“Capitalism is a social system based on the recognition of individual
rights, including property rights, in which all property is privately owned”
– Ayn Rand (1967b)
This chapter asserts the moral framework for this dissertation.
The core assumption is that common property is unacceptable because it
results in the “tragedy of the commons.” This chapter argues
that a system of private property rights under laissez-faire capitalism
is morally acceptable and a practical solution to pressing environmental
problems – a topic to be developed further in Chapter 3.
In their purest form private property rights allow individuals to acquire
and use their possessions as they see fit. A violation of property
rights occurs when property is taken by force or fraud, or when activity
on one’s property is restricted or harmed by another party.
The only restriction on the freedom to operate one’s property should be
that one must respect the right of others to do the same.
Ayn Rand’s “Objectivism” is an integrated philosophy that seeks
to defend individual rights, free trade and private property against the
moral claims of collectivists, including individuals who advocate the free
market simply on economic grounds (Peikoff 1991). The rest
of this section will outline that philosophy for the defence of private
property.
Moral defence of property rights and free trade requires agreement on what humans are, how they live, and their requirements for living. The two options that face any living creature at a given time are life and death. That fundamental alternative applies only to individuals, since they live and die individually. Value must be derived from life: “Value is something that which you act to gain or keep” (Rand 1964b). Value furthers life and rewards action. In so doing, it enhances life. For the ultimate standard of value, that which promotes life is good and that which threatens it is evil.
Humans are material creatures. They need food, shelter and clean water for sustenance. In this regard, humans are no different to other animals, but what distinguishes them is the capacity for reason. It is only through their use of the mind that humans are able to survive. Unlike other animals, humans are not born equipped with the knowledge to acquire sustenance. It is something that has to be learned through direct experience of the environment in which they live. “A plant,” said Rand (1964b) “can obtain its food from the soil in which it grows, an animal has to hunt for it. Man has to produce it.” The spin-off for humans is that we can develop complex ideas and means for survival unhindered by the simple reflex survival mechanisms evident in animals. Through the use of reason, humans are able to develop means of producing food, shelter, and the array of goods and services that are available today.
“Reason” said Rand (1964b) “is the faculty that identifies and integrates the material provided by man’s senses.” It is only by applying reason, that humans can survive. Humans must be able to identify what exists, and rearrange it to produce those physical values that will advance their lives.
The antithesis of reason is force. “The creation of the civilised world” according to Plato “is the victory of persuasion over force” (Skousen 1995). Force makes people accept a course of action they may not rationally agree with. In essence, use of force over-rides the faculty for human survival. The example of a father who pays a ransom to have a kidnapped child returned is an instance where force, or the threat of it, ensures that the money is paid, something that would not happen if they had asked for the money voluntarily.
Capitalism allows the free-exchange of private property for mutual benefit. As soon as force becomes part of the transaction, one of the trading parties is placed at a disadvantage and is unlikely to benefit from the exchange. A moral system that values life, and therefore a human’s means of survival, would outlaw the initiation of force in all of its forms. Theft, murder and taxation are all manifestations of force and, as a consequence, all actions of a government other than those that protect an individual against force (i.e. police, courts and defence forces) would be seen as undesirable.
Property rights must be protected by law, the most effective means of doing so have for long been through Common Law or its equivalents in other countries. Common Law is a general body of principle based rules that have been developed in the English legal system by the courts since medieval times. Common Law was the main source of law before the English Parliament dominated with its legislative activity. New Zealand’s legal system is closely linked to the English system, so the foundation principles of Common Law also apply in this country. Common Law dealt with violations of property rights through torts of nuisance. Violations of property rights including pollution were dealt with through judgements springing from such cases as Rylands v. Fletcher (1866). In that influential case, water stored on Fletcher’s property escaped and damaged Ryland’s mine, and Fletcher was found liable. Property rights were protected by Common Law until legislation began to override it through prescriptive zoning laws and bodies of law like the Resource Management Act (Cresswell 2000).
The right to do what one wishes with one’s property includes the right to sell or otherwise dispose of it without restriction. A society that respects the individual’s right to own private property, pursues violations, and upholds contracts manifestly has the necessary legal framework for a free-market to operate. A pure free-market involves a willing seller’s right to trade matter and things of values with a willing buyer. It does not involve taxes, subsidies, tariffs, prohibitions or legislated favours, all of which impact on an individual’s right to trade freely. A pure free-market is known as laissez-faire capitalism, where laissez-faire translates as “hand’s off” and particularly refers to absence of government intervention.
It is argued by Kelly (1995) and Singer (1994) that innovators thrive
in under a system of laissez-faire capitalism because “value judgements
that others place on their product arise from the interplay of supply and
demand” (Kelly 1995). In essence an innovator cannot tell what
people need from him or her without unfettered free-trade.
This contention is examined directly in this study.
No country has operated under a pure system of laissez-faire capitalism
although the United States after the War of Independence came close with
its system of private property rights and relatively free trade.
Before then, the monarch held tracts of land across Europe, and members
of the aristocracy were granted tenure in return for favours.
Elsewhere the collectivity could hold land, but private property was not
a recognised institution (Reisman 1998).
With the rise of socialism in the twentieth century there was a progressive
reduction in private property rights across the world. Even
in semi-capitalist states, private property holdings diminished in extent
and importance (Peikoff 1982). Moves to public property development
proceeded rapidly from the 1950s to the 1980s, but as western economies
faltered in the 1980s, administrations that would support free-market policies
were elected. Reagan in the United States, Thatcher in the
United Kingdom and Lange in New Zealand led governments that brought in
sweeping reforms, including privatisation of publicly held land and business
operations. In New Zealand, the selling of public assets has
seen a shift from arguably deficit-ridden operations to profitable businesses
(King 1991). Those who championed the free-market commented
on its economic efficiency but pro-reform parties in the three listed countries
did not enjoy wide support in the electorate, largely due to voters’ moral
concerns. Meanwhile, in Eastern-block countries the absence
of private property, the sanctity of contract, and the rule of law saw
the fall of communism. Ironically, as the Berlin Wall fell,
and the unhappy legacy of Eastern Block Communism was revealed (Courtois
et al 1999), so the free market, the antithesis of communism, was widely
seen as an uncaring regime.
Common property is a resource that is either owned by no-one, or
owned by a collective or the state. It has its origins in times
when the rule of law was partial, and there was no legal avenue to protect
accumulated property (Rand 1964a). Various statist regimes,
ranging from fascism to the mixed economy, have legislated against private
property (Reisman 1998).
The moral arguments for common property and against private property and free trade tend to take the form characterised by the slogan: “A hungry man is not free” (Marx and Engels (republished) 1948). A hungry man will claim he is not free if he does not have access to the food or water he needs. However, “freedom” in the political context does not mean freedom from reality. Rather, it means freedom from coercion. Any enforced right to food, education, or shelter neglects the fundamental question: “provided by whom?” The freedom to pursue one’s life and values cannot contravene another’s right to do the same. If access to food is deemed a right, then whoever is forced to give food away has lost fundamental property rights. Unpermitted access to the goods and services produced by others is in conflict with their rights because force is used, and force cannot produce value.
Reisman (1998) and Rand (1967a) argue that socialism, fascism, absolute monarchies, and the mixed economy support property held in common because, “they use it as means of state control and revenue gathering.” All such regimes have to deal with consequential issues relating to the “tragedy of the commons” (Hardin 1968).
In his widely read and discussed paper, Garrett Hardin (1915-) showed how common property leads inevitably to the unsustainable use of resources because it is in an individual’s best interests to extract more from common property where costs are shared amongst all users. Therein lies the tragedy of freedom in a commons. To get around it, Hardin argues that the practical solution is to either privatise or regulate use of a resource.
An example of a commons that was privatised is Jamestown, Virginia. When it was settled by Europeans in 1607 there was no private property; as the Virginia Company, the company that brought the settlers to America, owned it all. The settlement was a disaster, because more than 500 out of the first two shiploads of around 600 people died, largely due to famine (Bethell 1998). The soils were fertile and the seasons were favourable, but what was lacking according to Bethell (1998) was an incentive to work the land. All profits were taken from individual producers, and not enough was retained for sustenance. In response to the famine, in 1612 - 1613, all property was privatised among the settlers and the famine ended. “As soon as the settlers were thrown to their own resources” wrote historian, Matthew Andrews (Bethell 1998) “they developed an aptitude for all kinds of craftsmanship.”
An example of a regulated commons is in the fisheries, where an unbounded, common resource faced unsustainable harvest before a quota system was brought in. The United Nations sponsored the Law of the Sea Treaty (LOST), which established Exclusive Economic Zones and allowed nations to control their own fisheries resources. LOST was set up in 1982 to deal with the problem of international water being outside the jurisdiction of management (United Nations, 2000). That treaty has flaws (Bandow, 1994) but it allows nations to set their own quotas and access arrangements within a 200 nautical mile limit and has permitted countries like New Zealand to adopt a quota system tantamount to privatisation of the resource. Yearly estimates are made of the amount of fish available, and quota holders can take the proportion of that total that their quota allows. Quotas are tradeable to encourage efficient harvesting, and New Zealand is internationally recognised as leading the way in ascribing true value to its fisheries (Anon 1995).
Regulation of common property inevitably involves restrictions on resource use. If an administration is to avoid the tragedy of the commons, it may be necessary to set a maximum level of resource use, then divide it amongst users or recognised groups. Such a solution is not a form of recognition of property rights since the right of disposal rests with an administrator.
For a regulatory regime to be effective, bureaucrats have to simulate the free-market by estimating market values for goods and services in relation to demand. Reisman (1998) gives the example of bureaucrats in the centrally regulated economy of the former USSR operating a cash black-market in order to gauge supply and demand for farm products, so that they would know how much to produce.
Without a system of individual ownership, Hardin’s tragedy of the commons will inevitably occur, with civil strife and war the outcomes if resources are depleted. A system of public ownership of resources, with effective rules to prohibit free-for-all pillage can arrest the tragedy of the commons. At present this is the way access to much of the world’s water is controlled. A system of public ownership has, however, the disadvantage of making individuals subservient to the state. Public ownership means that new resources made available by individual human effort are taken away in contradiction to the mores of a society that values individual reason and responsibility. Public ownership of resources gives the ruling body power to determine who is allowed access to the necessities of life. For example, in 1932-33 farmers in the USSR had their food production confiscated by the government and taken to the cities, leaving them to suffer famine (Werth 1999).
Hardin (1968) rejects the commons as a sustainable system of resource
ownership, and Reisman (1998) rejects the claim that a regulated resource
allocation system is efficient and fair. Reisman’s solution
is the complete rejection of common property in favour of a system of private
property ownership.
Free trade is the most efficient system at producing wealth because
it rewards those who supply goods and services of a type and quantity that
customers demand. If resources are scarce then those who can
make the most value from them will acquire them by paying the highest price
(Reisman 1998). Many ex-proponents of common property now accept
the free-market as the best system purely on economic grounds.
A purely economic defence of a free-market assumes that the morality of collectivism is correct, albeit misguided in some respects. Roger Douglas wrote in Unfinished Business “…there will have to be an element of compulsion” for privately funded superannuation and healthcare (cited in Perigo, 1994). Compulsion in a free-market leads to a mixed economy and achieves socialist ends through capitalist means.
Often, those who defend free-markets on economic grounds accept the collectivist ideology but promote individualism and the free-market because they are best at achieving collectivist goals. “From each according to his ability, to each according to his need” in Karl Marx’s words (Marx and Engels 1948), and “Love thy neighbour as thyself” in the Christian doctrine (Leviticus 19:18). Both lie at the roots of collectivism, where individual rights are subservient to those of the state and, by extension, one’s neighbour. Private property and a free-market (capitalism) was described by Margaret Thatcher to be the most efficient means to producing wealth, but wealth should be produced to help one’s neighbour (cited in Perigo 1997). Helping one’s neighbour means low taxation, enough to pay for a modest welfare state. The defenders of free-market reform in New Zealand, ACT and the Business Roundtable, support this (Perigo 1997). However, such a stance means differentiation between those who advocate higher taxes and lower taxes is only a matter of degree and not a matter of principle. The result of economically defending the free-market is, again, a mixed economy that allows some free trade and is governed by regulated incentives and disincentives, such as in most western countries today.
An economic justification of private property would respond to Hardin’s “tragedy of the commons” (1968) by showing that humans, being self-interested, strive to achieve maximum personal gain from common property. That would inevitably lead to resource exploitation because the users are not responsible for it.
If property rights have long-term protection then the owner can enter into long-term decisions with some certainty. This is especially important when decisions relating to the environment have to be taken. If the owner is not assured occupancy then the resource is more likely to be stripped for its immediate values. Short-term leasehold land in New Zealand and Australia provides a good example, where farms such as Molesworth Station in North Canterbury were overgrazed because there was no incentive for the tenant to preserve the capital value of the station (NIWG 2000).
It has been argued by Bethell (1998) that desertification in the Arab world rose out of a lack of private property rights. Arab farmers allowed their stock to overgraze vast tracts of land, turning what had been productive farmland into desert. In contrast, Israel with its system of private property rights in the same area has been able to reclaim desert area for farmland.
The capacity to legally protect property is one way to avoid Hardin’s tragedy of the commons. By looking after property, and investing in it, the owners sees property increase in market value. Productive expenditure on farms, for example, may include the planting of trees for forestry. This will have a short-term negative impact on the profitability of the farm due to planting costs and land lost to other uses. However, farm value will increase because the trees will provide future income to the property owner when the trees are harvested. It is expectation of payment that encourages investment in trees on a property, something that would be unlikely to occur in a commons because the land could not be sold and the trees can be harvested by anyone claiming right of access to the common property.
Hardin does not advocate private property in all situations. Rather, he agrees with the use of regulation and governmental force to halt destruction/despoliation of common resources. Regulation would prevent the tragedy of the commons because government would be able to impose penalties on those who do not observe its decrees to protect common property. However, he said that regulation requires a government to have a high level of knowledge about the resources it administers, and that is unlikely to match the local knowledge of farmers and other users of land-based resources. Regulation takes away the incentive for users to manage a resource for themselves and, more importantly it removes the price incentives to do so. The person who gets a free resource, and who is not permitted to trade it, has little incentive to increase its value. It is the capacity to trade property that common property management regimes cannot simulate. Only private property ownership can reveal the market value of a resource and encourage efficient use of it.
The proponents of political and economic reform in New Zealand, such as Business Roundtable and the ACT political party, have defended privatisation and other free-market reforms on the grounds of economic efficiency. They argue that private property rights and free trade bring overall prosperity because individuals are more productive and spend money in a wiser fashion than the government (ACT 1997).
In New Zealand, Prime Minister Lange halted free-market reforms after four years with his “cup of tea break,” while National supported one year of free-market reforms before stifling Finance Minister, Ruth Richardson. Paradoxically, the outcome of 15 years of political reform in New Zealand has been an increase in state intervention. The tax take as a percentage of GDP was higher at the end of the National Government’s term in 1999 than it was before free-market reformers assumed power in 1984. More regulation (3600 pieces) and legislation (1600 Acts of Parliament) were passed during those 15 years than in any comparable period before then (Darnton 1998). Some commentators (Coddington 1998, Perigo 1997, Cresswell 2000) have argued that private property rights have been eroded in New Zealand through the Resource Management Act (1991), a piece of legislation brought in under free-market governments that requires permission from the state before many forms of development can take place on private property. Such statist measures can be implemented if the pro-reform parties focus on the economics of capitalism and conclude that it is the right system because it is the most productive.
Dislike of private wealth in New Zealand, and the fact that the recent parliamentary reforms have never enjoyed a popular mandate, lead a former television broadcaster (Lindsay Perigo, 1997) to write “If there has been a revolution in New Zealand, it hasn’t been inside their [i.e. the citizen’s] heads.” My contention is that for a free-market system to be accepted and implemented, it must not only be economically sound, it must also be demonstrated to have a moral base.
Property rights are human rights. In order to act in a free manner, an individual must have ownership over the material objects that he or she wishes to use. Property rights derive from an expanded concept of ownership whereby individuals own their own bodies and therefore everything they produce. A system of tradeable private property rights provides the freedom to live in a society without the use of force. Any exchange of property is voluntary because both parties must agree to the deal before it is finalised.
The next chapter will investigate the application of private property
rights to water.