Nationbuilding 101: reductionism in property, liberty, and corporate governance.

• Author: Reed, O. Lee

ABSTRACT

In this Article, Professor Reed re-examines the importance of property as a formal legal institution. He continues by arguing that central to creating property is the right to exclude others from resources acquired without force, theft, or fraud. In countries where this right has been firmly established, per capita income far exceeds that of countries lacking a strong right to exclude. Professor Reed then asserts the importance to nationbuilders of appreciating the virtual semantic equivalence of the terms "property" and "liberty." Finally, he argues that both the specific and broad senses of corporate governance can be reduced to property issues, making the understanding and implementation of a strong property system an important step toward prosperity, individual freedom, and sustainable peace.

TABLE OF CONTENTS I. INTRODUCTION II. PROPERTY AND ITS IMPORTANCE A. Poverty, Prosperity, and Limited Resources B. Incentive and Property 1. Property as the Right of Exclusion 2. The Incentive of Property and the Evidence Linking Property and Prosperity C. Other Property Issues 1. Property and Resource Acquisition 2. Property and the Equal Rights of Others 3. Property Enforcement D. Property and the Story of Evolved Human Behavior III. LIBERTY IV. CORPORATE GOVERNANCE A. The Specific Sense of Corporate Governance and Property B. The Broad Sense of Corporate Governance and Property 1. The Right to Pollute as an Object of Property 2. Worker Health, Safety, and Non-Discrimination as Objects of Property V. CONCLUSION I. INTRODUCTION

Without straining the biosphere or credulity, it is perfectly possible for each person to have as a full a measure of property as Bill Gates has, (1) and having property, one also enjoys liberty, for properly understood, the two terms are virtually synonymous. (2) Indeed, James Madison, the fourth U.S. President and Secretary to the Constitutional Convention, wrote an essay for the Boston Gazette in which he asserted that Americans have a "very dear" property in their liberty. (3) Property is the hub of Western legal systems and the foundation of the modern private market, (4) and the problems of corporate governance that beset not only Russia's emerging economy but also the economies of advanced nations everywhere are little more than enforcement challenges to an effective property system. Nationbuilders, who would grasp the essential basis of Western prosperity and freedom, can do no better than begin with a reductive focus on property.

By training, scholars and practitioners who labor in the vineyards of the common law tend to be splitters rather than lumpers. Instead of unifying legal doctrines to promote conceptual understanding, they divide them into exceptions and distinctions, separating contract from property, tort from contract, criminal law from civil law, public regulation from private law, and substance from procedure. What is cohesive about the volumes of common-law particularities is lost in a tangled labyrinth of cases that lawyers have argued--and judges have decided--by distinguishing holdings from dicta and one holding from another in ways often achieving a triumph of result at the expense of clarity of form. (5) How confusing this all must be when nationbuilders attempt to understand what is important about the rule of law, and no wonder that restraint is counseled to nationbuilders in less developed countries lest they attempt wholesale importation of Western legal systems to secure a framework for their own regulation. (6)

At the same time there is growing apprehension that something in the interstices of Western legal systems in both common and civil law is materially responsible for the prosperity of Western nations, (7) which, in terms not only of general per capita income but also of per capita income of their poor, creates wonder and envy worldwide. For both humanitarian and practical political reasons, no more burning issue exists in the international community than how to help the world's impoverished nations along a peaceful path toward prosperity. But if this path, insofar as we best know, entails the inculcation of Western legal concepts, then which specific concepts need inculcating and why these particular concepts, assume great importance. This Article argues that reductionism, the reducing of quite complex legal doctrines and rules to an essential principle that societies can embrace with some certainty, carries the maximum potential for producing the greatest wealth of nations. "Property" is that essential principle necessary for generating the likelihood for prosperity, and this Article asserts that prosperity within the recognized constraints of a strong property system also supports liberty and advances the possibility for sustainable peace.

Part II begins with a discussion of the human plight of limited resources. This is followed by a development of how Western nations have addressed that plight and become prosperous through the incentive of property, which is defined as a legal exclusion over resources, a definition that is at odds with the deconstructed legal view of property as a bundle of rights. The equal property right of others limits an owner's use of her resources, and the resources protected by property are traditionally subject to eminent domain and taxation. Acknowledging the difficulties inherent in how nationbuilders determine who owns initial acquisitions of natural resources like land, this Section still emphasizes that property's success as a wealth generator depends on its strong enforcement, broad applicability, and general stability. Part II concludes with a story about human nature that argues why the institution of property may naturally foster production of greater new resources than systems based on compulsory sharing with strangers. (8)

Part III maintains the close semantic connection between the right of property and the right of liberty, a connection widely recognized during the U.S. colonial period and embodied in the U.S. Constitution. It continues the reductive theme by explaining that both property and liberty are exclusionary terms applying to the protection of one's resources, including the most basic facultative resources of self and suggesting that property is best grasped as a civil right like freedom of speech or religion. (9)

Part IV ties in the important issue of corporate governance to the project of reductionism and maintains that the implementation and enforcement of a strong property system is necessary both to protect owners from managers and to secure the resources of the public and of other members of society from the power of large business organizations. (10) At the same time, the system enables the relatively unrestrained use of private resources, subject only to the equal property right of others, that characterizes the framework for maximum new resource generation. Part IV also explains how environmental protection, employment discrimination prohibitions, and worker health and safety regulation fit within the property framework.

As broad social prosperity creates perhaps the most substantial likelihood for sustainable world peace, an understanding of the mechanism for prosperity ought to demand the closest attention and debate, and the Article concludes by reaffirming that the reduction of that mechanism to the legal institution of property furthers this debate of utmost importance. Before continuing, one caveat must be noted: in no measure does the Article attempt to engage in philosophizing to justify property as a right, or unequal resource accumulation as a result. It is instead content merely to assert that property is in fact the necessary foundation for maximum resource production and leaving to nationbuilders the decision whether or not, and to what extent, to institutionalize property.

2. PROPERTY AND ITS IMPORTANCE

   A. Poverty, Prosperity, and Limited Resources

   Poverty is widespread throughout the world. (11) Almost 250,000 children die weekly of poverty-related disease and malnutrition, (12) and the hopelessness and despair that accompany poverty is considered a major impetus to war and terrorism. (13) At the same time, prosperity exists among a minority of the world's nations, (14) creating tremendous income disparity between the world's poorest and richest, with the people of Bangladesh living on one-fifth the per capita income of those in China, (15) who have only one forty-fifth the per capita income of the U.S. population. (16) The discord, jealousy, and suffering inherent where there are vast national disparities of resources makes imperative an understanding of how such disparities have arisen and how poverty can be ameliorated.

   A variety of explanations have attempted to account for national disparities in wealth. One that has not withstood the test of time is the dependency theory, which holds that exploitation makes some countries prosperous while leaving others poor. (17) Whatever the abuses of colonialism or capitalism to indigenous populations, they do not seem to account for why some colonial nations grew wealthy and others did not, or why the formerly enslaved in some countries eventually prospered while in others those who had been neither enslaved nor colonized remained poor. (18) Nor do better educational systems, greater natural resources, ideal population densities, or superior personal values materially account for why some nations develop and grow rich and others do not. (19) Analysis suggests that

   the large differences in per capita income across countries cannot be explained by differences in access to the world's stock of productive knowledge or to its capital markets, by differences in the ratio of population to land or natural resources, or by differences in the quality of marketable human capital or personal culture. (20) Mexico and the United States both enjoy fertile, mineral-rich land masses with similar population densities, yet one is...