mechanism. A registry of household ownership, for example, will make it
easier to locate owners, undertake a purchase and re-register the new owner.
Third, when a large proportion of inputs (fertilizer, seeds and irrigation
water) and outputs (wheat and rice) are sold through the market, assets and
resources must be used efficiently to make a sufficient profit, or they will be
lost or sold to more efficient users.
Together these impacts on investment, re-allocation and productivity gains
support the view of North and others that institutions and specifically property
rights are the ‘underlying determinant of the long-run performance of
economies’ (North, 1990:107), and consequently, ‘the heart of development
policy must be the creation of policies that will create and enforce efficient
property rights’(North, 1995:25).
Property rights are complicated and their nature changes over time. It is
no longer widely accepted, for example, that people can be property; slavery
has been abolished in all countries although various forms of bonded labour
continue to exist. The right to strike and withhold labour from an employer
is enshrined as a basic human right in many countries and brutally
suppressed by governments in others. Property rights do not always give
more security and freedoms to owners in developed than developing coun-
tries. In developed countries physical property is often subject to zoning and
environmental legislation and sometimes historical preservation orders. In
developing countries property is often held subject to traditional claims,
such as the right in many countries for people to graze animals on farmers’
fields once the harvest has been collected or rights for rent-paying tenants
that can be inherited.
As an economy expands and experiences the sort of structural change
discussed in Chapter 8,exchange networks expand beyond traders known
and often related to each other in a small local economy to a more imper-
sonal and anonymous large market and long-distance trade. To begin with,
informal institutions such as trust,personal ties and the threat of ostracism
from the social group for cheating are likely to be efficient ways of minimiz-
ing the transaction costs of exchange. As the scale of production and
exchange increases, formal institutions such as a codified legal system,
government-backed standardized currency/weights and measures, organi-
zations such as dedicated trading centres and lawyers to help negotiate
contracts and enforce them become more important. Some personal
networks based on trust do survive into the modern economy such as the
Chinese or Jewish diasporas engaged in group-based long-distance trade
and the rotation of credit among members. Such networks are based on the
special circumstances of kinship or religion (see Chapter 12 for a compara-
tive historical case study).
While a main focus of this chapter is privateproperty rights, see Box 10.2
for important debates about the role of collectiveproperty rights.
214 Patterns and Determinants of Economic Growth