BOSTON UNIVERSITY SCHOOL OF LAW WORKING PAPER SERIES. PUBLIC LAW LEGAL THEORY WORKING PAPER NO 03-06 PROPERTY RIGHTS SYSTEMS AND THE RULE OF LAW RONALD A CASS This paper can be downloaded without charge at The Boston University School of Law Working Paper Series Index http://www.bu.edu/law/faculty/papers The Social Science Research Network Electronic Paper Collection http://ssrn.com/abstractid=392783
BOSTON UNIVERSITY SCHOOL OF LAW WORKING PAPER SERIES, PUBLIC LAW & LEGAL THEORY WORKING PAPER NO. 03-06 PROPERTY RIGHTS SYSTEMS AND THE RULE OF LAW RONALD A. CASS This paper can be downloaded without charge at: The Boston University School of Law Working Paper Series Index: http://www.bu.edu/law/faculty/papers The Social Science Research Network Electronic Paper Collection: http://ssrn.com/abstract_id=392783
PROPERTY RIGHTS SYSTEMS AND THE RULE OF LAW Ronald A cass Tolstoy's novel, Anna Karenina, starts famously with the observation that"All happy families resemble one another; every unhappy family is unhappy in its own fashion. The opposite is more nearly true in respect to the rule of law. Though many societi with differing governance structures and legal systems adhere in their own ways to the ule of law, societies that derogate from it do so in more similar fashion. Put differently it is easier to identify departures from the rule of law than to explain why particular ac- tions conform to it The rule of law matters to people around the world because it is a concomitant of a society that is successful and, in all likelihood just. It does not guarantee justice or so- cial welfare, but it does correlate with justice and social welfare (under virtually any ac- cepted definition of those terms). That is why the concept has such broad appeal A critical aspect of the commitment to the rule of law is the definition and protec tion of property rights -rights to control, use, or transfer things(broadly conceived),in- cluding rights in intangibles such as intellectual property. Societies in which it is rela- tively easy to secure property rights, to protect them against infringement, to gain recom- ense when rights are infringed, and to transfer property rights in whole or in part to in- dividuals who value them more highly are more likely to succeed. Of course, the sub
PROPERTY RIGHTS SYSTEMS AND THE RULE OF LAW Ronald A. Cass* Tolstoy’s novel, Anna Karenina, starts famously with the observation that “All happy families resemble one another; every unhappy family is unhappy in its own fashion.” The opposite is more nearly true in respect to the rule of law. Though many societies with differing governance structures and legal systems adhere in their own ways to the rule of law, societies that derogate from it do so in more similar fashion. Put differently, it is easier to identify departures from the rule of law than to explain why particular actions conform to it. The rule of law matters to people around the world because it is a concomitant of a society that is successful and, in all likelihood, just.1 It does not guarantee justice or social welfare, but it does correlate with justice and social welfare (under virtually any accepted definition of those terms). That is why the concept has such broad appeal. A critical aspect of the commitment to the rule of law is the definition and protection of property rights – rights to control, use, or transfer things (broadly conceived), including rights in intangibles such as intellectual property. Societies in which it is relatively easy to secure property rights, to protect them against infringement, to gain recompense when rights are infringed, and to transfer property rights in whole or in part to individuals who value them more highly are more likely to succeed.2 Of course, the sub-
Property Rights Systems and the Rule of Law, page 2 stance of the rights matters. Societies that are relatively friendly to property, not only giving it security but also providing broad scope for the use of property according to its owners' desires. also will have an advantage 3 Substance aside, however, the degree to which the society is bound by law, is committed to processes that allow property rights to be secure under legal rules that will be applied predictably and not subject to the whims of particular individuals, matters The commitment to such processes is the essence of the rule of law Although societies differ markedly in their commitment to the rule of law, the dis- tinctions often are less clear than might at first blush appear. The ways in which systems manage changes in property rights and in legal rules that affect property rights, along with the ways in which systems constrain official discretion, are the keys to the effective- ness of the rule of law but the rule of law does not bar change nor does it forbid di tion. Change is a natural part of any legal system, and efforts to limit change must be seen not as ends in themselves but as part of a larger framework for assuring predictable valid, law-based governance. Discretion to effect changes in the nature of property rights seems an inevitable part of any property rights system. And the division between sys- tems that conform closely to the rule of law and those that depart from it will be tied less to whether discretion to shape and alter the law exists than to the nature of the discretion to its concentration in few or many hands and its relation to other authority and to other legal and practical constraints. Conformity to the rule of law in the end cannot be meas- ured in discrete increments but must be viewed as the product of a set of related consid- erations
Property Rights Systems and the Rule of Law, page 2 ________________________________________________________________________ stance of the rights matters. Societies that are relatively friendly to property, not only giving it security but also providing broad scope for the use of property according to its owners’ desires, also will have an advantage.3 Substance aside, however, the degree to which the society is bound by law, is committed to processes that allow property rights to be secure under legal rules that will be applied predictably and not subject to the whims of particular individuals, matters. The commitment to such processes is the essence of the rule of law.4 Although societies differ markedly in their commitment to the rule of law, the distinctions often are less clear than might at first blush appear. The ways in which systems manage changes in property rights and in legal rules that affect property rights, along with the ways in which systems constrain official discretion, are the keys to the effectiveness of the rule of law. But the rule of law does not bar change nor does it forbid discretion. Change is a natural part of any legal system, and efforts to limit change must be seen not as ends in themselves but as part of a larger framework for assuring predictable, valid, law-based governance. Discretion to effect changes in the nature of property rights seems an inevitable part of any property rights system. And the division between systems that conform closely to the rule of law and those that depart from it will be tied less to whether discretion to shape and alter the law exists than to the nature of the discretion, to its concentration in few or many hands and its relation to other authority and to other legal and practical constraints. Conformity to the rule of law in the end cannot be measured in discrete increments but must be viewed as the product of a set of related considerations
Property Rights Systems and the Rule of Law, page 3 Property and Property Rights Systems The word"property" does not strike the listener's ear as a particularly abstruse term. We think we understand it instinctively. Property is a thing. Or things are property. But, of course, when we go to say anything more precise to specify whose property a thing is, and what aspects of it are proprietary, against whom, for what purposes, we realize that property is not so readily self-defining after all. And if we think a bit more, we realize as well that property does not consist only of things, at least not only of tangible things We call certain types of ideas -or at least certain forms of their expression - intellectual property and craft property rights in them. We recognize claims for money, for services that are equivalent to money, or for employment that earns money under the rubric of property rights 6 The line between property rights and other rights is a contestable line. This re- flects the fact that the notion of property itself -what it is, how it should be thought of who should have what property rights- has been a subject of controversy across centu- ries. Philosophers(along with economists, historians, and others) have argued whether property is something natural, existing prior to government recognition of rights, or in- stead is a positive construct of government. They have contested the strength and provenance of a deep-seated historic impulse to stake out individual rights in property with contrasting claims that the natural order is not of individual but of communal rights. 3 And they have debated the proper basis for and scope of rights to realty and to personal property, to intangible goods and to government largesse. Modern-day scholars con- tinue the arguments, drawing threads forward from hoary engagements to mix with more current assessments of the effects of inequality or of miscast incentives
Property Rights Systems and the Rule of Law, page 3 ________________________________________________________________________ Property and Property Rights Systems The word “property” does not strike the listener’s ear as a particularly abstruse term. We think we understand it instinctively. Property is a thing. Or things are property. But, of course, when we go to say anything more precise, to specify whose property a thing is, and what aspects of it are proprietary, against whom, for what purposes, we realize that property is not so readily self-defining after all.5 And if we think a bit more, we realize as well that property does not consist only of things, at least not only of tangible things. We call certain types of ideas – or at least certain forms of their expression – intellectual property and craft property rights in them. We recognize claims for money, for services that are equivalent to money, or for employment that earns money under the rubric of property rights.6 The line between property rights and other rights is a contestable line. This reflects the fact that the notion of property itself – what it is, how it should be thought of, who should have what property rights – has been a subject of controversy across centuries. Philosophers (along with economists, historians, and others) have argued whether property is something natural, existing prior to government recognition of rights, or instead is a positive construct of government.7 They have contested the strength and provenance of a deep-seated historic impulse to stake out individual rights in property, with contrasting claims that the natural order is not of individual but of communal rights.8 And they have debated the proper basis for and scope of rights to realty and to personal property, to intangible goods and to government largesse.9 Modern-day scholars continue the arguments, drawing threads forward from hoary engagements to mix with more current assessments of the effects of inequality or of miscast incentives.10
Property Rights Systems and the Rule of Law, page 4 Although the definition of property and delineation of the line between property rights and other rights is contestable, the core notion of property focuses on things, such as land, to which rights may be given as against the world. Where other rights often rest on the existence of some duty that is tied to particular behavior toward a more limited set of individuals, property rights tend to function as rights against the world in respect of the control,use, and disposition of things. And often those things are situated, physically or as the result of legal rules, so that a single set of government decision- makers will have influence over the value of property rights. That is the type of property-and the aspect of property rights- that is most important for inquiry into their connection to the rule of Property Rights Systems and the rule of la This paper tells the tale of two systems- but not truly two separate tales. Western de mocracies generally have adopted rules that are quite successful at limiting official dis- cretion to alter property rights in unpredictable ways, at promoting stable and secure rights, and at limiting governmental interference with the most productive uses of prop erty, including voluntary transfers of property to those persons who will pay most for (at least inferentially an indication of higher value). A legal system that allows individu- als to order their lives, their personal behavior, and their business conduct secure in un- derstanding the rules that will apply to them provides a critical spur to the investments of money, of energy, of talent that promote progress in human endeavor. Far more thaI natural resource endowments, sound law and government are markers for a society's suc- cess-both for its material success and for its citizens'broader sense of well-being 13
Property Rights Systems and the Rule of Law, page 4 ________________________________________________________________________ Although the definition of property and delineation of the line between property rights and other rights is contestable, the core notion of property focuses on things, such as land, to which rights may be given as against the world. Where other rights often rest on the existence of some duty that is tied to particular behavior toward a more limited set of individuals, property rights tend to function as rights against the world in respect of the control, use, and disposition of things.11 And often those things are situated, physically or as the result of legal rules, so that a single set of government decision-makers will have influence over the value of property rights.12 That is the type of property – and the aspect of property rights – that is most important for inquiry into their connection to the rule of law. Property Rights Systems and the Rule of Law This paper tells the tale of two systems – but not truly two separate tales. Western democracies generally have adopted rules that are quite successful at limiting official discretion to alter property rights in unpredictable ways, at promoting stable and secure rights, and at limiting governmental interference with the most productive uses of property, including voluntary transfers of property to those persons who will pay most for it (at least inferentially an indication of higher value). A legal system that allows individuals to order their lives, their personal behavior, and their business conduct secure in understanding the rules that will apply to them provides a critical spur to the investments of money, of energy, of talent that promote progress in human endeavor. Far more than natural resource endowments, sound law and government are markers for a society’s success – both for its material success and for its citizens’ broader sense of well-being.13