Property rights for democracy and development - Zameen News

Property rights for democracy and development

May 27, 2008 • news

By Nadeem Ul Haque

Property rights lie at the heart of society and are the foundation of economic development. The principal function of any state and government is the provision of sound and secure property tights. Without property rights there can be no trading, no investment.

Property rights are at the heart of any economic activity--nobody will become economically active if he can be cheated out of the fruits of his efforts. In addition, meaningful prices and efficient use of resources require secure property rights.

It is for this reason that Douglass North in his Nobel acceptance lecture concluded that "an essential part of development policy is the creation of polities that will create and enforce efficient property rights."

There could be a symbiotic relationship between property rights and politics. A system of politics where power takes precedence over property rights cannot lead to democracy. If public property ca be used for private gain of the powerful, if land acquisition can be used to benefit the rich, if zoning laws can be tampered with at will to suit the incumbent, if supra-legal, above-the-law entities can be created, such as the Defence Housing Authority, to manipulate rights for a certain group, democracy cannot take root.

All of us are heavily involved with the drama of democracy vs. dictatorship that is on the telly every day. There is a myth that says that all will be solved if only there were a vote. Yes, independence of the judiciary is one. But another important issue is the system of property rights.

In Pakistan, ironically, secure property rights obtain only in DHA and Islamabad, where the powerful have invested. But both these properties were made through an abuse of eminent domain. Often the poor peasant was forced to give up his valuable land for yesterday's price to the benefit of the members of the fraternity of the army or the bureaucrats. Whatever system of governance we have (whether democracy or dictatorship) our leaders are competing for the benefits derived from "property rights for the rich!" They are not competing for providing governance. Nor is property flowing to the talented.

Qabza (land-grabbing) remains a most lucrative business today. Why should anyone do any serious work when the gains are in grabbing land!

A particular housing society in Islamabad is a case study in point. The society was formed 20 years ago and was going nowhere. Then the new airport (new at that time) was set up in front of it and suddenly value was created. Enterprising people got involved and established links with senior government officials and generals.

What about the original claimants who had invested their hard-earned money? Many of them were overseas and not always on top of their property. So they were easy targets. The new management committee, made up of the rich and famous, sent out a letter to the poor unsuspecting targets saying that development charges were due and that if they were not paid, their plots would be rescinded. Apparently, dues for development charges were in the region of about Rs150,000. The value of the plot is about Rs4.5 to five million. Well, to collect a debt of about Rs150,000, they were able to seize a property of value over 37 times without any due process of law. Just a board meeting! How many widows, orphans, old people and poor immigrants were caught in the net, we will never know. But someone (the board) has done well!

Our so-called free media is too scared and often even beholden to the rich to talk about issues like this. No one wants to look at this important case study of property rights.

Fortunately, everyone concerned is overlooking a simple solution that humans in civilised societies worked out many centuries ago -- at least as early as Shakespeare's time. Ok, let us concede that development has to go on and that dues have to be pai,d and those who cannot be reached should also contribute. But their debt to the cooperative society is backed by a marketable claim to a piece of land. Even though the society has not yet handed over the plot, the property right is clearly recognised by law and, above all, is being transacted in the market every day.

A marketable asset has intrinsic value, which cannot just be taken over by anyone without due process of law. A housing society can enforce its claim, and should, but to take over such a marketable claim, it must go through some court-approved foreclosure proceedings. They should not be able to take over an asset with market value on the basis of a meeting in someone's living room.

Once foreclosed, the properties should be auctioned in a transparent, open process for all to bid by open outcry in the presence of a court appointed observer. The monies received belong to the owner of the property. Of course, the society has a claim to its debt, but no more. We have Shakespeare famously saying that the debt of "a pound of flesh" must "obtain a pound of flesh and no more -- not a drop of blood." The cooperative has taken more than the whole body for their pound of flesh.

Even defaulters have rights. Thus, the society gets the money it is owed. The owner should be able to get whatever is left over. The principles of property give the full value of that property to the owner of the property. Lenders to whom the property may be collateralised cannot collect more than their claim. Yes, they can force a sale with the court's permission. But they cannot take more than what is owed to them.

What is to be done of those who cannot be traced. Twenty years is a long time. Some of them may have died, disappeared, or whatever.

Should the board or management or other members of society take over their claims. Not at all (in civilised society)! As I outlined earlier, their property can be foreclosed and sold at an open auction. After the society's claim has been settled, whatever is left over must be put in escrow for some legally specified time, say, seven years, in special savings certificates. If in that time the claimant turns up, he realises the value of his property.

If that person does not turn up after seven years, or whatever time specified by law, the money should go to either the government or to some charitable cause, again in a very clear, transparent manner.

In the case described above, people did sue the housing society. But these cases have been in court for many years. Politicians and generals brokered deals. Interestingly enough, in January this year, without informing their membership, the society changed its ownership, eventually being taken over by the DHA. The DHA is more or less a supra-legal body that does not come under the cooperatives law. No attempt was made by the military body, DHA, to deal with this issue of property rights. No even a simple newspaper ad was placed or a public meeting held to understand the plight of those who had been dispossessed.

What happened to the claims of the dispossessed on the cooperative society?

Who cares in the land of the holy? We have the Chief Justice's case to watch and the Lal Masjid battle to worry about. Little issues like property rights do not matter. But the real issue is property rights and the rest is a red herring.

[The News International]