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Polity
Article by: Amy Witherden
Published: 02 Oct 2009
Respect for property rights equates to prosperity
Economic policy think-tank Free Market Foundation executive director Leon Louw says that there is only one formula for success. Countries that respect property rights are affluent, while countries that do not are backward and poor, he says, adding that there are no exceptions.

The concept of a free market is fundamentally linked to a high degree of respect for personal property. A free market is an economy in which property is protected and people are free to do as they wish with their property. Intellectual property is simply a property right founded on the principles of ownership and freedom of contract, says Louw,

A strong esteem for property rights is critical to a successful economy. People are, however, wary of intellectual property rights. Many think that these rights are a State-created monopoly of innovation, as one must register new ideas with a central authority to protect them. In fact, Louw says that intellectual property rights are simply a matter of contract. Innovators create conditions of sale to protect their ideas.

Property Rights and Developing Nations

Louw believes that developing countries are wary of intellectual property rights because of the supposition that they amount to the net transfer of money from developing countries to rich countries. He adds that such beliefs can only be harmful to developing nations.

Many third-world countries are hostile to property rights in healthcare, thereby chasing away investors in crucial healthcare products, such as medicines. Developing nations should encourage pharmaceutical companies to develop healthcare equipment and medicines for third-world diseases, such as tuberculosis, typhoid, malaria and HIV/Aids.

In South Africa, the government's original reluctance to reward pharmaceutical manufacturers by paying royalties on patented antiretrovirals (ARVs), resulted in the country obtaining cheap ARVs in the short term, but a disease without a cure in the long term. This is the danger of ignoring property rights, says Louw.

South Africa has since upheld its obligations in terms of intellectual property rights treaties.

Louw says that if developing nations are to encourage medical and pharmaceutical companies to work on third-world needs, they need to send a strong message that intellectual property rights will be respected and possibly offer an extended period of protection over a product to make it worthwhile for larger companies to bring their expertise into areas in which demand is weak and costs are high.

Those who do not value intellectual property rights are short-sighted and destroy the likelihood of future incoming technology by not respecting current technology, he adds.

Free Market and Regulation

There is strange notion that a free market and property rights are the domain of the rich. The Free Market Foundation supports the profit motive associated with capitalism, a free market and property rights, as it is in fact driven by what political economy pioneer Adam Smith called the ‘invisible hand'. Those driven by personal gain can benefit themselves only by promoting the needs of the masses, through job creation, improving the living standards of ordinary people and providing cheaper goods and services.

Conversely, says Louw, the same self-interest in government, leads to gains only for the elite.

It is the impulse of governments to overregulate economies, but their reasoning is not always benevolent, explains Louw. He adds that it should not be assumed that officials think it is a good idea to regulate. Administrators are well placed to see the negative consequences of their policies, he says.

For example, Louw says that in the National Credit Act, the law imposes huge costs on consumers, victimises the poor, drives credit away from those who deserve it, reduces the rate of saving and penalises thrift. He believes that government officials are aware of this, but are, in most cases, tempted by the promise of power and patronage.

Louw maintains that where governments regulate more, there will be inefficiency, corruption, poverty and stagnation, but where there is more economic freedom and respect for property rights, there will be prosperity, high growth and better living standards. He adds that government intervention is limiting and restrictive for growth.

Quoting Nobel prize-winning economist and advocate of free-market capitalism Friedrich Hayek, Louw says that governments can do more for the people by doing less.

Property rights should be left to the law of contract, he explains, as all forms of government intervention in an economy are essentially an erosion of property rights.

Louw advocates personal liberty and allowing people to interact freely under the rule of law in an economic environment, without government interference.