By Professor Ting Xu, Essex Law School
This blog post builds on the ‘Institutions, Economic Development, and China’s Development Policy for Escaping Poverty’ piece and comprises two parts dealing with the key concepts (Part 1) and mechanisms (Part 2) for evaluating the co-evolution of diversity in property and economic development. I argue that diversity in property plays a key role in economic development and that there are two dimensions that are important for examining the co-evolution of diversity in property and economic development—horizontal (Part 1) and vertical (Part 2).
In this post, I offer a critique of the assumption in mainstream economics that private property is the only kind of property institutions that can stimulate and preserve economic development (I am, of course, not the first to offer critiques of this assumption; for existing studies, see e.g., Kennedy 2011). I focus on the meaning of ‘diversity in property’, which concerns the horizontal level analysis.
Introducing the concept of ‘diversity’
‘Diversity’ means ‘many different types of things or people being included in something.’ Professor Erik Reinert introduced me to the concept of ‘diversity’ and encouraged me to examine the nature and significance of diversity in institutions such as property and the co-evolution of diversity in institutions and economic development. I started my research in this area by co-authoring a working paper on ‘Declining Diversity and Declining Societies: China, the West, and the Future of the Global Economy’ with Erik in 2013.
In our co-authored paper, Erik and I examined diversity not only as part of nature’s strategy for the survival of species from natural shocks but also as a strategy consciously employed in human societies for the same reason. We argued that diversity constitutes a key element in economic development. Starting in the 1400s, Europe—and later the West in general—experienced an explosion of intellectual creativity and economic development, due to increasing diversity in polities, policies, cultures and ideas. Simultaneously, China started a process of de-diversification in that period and fell behind. We were worried about the lack of concern for diversity in today’s mainstream economics and development policies.
Due to diminishing diversity in mainstream economics and development policies, economists and policy makers tend to see ‘all economic activities as either being qualitatively all alike or all different’ (Reinert 2000: 180) and changes to be predicted or prescribed. When this pattern of thinking is transferred to evaluate the nature of property and the process of property regime transformation, the importance of ‘strong and clear’ property rights is emphasised as if they were a panacea that can create and preserve a well-functioning market. Further, to promote economic growth, other kinds of property institutions need to be transformed into private property as ‘good institutions’ understood by the World Bank (discussed in my 2017 paper). Diversity in property is eliminated.
Diversity in property
When examining the nature and significance of diversity in property, I see diversity in property as a ‘development-promoting’ institution, in contrast to what is considered ‘good institutions’ by the World Bank, which tends to focus more on eliminating corruption and securing private property. To understand the nature and significance of diversity in property, we need to clarify some basic concepts.
First, property refers to both a resource over which an individual, a community or the state has overall control and the way a resource is managed and regulated by an individual, a community or the state. Property is more concerned with how a resource is used, managed, or governed rather than how it is owned. Communal property, for example, means ‘a resource over which a community and its members together have overall control and the way a resource is managed and regulated by a community for its collective purposes’. The term ‘property’ is more helpful than ‘ownership’ especially in the Chinese context where ownership is defined by the owner’s identity (which gives little information on how the resource is used and governed) and closely associated with ideology.
Second, the concept of private property is both ambiguous and broad: individual and corporate ownership are ‘private’, while ‘government ownership of resources such as office buildings [is also] essentially private’, as Davies (2007: 63-64) argued. When referring to a resource controlled by a human person, it is better to use the term ‘individual property’ rather than ‘private property’.
Third, within communal property, individual property rights/interests may co-exist with communal property rights/interests. Here I use ‘individual property rights’ rather than ‘private property rights’ which may be held by either a human being or an artificial legal entity. The ‘household responsibility system’ introduced in China in the late 1970s is a classic example. The collective issues contracts to the household, which has responsibility for the management of farming an area of land called ‘responsibility land’. Farmers have an individual property right/interest in rural land to possess and use it for farming purposes.
The ‘responsibility land’ is subject to the farmer’s individual property interests and various layers of communal property interests including the household’s interest and the collective’s interest. Although diversity in property is not unique to China, the household responsibility system is an innovative development-promoting institution introduced in China in the late 1970s, while the ideological function of collective ownership of rural land is preserved but less constrained for individual and communal property rights performing their economic functions.
Diversity in property in China
Diversity in property has a much broader scope than that of diversity in ownership. The latter exists in China’s ‘socialist market economy’ with a mix of state ownership, collective ownership, and individual ownership. Diversity in property differs from the evolution of diverse forms of property, for example, from communal property to individual property or from informal property to formal property. These are different forms of property existing at different times.
To use my previous work as an example, my book The Revival of Private Property and Its Limits in Post-Mao China discussed the re-emergence and recognition of private property rights in the context of China’s social and political transformation and economic development since 1978. Illustrative cases include the revival of private property rights in the reform of State-owned enterprises (SOEs) and development of township and village enterprises (TVEs). The focus was on diverse forms of property.
After my 2014 book, I moved my research area from examining diverse forms of property at different times to diversity in property. Two research projects facilitated this new area of research. I was awarded two research projects on diversity in 2014: declining diversity and the global economy funded by the European Commission, Joint Research Centre (completed in 2015); ‘Diversifying Ownership of Land?: Communal Property in the UK and China’ funded by the British Academy International Mobility and Partnership Scheme 2014-17 (completed in 2017).
The meaning of diversity in property (in rural land) in the Chinese context is elaborated in the following table, focussing on four key periods of property regime transformation. The collectivisation period (1956-1978) is not included, as diversity in property was virtually eliminated in this period. Diversity in property includes two levels:
- the coexistence of different types of property;
- within communal property, the coexistence of individual and communal property interests.
Table 1 below demonstrates that diversity existed in most parts of China’s long-term property regime transformation except the collectivisation period.
Diversity in property, offering a better reflection of China’s socio-economic realities than diversity in ownership, plays at least three important functions in reshaping development policies:
- it shifts the focus away from ideological debate on public versus private dichotomy;
- it directs the focus to thinking about how a resource can be better governed;
- it directs policies to match context.
In Part 2 of this post, I explore the vertical dimension of the co-evolution of diversity in property and economic development by focussing on some key mechanisms informed by evolutionary economics.
This article first appeared on Developing Economics and is reproduced on the ELR Blog with permission and thanks. You can read the original post here.