Tuesday, 12 February 2008

Property rights without government (updated)

The importance of property rights to economic growth and development is increasingly being acknowledged by economists. Along with this normally comes an argument as to the necessity of government for the enforcement of those rights. Absent such a government, it is argued, investors simply do not invest, farmers do not farm (or at least not expand their activities), artisans do not innovate, and merchants do not trade. This is simply because without a government to secure property rights agents are unsure as to whether or not they will retain the rewards of their endeavours.

While the argument is correct with regard to the importance of secure property rights, it is less clear as to the necessity of government for rights enforcement. Medieval Japan (ca. 1100-1600) was a period of economic growth but growth took place without much of a central government to enforce claims to resources. A recent working paper Property Rights In Medieval Japan: The Role Of Buddhist Temples And Monasteries by Mikael Adolphson and J. Mark Ramseyer argues that with regard to government in medieval Japan,
Emperors it had, along with regents, courtiers, warriors, and eventually shōgun and shōgunal regents. Yet these men seldom offered citizens much stability. Certainly, they seldom offered the security that would have induced citizens to invest scarce resources in easily appropriable investments or to undertake long-distance trade. These were not years of stability or peace. They were centuries of intrigue, murder, predation, and war.
But they also point out that,
... the Japanese economy grew anyway. Despite the chaos, people cleared forests. They lent money. They built elaborate and expensive irrigation facilities. They constructed sake breweries. And they traded their goods over longer and longer distances.
How then were property rights protected? Adolphson and Ramseyer show that temples and monasteries undertook the role of rights enforcer.
To obtain a secure claim to real estate, for example, a local landholder might "commend" his land to a temple (or monastery). Through the process, the temple obtained an equity interest in the land (took a cut of the harvest), and the landholder obtained an exemption from tax. At least as important, the landholder obtained the ability to call upon the temple to (and the temple had an incentive to) protect his land from rival claimants. Artisans and merchants obtained analogous protection by joining temple-sponsored guilds. They paid their dues, and the temple enforced their contracts.
In addition to the tax exemption the temples and monasteries offered a landholder two other sets of valuable services. First, they would adjudicate disputes over trades and property between parties within their jurisdictions. So contracts could be enforced. Second, estates within a temple's or monastery's region of control would be protected against threats and intrusions from outside parties. While it is true that some private landowners has the ability to protect their own property, in many cases the temples and monasteries had under their control the resources necessary to more effectively protect property.

Not only that but the temples and monasteries competed with each other to such services to landholders.
The competition was intense -- sometimes to a temple's chagrin. In 1145, for example, one landholder in the Uchi district commended a field to Kōfukuji. He soon concluded that Kōfukuji charged too much, and commended it to another temple instead. Kōfukuji was not amused. When its clergy tried to arrest the commendor, he fled to the rival temple. Kōfukuji laid siege to the temple, but he escaped. That rival temple then chased him with over 500 warriors, but encountered the district administrator's warriors (himself a Fujiwara -- recall that Kōfukuji was the Fujiwara temple). Reported one account, "there were too many casualties to count".
What in effect occurred was that "government services" were provided not by central government but in a competition market by private suppliers. This private provision was effective enough to allow economic growth to take place.
In effect, the temples and monasteries competed with each other to provide landholders with what we usually consider basic government services. In effect, medieval Japan maintained a market in private governments. Imperfectly to be sure, the resulting arrangements gave landholders something close to the protection they needed to improve and maintain their land.
Update: Another case of private law enforcement is Medieval Iceland as discussed by David Friedman in Private Creation and Enforcement of Law: A Historical Case.


Crampton said...

Great stuff!

David Hillary said...

Dr Brennan Allen in our Accounting Theory lecture today assured us that businessmen who stand up and complain about government intervention in markets, love and need the government. He told us they need the government to a) create, define and enforce property rights, b) ensure markets function and c) ensure market participants can have enough confidence to transaction in said markets.

His position is basically a claim that property rights and markets were invented by wise kings, and that wise government policy makers can keep improving the invention. I'm not sure how a more one sided, not to mention implausible presentation could be made.