Safeguard Private Property Rights

– This article was originally published by Ayushma Maharjan in the Himalayan Times on the April 07, 2019.

“Private ownership of property is regarded as a spur to stimulate the best efforts of man which add enormously to the wealth of the community.” – Musllehuddin

The above statement depicts the huge economic benefit that can be obtained by incentivizing individuals through secure property right. However, it applies only when the private ownership of property is strengthened by four essential elements:

1. the exclusive right of individuals to use their  resources at their own discretion, as long as they do not violate someone else’s rights;
2. the exclusive right of individuals to reap benefits from the property; the ability of individuals to transfer, exchange and lay legal claim on the property;
3. the right of protection against interference

These elements will lead to enhanced social welbeing, growth and prosperity.

Being a nation that aspires to achieve high level of economic growth, Nepal should opt for more liberal land use policy with strengthened property rights. The recent land use bill of Nepal violates some of the fundamentals of private property rights.The bill obtrudes that:
1. all landowners who keep their arable land fallow are subject to NRs. 3 lakh fine;
2. all land owners must mandatorily determine their land status again;
3. all land must be managed as per its use as defined by the ten zones;
4. the Government of Nepal may acquire the land  required for implementation of physical development plans or may prohibit the use of a house or land located in the area.

These clauses inflict forceful eviction or relocation of urban squatters through zoning; impose land-use restrictions limiting an individual’s control of their own land; increase administrative burden; and strengthen eminent domain. This is a huge infringement of individual’s right to property.

Clearly, the cabinet while passing the bill has not given due consideration to the wider impact that these restrictive policies could have on the economy.

Various instances of international economies illustrate that stricter land use policy stifles overall productivity and growth. Any intervention that legally binds individuals to the usage of their property – either through difficult administrative compliance or assigning roles to their land – might disincentivize the individuals from using their property in the best way. When people are able to keep the fruits of their labor, they have a strong incentive to invest in productive activities, improve their skills, work harder, and work smarter.In this way there is a net value addition to the economy. On the contrary, when lands are zoned, we are, in effect, only moving resources around – shifting houses from the ‘new’ agricultural land to the new ‘residential’ land while freeing up the old space for agriculture. Upon careful observation we can soon see that in doing so we are limiting supply of land for a particular use in one region and making it available in another. On the net, there is no real value addition. In fact these interventions can have greater negative repercussions for the economy then the intended positive outcomes.

Strengthened property right concedes each individual to decide how their resources ought to be used.It is important to understand that optimum utilization of an asset will only be achieved when a person who owns the asset has exclusive right to control how that asset is used. All individuals are guided by their self-interest and no other party or intervening body can ever make right choices for him/her. Economists thus believe that deregulating land use would improve both economic output and productivity nationwide.

Determining the status of land by each individual yet again, is a regime which can be quite expensive to implement, administer and enforce. In addition, this can also lead these individuals to lose their resources, requiring them to either engage in unproductive activities or obtain land in other costly areas. Implementation of the regime no matter how efficiently, will still have negative effect on the overall welfare of the individuals as it will restrict supply, leading towards higher prices and lesser affordability.

Strengthening eminent domain to carry out developmental activities by providing just compensation to the property owners might sound like a plausible idea. However, it is impossible to evaluate the compensation amount for the land along with the value added by its owner. This means that both accurate compensation of current landholders and determination of their rents would be impossible to carry out with any accuracy.

The critical role of any legal system is only to protect property rights and maintain justice associated. The concept that the task of assigning and defining land roles to manage and make proper use of available land and re-locating resources for the same is an exclusive job of the state, is in itself, a faulty concept.The government should thus focus on securing and safeguarding individual’s private property rights.