Khan (2009) calls this social cost the 鈥渢ransition cost鈥�. From the 16th to 18th century Enclosures movement in England, the destruction of the native pre-capitalist property rights and relations by settlers through dispossession, deception and/or genocide in America and other settler colonies (including South Africa, Northern and Southern Rhodesia, etc.); the dispossession of the Yangban landed elites in Korea under Japanese colonization; etc. In societies where such dispossessions faced the high risk of insurmountable uprisings, pre-capitalist property rights were left largely intact, as in India and many non-settler African colonies, which has negatively affected their land markets till today.

The Social Problems of Early Industrialization (Marxian sacrificial generations)

When the capitalist transition and industrialization gather pace as commodification of land and labour occurs, the flexible use of the labour power of the landless masses is prominent. Due to the unskilled nature and surplus nature of labour during the stage of 鈥渦nderdevelopment鈥�, the bargaining power of labour is weak (making exploitation more salient), and hence working conditions at this stage of development has historically been poor (think of 19th century English factories being called 鈥渟atanic mills鈥�, and contemporary factories in the developing world being called 鈥渟weatshops鈥�). Repressive labour conditions characterized the much-celebrated East Asian developmental states (Chang, 2009). Rural-urban migration may create slums and 鈥渦rban sprawls鈥� where hygiene and standard of living in some urban areas could be inferior to the countryside. Hence partly why some argue for non-capitalist economic paths; others argue for a 鈥渓abour-centred development鈥� (Selwyn, 2016); and others yet for a 鈥渄evelopmental welfare state鈥� with social policy ameliorating the negative aspects of early industrialization.

The Cycles of Contractions (Burawoyan sacrificial generations)

The global capitalist system is pervaded with cycles. Embedded within the broad Polanyi-Marxian cycle (of crises of overaccumulation following crises of legitimation, and vice versa) (Burawoy, 2010) is a series of business cycles (whereby the downswing involves contraction of incomes), (where the downswing of hegemonic transition may involve geopolitical instability and warfare), and (whereby the downswing involves a narrowing of developmental possibilities or even their reversal). Generations which live through the downswings experience the costs of the upswings enjoyed by the previous generation, and they take on the sacrifices needed to build new social structures of accumulation.

Difficult Decisions

If we remain under pre-capitalist conditions, we would constantly aspire to overcome their negative aspects, and our philosophers would continue to ruminate upon the essence of life bounded by the phenomena of high child mortality, low life expectancy, tyrannical social and gender practices, and so on. The capitalist system with its peculiar complex of incentives and compulsions is the only way we have come up with (, to a very large extent) to surmount these hard challenges of humanity and create beneficiary generations.

Yet it comes with many frictions, tensions, contradictions and sacrificial generations. We constantly attempt to ameliorate the stress for the sacrificial generations; yet state and nation building, capitalist transition, early industrialization, and global cycles will always be full of social tensions. Social democracy, 鈥淜eynesian鈥� expansionism, state capitalism etc., for example may attempt to pacify these dynamics (and may be successful for some periods), but they are also come with contradictions as they are embedded within the cycles of generational sacrifice as well (e.g. social democracy in the golden age of capitalism eventually coming under the pressures of crises of overaccumulation, and the forces of globalization and financialization associated with hegemonic cycles).

Efforts to transcend capitalism altogether through full-scale communism also face its own tensions and frictions 鈥� the sacrifices of enduring repression from the dominant classes during a revolution; the possibility of becoming deformed or degenerated workers鈥� states after a revolution; the real informational problems of central planning (as Friedrich Hayek) and the transition costs of reorganizing property rights and economic organization; the great challenge of opposition from the capitalist hegemon (which is part of the capitalist system, as neo-realists argue) which comes with the absence of a world revolution, as Leon Trotsky noted. Hence, even socialist and communist revolutions come with their own sacrificial generations and tensions. There are therefore few solutions which do not come with its own potential sacrifices; and everyone should be sceptical of anyone who says otherwise. This simply means that everyone and each generation is forced to mediate between, and live with, both toleration and hope, tradition and innovation, conservatism and experimentation.

References

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Chang, Dae-Oup (2009) Capitalist Development in Korea: Labour, Capital and the Myth of the Developmental State. London: Routledge.

Herbst, Jeffrey (2000). States and Power in Africa: Comparative Lessons in Authority and Control. New Jersey: Princeton University Press.

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Tilly, Charles (1975). The Formation of National States in Western Europe. Princeton: Princeton University Press.听

Abel B.S. Gaiya holds an MSc Development Economics from SOAS, University of London, and works as an analyst at the Busara Center for Behavioural Economics.

Photo 鈥淒arkness Unleashed鈥� by //

Transaction costs due to distributional conflicts, political settlements, and weak enforcement capacity have important implications for the implementation of property rights in developing countries. While critical analysis of these factors is missing in the mainstream economics approach to property rights, it is obvious that incorporating such analysis will be crucial in designing policies to minimize transaction costs that hinder an efficient functioning of property rights. Specifically, there is a need for an alignment of interests among powerful political and economic interests if property rights are to be more efficient at reducing transaction costs.听

A fundamental limitation of contemporary property rights theory is its inability to incorporate factors that might reduce property rights from solving transaction costs, particularly in developing countries. This piece reviews the mainstream explanation of the relationship between property rights and transaction costs and then evaluates factors that can inhibit property rights from reducing relevant transaction costs, which include distributional conflicts, costly enforcement capacity, political settlement, and measurement problems. Major emphasis is placed on social conflicts and organization of power which are missing from the conventional analysis of property rights.

In this respect, the political settlements framework developed by SOAS economist Mushtaq Khan can enrich our understanding of the operations of property rights in developing countries. Khan () defines political settlements as 鈥渟ocial orders characterised by distributions of organizational power that together with specific formal and informal institutions effectively achieve at least the minimum requirements of political and economic sustainability for that society鈥�. In short, political settlement means the distribution of power among different groups.

The origins of the mainstream view of property rights听

It is widely believed that John Locke was the first great thinker on property rights, owing to his influential work, Two Treatises of Government, which made a passionate argument for inalienable rights to life, liberty, and property, as well as the limited but crucial role of the state in the enforcement of such rights. However, Locke failed to critically appreciate significant transaction costs associated with the operation of these inalienable rights, such as the cost of getting people to agree on the allocation and outcomes of property rights and the cost of their enforcement. This systematic relegation of the role of critical factors that create transaction costs within the context of property rights seems to resonate with the assumption of zero transaction cost in neoclassical economics. For instance, in the world of Robinson Crusoe, it is assumed that agents can interact in markets to exchange at zero transaction cost due to well-defined property rights ().

New institutional economics (NIE) theorists introduced the role of transaction costs and property rights into economic analysis, especially with regards to the analysis of externalities and market failures (). This new strand of literature also led to advancements in the economics of property rights, exploring how the structure of rights affects not only the workings of a market system but also influence the allocation of resources and economic performance historically (; ). At the heart of this literature is the belief that private property rights eliminate transaction costs associated with primitive communal ownership of assets by solving collective action problems such as free riding, moral hazard, and tragedy of the commons.

Why Are Property Rights Thought to Reduce Transaction Costs? Unpacking the Theory

In the conventional theory developed by Demsetz () and Alchian and Demsetz (), property rights are assumed to spontaneously emerge as a result of interacting agents responding to new or different forms of technologies and market opportunities that create social benefits and costs. Further, it is posited that the likelihood of adopting a different property rights system depends on the relative costs and benefits of internalization of relevant externalities such that the higher the costs, the lower the prospect of achieving property rights change (). This theory of property rights is outlined in Demsetz (), using anthropological findings from the New Continent, as follows.听

In the ancient Montagnes society in Quebec, the hunting of beaver was for consumption purposes with no significant overkilling that would deplete the stock of beavers in the forests. However, in the 18th century, commercial trade in fur opened up, which increased the relative price of beaver fur leading to overhunting among the native Montagnais because their communal ownership system lacked the incentive to ensure sustainable hunting practices. Eventually, rights on land became institutionalized, which motivated the Montagnais to internalize their externalities and consider social consequences of their activities. Therefore, establishing property rights solves the inefficiencies associated with communal ownership.

However, it is worth noting the inherent assumptions about transaction costs that form the cornerstone of the above theory. Most importantly, Demsetz () assumes that communal ownership cannot be relied upon to solve externalities problems due to prohibitive transaction costs associated with it 鈥� for example, the costs of organizing the community members to agree on an efficient hunting regulation, enforcing contracts, and monitoring to ensure adherence. In other words, reaching an agreement based on a collective communal decision will involve significant ex-ante and ex-post arbitration and monitoring costs, and Demsetz found it 鈥渄ifficult to see how the existing communal ownership can reach an agreement that takes into account of these costs鈥� (: 355).

The most desirable solution, therefore, is the enactment of exclusive private rights that eliminate such transaction costs and allow individuals to make quick, efficient decisions about their assets. There are several ways in which property rights are thought to function to reduce transaction costs, thus driving efficiency and growth (). First, property rights tend to enable investors to have security over their assets which incentivize them to make crucial decisions over long term horizons. With low expropriation risks to asset owners, optimal decisions can be made at negligible transaction costs, thus avoiding the tragedy of the commons and inefficient use of scarce resources. Second, Coase theorem proposes that property rights can facilitate the efficient transfer of assets via voluntary exchange. When rights are well-defined, agents can easily negotiate terms of trade and assets will be allocated to their highest valued use irrespective of the nature of the initial allocation of rights (). A potential problem with this claim is that the nature of the assignment of property rights can influence the outcomes of exchange, often involving transaction costs which inhibit optimal resource allocation (). This appears to indicate that some costs have to be incurred before reaching compromise among interacting parties, which is often prevalent in developing countries. Moreover, the Coasian proposition would breakdown in the absence of compulsion to enforce an efficient transfer of properties among individuals.

Third, according to Alchian and Demsetz (), property rights can reduce transaction cost by diminishing incentives for freeriding or shirking within an organization, leading to efficiency and productivity growth. This view suggests that creating exclusive rights to specific actors (residual claimants) within a firm will lead to faster decision making, as well as create incentives and compulsion for efficient monitoring of workers to tackle shirking in a team, thus raising the productivity of a firm. But a deep problem related to this theory is its lack of convincing explanation as to how team members will collectively agree on a residual claimant 鈥� obviously, significant transaction costs will be incurred in getting members to agree on who will become a residual claimant and on terms of the distribution of benefits. Similarly, it ignores the possible transaction costs of re-negotiating the terms of the distribution of output that might come about overtime between workers and residual claimants due to factors such as changes in relative prices or external competition. It seems implausible to assume that voluntary arrangements formed within team production will last forever without any transaction costs arising from demands for higher wages or renegotiation of contracts by the workers.听

An Alternative Approach: The Importance of Political Settlements

Khan () argues that the above explanation is fundamentally inadequate because transitioning from communal to private ownership systems can also involve substantial 鈥渢ransition鈥� costs and such a transition is not that simple. Specifically, creating new rights or modifying existing rights will involve winners and losers who will organize themselves to block any new innovations through difficult and costly negotiations or violent contestations, thus involving significant transaction costs (). In addition, there can also be considerable transaction cost associated with monitoring the enforcement of private property rights which is assumed away in the theory by Alchian and Demsetz.

The above issues, among others, underline the importance of political settlement (distribution of power) in property rights. While Khan () introduced political settlement as a framework to analyze property rights, his analysis focused on the growth-stability trade-off relating to the governance of efficient property rights regimes in developing countries. He argues that when there is an asymmetric distribution of power among disparate groups, the associated transaction costs cannot be simply overcome by property rights. For example, consider the case of recurrent clashes between sedentary farmers and herdsmen in Nigeria despite it being clear that the farmers have property rights over their land and should be free from incursion by the herdsmen. This long-standing tension has resulted in an enormous loss of lives and properties, and complex negotiations at different levels ().听

What explains the inability of property rights to reduce transaction cost here is partly the relative organizational power of herdsmen over the farmers, both in terms of physical resources and ability to mobilize support to defeat the farmers in most conflicts. Moreover, it appears that the herdsmen have extensive patronage from some Nigerian Fulani elites (such as traditional rulers and politicians) who block the passage of a legislative bill to establish ranching area as a solution to the recurrent conflict. Thus, political settlement can get in the way of making property rights work efficiently to reduce transaction costs.

Unlike the conventional theory, the political settlements framework embraces the role of the state and other non-state enforcement actors, which are not only crucial to the emergence of property rights but can also involve significant transaction costs in their own ways. For instance, if the interest of the enforcement agency is not aligned with the creation of growth-enhancing property rights or if it is being influenced by parties opposed to the institution of rights, then property rights might be created but transaction costs would remain high. On the one hand, transaction cost might take the form of wasteful use and allocation of resources (for example acquisition of physical resources to undermine rights or resources channeled to bribing the enforcement agency) by those groups who would lose out due to property rights. On the other hand, parties who would benefit from property rights would also incur costs in their bid to secure their rights through an unproductive commitment of resources for personal protection or for lobbying the agency to be efficient in enforcing property rights.听

The political settlements perspective is also permeable to issues of human identity as it is not entirely predicated upon cost-benefit analysis of a rational agent as assumed in the conventional theory. According to Alchian and Demsetz (), once gains from exchange are high relative to the costs of exchanging, agents will willingly give up their property rights over assets in exchange for something at insignificant transaction costs. However, this simple view ignores some fundamental issues regarding identities and human nature that can make the transfer of assets very difficult even when property rights are well delineated. A good example is a fierce resistance by powerful indigenous landowners and peasants to attempts at land grabbing or reforms, resulting in transaction costs that can transcend far beyond material losses to killings and social uprisings (). Research has shown that a large number of the people who take part in resistance do so not because they don鈥檛 appreciate the compensations on their lands or assets but because they are simply unwilling to surrender those assets due to historical ties, cultural significance, and degree of holding power.听

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Coase, R. H. (1960). . Journal of Law and Economics, 3, 1鈥�44.

Demsetz, H. (1967). . American Economic Review, 57(2), 347鈥�359.

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Libecap, G. D. (2004). The Effects of Transaction Costs in the Definition and Exchange of Property Rights: Two Cases from the American Experience. In E. Colombatto (Ed.), (pp. 108鈥�129). Cheltenham: Edward Elgar Publishing.

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Abdulrasheed Isah is an Assistant Lecturer in Economics at Nile University of Nigeria, Abuja.

Since the announcement of the Dakota Access Pipeline (DAPL) in 2014, which was planned by Energy Transfer Partners for the transport and access of the Bakken oil fields, it has gained traction as a controversial initiative because of its environmental impact, the threat it poses to water supply and its effect on Native American sacred lands. Since August 2016, a group of protestors have been organizing on the Standing Rock Indian Reservation petitioning against the U.S. Army Corps of Engineers and protesting at the actual site of the pipeline (). While the violence surrounding the pipeline is within itself shocking, the media coverage has been extremely polarized on the issue. Often falling along partisan lines, 鈥渓iberal鈥� news sources oppose the pipeline on humanitarian grounds and 鈥渃onservative鈥� sources support it, but both forms of media glean their conclusions about the pipeline from uncritical understandings of the conflict. Both sources ignore that, at the heart of the issue, are issues surrounding what private property is and the consequences of our chosen definition. Instead of taking for granted colloquial definitions of property we can see the underlying distributional inequality inherent to the pipeline by critically assessing how property and law interact.

In contemporary capitalism there is a distribution of property that is reflected in jobs, income and opportunity. In the mainstream Law and Economics (L & E) perspective, the free market is conceptualized as a natural entity. Like biology or physics, the market is observed according to its own internally defined rules and a laissez faire policy naturally follows. On the other hand, the Critical Legal Theorists (CLT) critically engage with the way the market is formed through law. At the core of debates regarding the distribution of property are these theories of how markets are conceptualized. Beginning with the core insights of , , and Joseph Singer ().

Putting the absence of historical analysis in the L & E theorists鈥� methodology aside, Hale provides a comprehensive argument for the internal incoherence of the mainstream theoretical framework. The L & E perspective views society as free of all coercion and unequal power dynamics which describes as 鈥渁 scheme that has the appearance of exposing individuals to what little coercion at the hands of the government and to none at all at the hands of individual groups鈥� (p. 6). In the L & E view, the only location of coercion and power is in the government. Hale argues, however, that this coercion that L & E theorists identify within governmental structures exists with equal force in the economy. Coercion and unequal power dynamics arise within the market at the fundamental level of the law, not under a 鈥渘atural鈥� distribution of labor. As Hale puts it in his analysis of the coercive relationship between the property owner and laborer, 鈥渢he law compels people to resist from consuming the products of the owner鈥檚 plant鈥�, even if the products are the fruits of their labor (p. 5). Without the security through law that workers are forbidden from consuming the products they are producing, the distribution of labor is maintained by allocating a disproportionate amount of rights onto the 鈥渙wner鈥� of the plant. The 鈥渇ruits of labor鈥� argument, as often cited in , quickly breaks down beyond anything but the simplest interactions (p. 9).

In all capitalistic business ventures, coercion is actively being created and mediated by the law. Essentially, argues that the statesman is always there. The only way to resolve conflicts over property is to present the conflict to a court established by law that will subsequently enforce a legally chosen framework. When deconstructed, conflicts over property are fundamentally regulated by the state (p. 12). This contradicts the idea of public and private property being separated by the sole factor that the state regulates one type of property (public) and cannot regulate the other (private). Private property then is not private, just a type of property that is regulated differently. There is no essential difference rooted in its nature.

In Duncan Kennedy鈥檚 article 鈥溾��, he makes an impressive innovation in the tradition of CLS theory by questioning the relationship between law and power. Kennedy proposes that the bargaining power outlined in Hale鈥檚 theory of coercion is shaped by a structure of 鈥渂ackground rules鈥� or law (p. 327). These laws shape a host of struggles, some of which Kennedy touches on, such as race, gender, and distributional inequalities. The 鈥渂ackground rules鈥� are what determine the individual鈥檚 rights with respect to their property, in what Joseph Singer calls their 鈥渂undle of rights鈥� (, p. 8). There are certain 鈥渂ackground rules鈥� that are generally accepted as essential to encroaching on an individuals 鈥渂undle of rights鈥�, for example you do not have the right to do many things in your own home that violate zoning regulations. Less simply, like the period of American history where domestic violence was not illegal in the home, some 鈥渂ackground rules鈥� police the 鈥渂undle of rights鈥� that an individual has in their home in order to perpetuate inequalities. These 鈥渂ackground rules鈥� however do more than just shape inequality; they are capable of determining the actual allocation of power. Law is then constitutive of power, which allocates bargaining ability, which creates the means in which the economy operates. plays an instrumental role on this point (p. 357). Pre-empting the assumption that the economy reflects the law, Kennedy uses a Foucauldian idea of production to demonstrate that the law is not just a reflection of the economy, it is constitutive of the economy.

Like Hale鈥檚 concept of 鈥渂argaining power鈥�, Foucauldian power is not negative or based in oppression, it is 鈥渢he multiplicity of force relations immanent in the sphere in which they operate and which constitute their own organization; as the process which, through ceaseless struggles and confrontations, transforms, strengthens or reverses them鈥� (p. 352). This is essential to understanding the CLS鈥� project. There are no claims being made about the nature of law or the economy but instead a radical re-interpretation of how these institutions operate. Instead of static, they are fluid. Instead of objective, they are literally constituted by the process in which they are employed in order to serve the dominant power allocation.

This power allocation allows for the justification of unequal distribution of resources and the 鈥渂ackground rules鈥� are what facilitate it. For example, damnum absque injuria (damage through competition) is a phrase expressing the principle of tort law in which some person (natural or legal) causes damage or loss to another, but does not injure them (, p. 25). If we have X, owner of property, they have certain rights, which are correlative to a set of behaviors by Y. In the legal case of damnum absque injuria, X鈥檚 privilege (their rights) is correlative to Y鈥檚 lack of a right (their duty). The CLT鈥檚 argue then that morality may be what determines the allocation of rights, but it is law and property that determines the coercive power within the 鈥渂undle of rights鈥� that are being allocated.

It is immediately clear, when surveying news articles on the Dakota Pipeline, what their dominant ideological associations are. In Robert Bradley Jr.鈥檚 article 鈥溾��, he argues that liberals are crusading against the energy industry by 鈥渂reaking the law鈥�. Bradley makes the claim that shutting down the pipeline would 鈥渄eny Americans thousands of new jobs and hundreds of millions in economic growth鈥�, which emphasizes the extent of the injury, an argument also echoed by liberals. Unlike liberal writers, however, Bradley simultaneously condemns protestors for 鈥渢aking the law into their own hands鈥� and supports the U.S. government鈥檚 protection of the DAPL legal land rights for the 鈥渟ake of the job market鈥�. His coherence to a contemporary conservative understanding of law and economics invalidates itself when he states that 鈥淸c]learly, President Obama, like his environmentalist allies, has no regard for the law鈥hat鈥檚 a dangerous precedent to set鈥�. The warning against setting legal precedents is riddled with irony. The way the law is formed, almost literally, is through the employment of legal precedents. The same legal protections that allow the energy corporation to construct the DAPL in the first place is what now Bradley warns against employing by the protestors. His argument is inconsistent and reflects a misunderstanding of how law and rights interact.

In unexpected similarity, an article by Jack Healy entitled 鈥溾�� published in the New York Times, borrows language from the L & E perspective. In an interview with activist Mesaki Horinek, he recalls saying to police officers, 鈥淭his isn鈥檛 just a native issue. We鈥檙e here to protect the water鈥� For every ranch and every farm along the Missouri River鈥�. His words indicate what is at the heart of the DAPL debate. Who does the water belong to? Or, in our framework, who has the right, and who the duty in this scenario? In Horinek鈥檚 words we can see an attempt at claiming the injury argument originally echoed in Bradley鈥檚 article in which the issue would extend beyond just the immediate population. Healy calls on what he hopes will mobilize courts to usurp the standing damnum absque injuria that is invalidating the right to a clean environment and has long denied Native Americans even the most basic human rights. In the same article, Horinek continues to say, 鈥溙齌hey were on what the Standing Rock Sioux Tribe considers sacred ancestral land, but from a legal perspective, it is owned by the pipeline company. So sheriff鈥檚 officers arrested them for trespassing.鈥�. This quote is the perfect exemplification of the difficulty with moving forward on 鈥渓egal鈥� based issues. The misconception of private ownership is exacerbated by there being no possible 鈥渙bjective鈥� ownership. This is what both media sources mistake. As is commonly an issue with media that is entrenched in the political 鈥渃onservative鈥� and 鈥渓iberal鈥� binary, most of the coverage does not engage with the challenges about conceiving of these rights without a necessary elitist moral framework. Once there can be recognition that property is not stable and natural, on both side of the argument, can there be some resistance.

Coercion is difficult to investigate when DAPL is being discussed by the media in a way in which the ownership of the land is either objectively the corporation鈥檚 or objectively the Native Americans鈥� when it is a question of a relationship of power and how that manifests over access. The methodological issue here is the lack of a historical and sociological approach to the role of pipelines in the U.S., the sustained appropriation of Native American land, the destruction of precious water supplies in vulnerable communities, and the recognition of the Native American genocide enacted by the U.S. government. Without doing interrogative work around the political and social climate in which the pipeline is being built, critics will continue to find themselves trapped by claims to the 鈥渓egality鈥� of it.

Chloe Sariego is a senior at studying Political Economy and Sociology. She is a writer, activist and academic but in her spare time performs with the award-winning improv-comedy team Feral Christine. You can keep up with her at or send her an email at csariego [at] gm [dot] slc [dot] edu.

Photo: Tony Webster Bakken / Dakota Access Oil Pipeline

鈥�As a step toward that ideal it seems to me that every lawyer ought to seek an understanding of economics. The present divorce between the schools of political economy and law seems to me an evidence of how much progress in philosophical study still remains to be made. In the present state of political economy indeed, we come again upon history on a larger scale, but there we are called on to consider and weight the ends of legislation, the means of attaining them, and the cost.鈥� (Oliver Wendell Holmes; 1897) [1]

The World Bank鈥檚 policy focus shifted in the 1990s from a market-oriented paradigm to other issues such as social justice, poverty reduction and 鈥渕arket failures鈥�, where institutions had to play a greater role [2]. Known as the Post-Washington Consensus or the Third Moment in Law and Development, this new paradigm emphasizes the importance of 鈥済ood governance鈥�, the implementation of property rights for economic growth, and makes the following proposition: well-defined and formalized property rights lead to market efficiency, economic growth and development. Hence, since then the establishment of the 鈥渞ule of law鈥� has become the new goal to reach for developing countries.

However, this Law and Economics paradigm relies on a narrow set of theoretical assumptions and is heavily influenced by neoclassical views of the state, the market and overall competition. But this framework raises some questions: (a) are these assumptions empirically valid, namely is the implementation of property rights a necessary condition for economic growth and development? And (b) are 鈥減erfect competition鈥� and 鈥渕arket failures鈥� reliable concepts one should start from to cope with development 鈥� if by such term we mean a social and economic process that will ultimately increase human well being?

The role of institutions in New Institutional Economics

Classical political economists stressed the importance of institutions in human affairs – particularly in the economic sphere – from the very beginning. On the one hand, there was a tradition that tried to draw economists鈥� attention on the determinant role of social and cultural norms and how they shape/influence the individuals鈥� decision-making process (for instance, in the findings of Weber, Durkheim and Veblen). On the other hand, another tradition paid more attention to the mode of subsistence of society and how physical institutions reflect and regulate class struggle (as illustrated by the Scottish Historical School 鈥� which included Adam Smith, John Millar, Adam Ferguson and William Robertson 鈥� and the Historical Materialist tradition initiated by Karl Marx. In that regard Malthus and Ricardo were close to both movements despite their divergent theories).

However, the modern overlap between institutional economics and development took a different path and started with Douglas North鈥檚 early work [3]. In this case, by institutional economics one should understand neoclassical institutional economics. The policy ramifications of this new paradigm differ form the classical tradition.

North鈥檚 institutional approach ultimately supports the efficient market hypothesis: markets can and do fail if the underlying institutional arrangements do not provide a solid ground for private transactions. It follows that a legal system in which property rights (or the rule of law) are clearly defined and strongly protected will correct these market failures and achieve the market clearing process.

There are two elements than can explain such a narrow departure: (a) the Coase Theorem as a basis for the legal reforms [4] and (b) Hayek鈥檚 political influence on neoclassical economics [5]. On the one hand, the Coase Theorem concludes that 鈥渢he legal environment could impose effects and costs on market actors that would become variables determining economic output鈥� [6]; on the other hand, Hayek鈥檚 theory of the state included 鈥渕inimal government, the rule of law, and strong property rights鈥� [7]. From this perspective, one can anticipate the conceptual tour de force the New Institutional Economics (NIE) would come up with: (i) given that economic output is dependent on the legal environment, (ii) and given the minimum role the state should have to allow market clearance, (iii) the state鈥檚 sole intervention is to limit transaction costs by implementing strong and clear property rights to achieve economic growth. This latter proposition is perfectly described by De Soto: 鈥淧roperty is鈥� the legal expression of an economically meaningful consensus about assets. Law is the instrument that fixes and realizes capital鈥� [8]. The immediate political translation was fostered by the New Political Economy (NPE) and its focus on international trade law policy: the world is a global efficient market if each state implements the rule of law domestically and free trade (the law of comparative advantage). The circle is now complete: the world economy reaches economic growth and by extension development. This approach is not a fundamental critique of the perfect competition paradigm but represents rather a mere departure from it by adopting an imperfect competition framework 鈥� namely, perfect competition would be closely reached if the imperfections were removed (a radical critique could be found in the theory of real competition that is a 鈥渄ynamic disequilibrium process or a violent life-and-death struggle rather than the static equilibrium set of conditions underpinning conventional theories鈥� [9]).

The World Bank 鈥渞eligiously鈥� implemented the principles of the Third Moment in Law and Development. Some economists, such as Rodrik [10] and Sen [11], criticized some propositions of the theory by incorporating a human rights approach (in the case of Sen) or by giving a greater role to state intervention in industrial policy (in the case of Rodrik). Yet, these critiques did not question the core premises of NIE: (a) protecting property rights (strongly or formally, since Rodrik makes this distinction) increases economic output and (b) if market failures are corrected perfect competition is achieved. Hence, the question is whether a radical critique is necessary if one wants to (a) understand the process of economic development and (b) propose a policy solution to make such a process sustainable.

Property as a 鈥渂undle of rights鈥�

There is no doubt that the arrangement of legal entitlements affects economic and social development in general (and such a framework is not monolithic). Yet, one needs to have a deeper understanding of property to realize how the 鈥溾�渃lear and strong鈥� property rights is a misleading recipe鈥� [12]. Hence, a thorough analysis of the concept of property should expose the limits of the Law and Economics policy implications as highlighted by David Kennedy, a scholar in the Critical Legal Studies tradition.

As David Kennedy puts it: 鈥淔rom a development perspective, what matters is not the 鈥渟trength鈥� or 鈥渃larity鈥� of property rights, but the relationship between legal entitlements and the distribution and use of resources in a particular time and place鈥� [13]. We can extract from Kennedy鈥檚 remark two ingenious theses: (i) property is allocated through a power struggle and this allocation does not happen in a vacuum; (ii) property is not sui generis but represents a bundle of rights 鈥� namely, a relationship between individuals in relation to an object, which render the notions of 鈥渟trong鈥� and 鈥渃lear鈥� very problematic. One can notice how these two propositions directly challenge the core premise of the World Bank Third Moment paradigm.

Kennedy illustrates the first thesis by stating that: 鈥淒evelopment specialists must understand that in a market economy, 鈥減roperty鈥� has no ideal form separate from social and economic struggle in that society. (鈥�) Before 鈥減roperty rights鈥� can be strong or weak, they must be allocated. In every Western society, the process of allocation has been inseparable from political and social struggle and debate鈥� [14]. In other words, a system of secure property rights is not an a priori framework, but is determined by social interactions and conflict. This view can find an echo in Polanyi鈥檚 concept of embeddedness 鈥� namely, the economic sphere is embedded in human and social institutions (Polanyi : 1944). In fact, even within the Marxian tradition little attention has been paid to this a priori determination (rather than a mere parameter) of property rights (despite Marx鈥檚 analysis of 鈥渂loody legislation鈥� and primitive accumulation in Capital Vol.I). Therefore, if property is determined by a social struggle it also gives power to the winners of such a struggle to maintain its domination and structure the rule of the game to shape the income distribution to their advantage. Moreover, the state is primordial in this process as it is the authority that enforces and allocates entitlements: the state is a locus of constant struggles from the very beginning of any market formation. As a consequence, since property rights and social struggles are intertwined, it follows that this process cannot be unique, uniform and homogenous as assumed in modernization theory and NIE. This process can only be peculiar and specific to each society (it does not exclude similarities). Property rights are not a 鈥渟ystem鈥� but a human institution historically constructed and contingent on time and geography.

The elaboration of the first thesis automatically leads one to question the very definition of property: if property is not a legal system per se but rather a historical process, what shape does its legal implementation take?

According to Kennedy, the notion 鈥渢hat property rights concern the relationship between an individual and 鈥渉is property鈥濃�� is false. On the contrary, one should understand property as 鈥渢he relationship between people with respect to a thing鈥� and 鈥渢he difference is crucial鈥�[15]. This distinction is of first importance because it directly refutes the notion of 鈥渕arket failures鈥� for the following reasons. I have explained in the first section how NIE consider the rule of law as a remedy to market failures. In that sense market failures are understood as ill defined and weakly protected property rights. In this view property is defined as a relationship between an individual and his/her object. Suppose, we replace this conception of property by Kennedy鈥檚 鈥� namely, property is a relationship between individuals in relation to a thing 鈥� what becomes of the notion 鈥渟trong鈥� and 鈥渃lear鈥� and more important, what becomes of market failures? Three implications follow from this conceptual shift:

(a) The state has its say on the private settlements and agreements, as it defines and enforces 鈥渢he rights of one against the other鈥� [16]

(b) Since property constitutes a bundle of rights that could vary in substance due to political and social struggles, it can never be 鈥渃lear鈥� and 鈥渟trongly formalized鈥� as it will damage other individuals鈥� opportunities.

(c) Since it is a relationship with other agents, its process of entitlements 鈥渞outinely fail鈥� therefore 鈥渢ransaction costs are ubiquitous鈥� [17]. Transaction costs being market failures, if market failures are ubiquitous they become the market itself.

This set of propositions demonstrates the deep conceptual change operated by the legal realist approach. Jamee Moudud remarkably illustrates the proposition (c): 鈥淏ut if externalities are ubiquitous then they are the inevitable outcomes of normal market behavior. But if 鈥渕arket failures鈥� are ubiquitous then they are not 鈥渕arket failures鈥� anymore鈥� [18]. Consequently, the entire theoretical legal corpus of NIE and NPE falls apart: (1) property is not a spontaneous pre-established framework; (2) property cannot be clearly and strongly defined in a singular way; therefore (3) property cannot be the cause (with the epistemological implications of the term) of economic growth.

I would like to thank Professors Sanjay Reddy and Jamee K. Moudud, and Ingrid Harvold Kvangraven for their helpful and enlightening feedback.

This is part 1 of a 2-part series on law, institutions and economics. In Part 2, Prof. Jamee Moudud offers new insights from Legal Political Economy.

Mohamed Obaidy is an MS student in Economics at The New School

Sources

[1] Holmes, Wendell Oliver, 鈥淭he Path of Law鈥�, Harvard Law Review, 457, 1897
[2] K. Moudud, Jamee, 鈥淏eyond the Third Moment in Law and Development: Insights from Critical Legal Studies and Critical Political Economy鈥� (2016). Law and Economics: Contemporary Approaches.
[3] Lance E. Davis and Douglass C. North (with the assistance of Calla Smorodin),听Institutional Change and American Economic Growth. Cambridge: Cambridge University Press, 1971; And North, Douglass C. and Robert Paul Thomas,听The Rise of the Western World: A New Economic History. New York: Cambridge University Press, 1973.
[4] Coase, R.H, 鈥淭he problem of Social Cost鈥�, Journal of Law and Economics, Vol.3, Oct.1960.
[5] Hayek, Friedrich, The Constitution of Liberty, Chicago, IL: University of Chicago Press. 1960.
[6] Thomas, Chantal, 鈥淟aw and Neoclassical Economic Development in Theory and Practice: Toward an Institutionalist Critique of Institutionalism鈥� (2011). Cornell Law Faculty Publications. Paper 608. at 979.
[7] Id. at 976.
[8] Id. at 999.
[9] Moudud, J.K., Bina, C., and Mason, P. (2012). 鈥淚ntroduction: the Search for an Alternative.鈥� In Alternative Theories of Competition: Challenges to the Orthodoxy鈥�, eds. J.K. Moudud, C. Bina & P.L. Mason, Routledge Press. P.5.
[10] Rodrik Dani, One Economics, Many Recipes: Globalization, Institutions, And Economic Growth. P. 99-100 (2007).
[11] Sen, Amartya, Development as Freedom. P.3-4 (1999).
[12] Kennedy, David (2011) 鈥淪ome Caution about Property Rights as a Recipe for Economic Development,鈥� Accounting, Economics, and Law: vol.1 : Iss. 1, Article 3. P. 53.
[13] Id. at 5.
[14] Id. at 10.
[15] Id. at 26.
[16] Id. at 40.
[17] Id. at 40.
[18] K. Moudud, Jamee, 鈥淏eyond the Third Moment in Law and Development: Insights from Critical Legal Studies and Critical Political Economy鈥� (2016). Law and Economics: Contemporary Approaches. P. 20.

William Easterly and 鈥楾he Myths of Development鈥�

By Ingrid Harvold Kvangraven, published March 6th 2014

Monday March 3rd Bill Easterly launched his new book at NYU. Economists and development practitioners in the New York area filled the seats of the auditorium, eager to hear what the famous aid critic had to say.

His presentation is excellent. Lightheartedly, he delivers a clear and appealing message, intertwined with carefully planned and well executed jokes. He even has a separate joke slide in his power point, much to the audience鈥檚 amusement.

1. The Myth of Technical Solutions

Bill centers his presentation on three development myths. The first one is The Myth of Technical Solutions. All too often, experts recommend solutions that fix immediate problems without addressing the systemic political factors that created them in the first place. This is important criticism that is hard to disagree with.

Bill shows striking similarities between Lord Hailey鈥檚 Africa Survey from 1938 and a UN report on development from 2005.

Through time, it has not only been dictators and colonialists that have ascribed to the idea of technical, small-scale solutions as the road to development, but also philanthropists and development workers around the world. Bill is probably right in arguing that this idea, although faulty, has been accepted partly because people truly believe in it and it is a dominant discourse. More importantly, however, it conveniently gives aid workers a central role to play and provides donor governments with a distraction from more sensitive macroeconomic and political issues. The audience gets another laugh when Bill admits that he was one of these blind technocrats when he himself worked at the World Bank. Now he is reformed.

2. The Myth of the Blank Slate

The second myth is the concept of a blank slate, a view that has endured since the 鈥榖eginning of development鈥� six decades ago. The common perception is that countries begin with a blank slate and that development happens when today鈥檚 leaders decide that they want to execute developmental policies. Also, Bill adds, development did not really even begin in 1949 when that 鈥榟umanity for the first time possesses the knowledge and skill to relieve suffering of these people鈥�.

In fact, thirty years earlier, Woodrow Wilson declared to the League of Nations: 鈥楩or the first time in history the counsels of mankind are to be drawn together for the purpose of improving the conditions of working people鈥�. Sound familiar? If so, that may be because you heard the same thing from World Bank president , when he announced that ending poverty is finally an achievable goal and that we can be the generation to end poverty.

3. The Myth of Authoritarian Growth Miracles
Bill鈥檚 points so far are important. There are a lot of misconceptions about development out there that can lead to destructive policy prescriptions. However, Bill鈥檚 third myth, the myth of authoritarian growth miracles, reveals some fundamental flaws in his argument. Bill argues that it is in fact not authoritarianism that has spurred growth in China and the East Asian Miracle (EAM) countries of Singapore, South Korea, Taiwan and Hong Kong, but an increase in personal freedom.

Bill makes it clear what he believes to be the cause of 鈥榙evelopment鈥� (economic growth).

This is a popular argument among economists, championed by and others, but there is little evidence to support it. In fact, economic historians who have carefully studied development trajectories of the West and of the EAM countries find that personal rights came into place after the countries reached a certain level of development (see on this for more details). In fact, rich countries did not become rich by offering their people freedoms, but by stimulating development through context-specific government interventions such as active industrial policies, trade policies and 鈥�.鈥� Individual freedom and individual property rights came later. This is not to say that political and economic freedoms are not valuable in their own right. But there is no evidence suggesting that these freedoms cause development.

Strikingly, by seemingly busting the myth that authoritarianism induces growth, Bill is leading people to believe that this is in fact a common perception. He is clearly building a straw man argument here, as those who point to the EAM countries as 鈥榮uccess stories鈥� (e.g. Alice Amsden, Robert Wade, Ha-Joon Chang) do not attribute their success to authoritarianism, but to the active industrial policies pursued by their governments. Democratic governments might just as well pursue such policies.

Although Bill Easterly might like to portray himself as being outside the mainstream by criticizing Jeff Sachs, the World Bank and big aid projects, this last myth exposes his allegiance with mainstream economics and ignorance of economic history. Indeed, a more pressing myth to bust would be the Myth of Private Property Rights.

What we have learned and what you can do
Pedagogically, Bill summarizes the talk with a 鈥榳hat we have learned and what you can do鈥� section. He says we have learned that authoritarianism is not the solution. It is highly doubtful, however, that anyone came into the talk believing that authoritarianism is the key to development. More importantly, he says that what you can do to make a difference is it to join the debate. So let the debate begin!