Economic Freedom & Property Rights

Libertarians and other free-market advocates agree that protection of private property rights is essential for economic liberty and prosperity. Yet none of the various freedom indices take property rights into account when comparing economic freedom in one country, state, or province to another.

For example, the only measure of property rights in the Fraser Institute’s index of world economic freedom is the “regulatory cost of the sale of real property.” But that doesn’t begin to scratch the surface of property rights. What about the regulatory cost of the use of real property? What about regulatory limits on such use? What about the ease with which government can take property by eminent domain? All of these are much more important than the cost of selling property, yet are ignored by the index.

Last month, the Fraser Institute released its latest index of economic freedom for North America, comparing U.S. and Mexican states and Canadian provinces. Like the world index, this one does not measure property rights. Instead, it focuses on the size of government, taxes, and labor markets. The results are sometimes very different from an index of property rights.

In the United States, for example, Washington and Wyoming are tied in economic freedom scores. Yet property owners in Wyoming have far more freedom to use their property than those in Washington. In fact, I would put Wyoming among the ten freest states while Washington is among the ten least-free states.

In Canada, Fraser ranks British Columbia as having the second-highest level of economic freedom, right after Alberta. Manitoba and Saskatchewan are both ranked far lower. From a property rights view, however, Manitoba and Saskatchewan are at the top, even above Alberta, while British Columbia is at the bottom, even below Quebec.

To the extent that property rights are even mentioned in these indices, they are lost in a variety of issues that are at best proxies for economic freedom. For example, the Fraser study uses union density as a proxy for labor market freedom. The North American index measures such things as the cost of starting a new business and legal protection of property rights on a national basis and does not break then down by state or province.

Yet there are several ways of measuring property rights that ought to be incorporated and heavily weighed in these studies. For example, there is a wide variation among the states for how easy it is for a state or local government to take property by eminent domain. There is also a wide variation over how much regulatory power counties have over rural landowners. At one extreme, Oregon requires counties to prohibit rural landowners from developing their property except under very strict limits, such as an 80-acre minimum lot size. At the other extreme, Texas doesn’t allow counties to regulate private land except to protect riparian areas.

How much time does it take to buy land, get a permit, and build a house in an area zoned for housing? In Texas, it can take 120 days; in California, more than five years. How easy is it to buy 1,000 acres or so of bare land and subdivide it for housing and other uses? In Texas, there are virtually no obstacles; in Oregon it is virtually impossible.

One extreme form of regulation is government ownership of most of the land, which is the case in Alaska, Nevada, and some Canadian provinces. It may also be true in some Mexican states, while in Hawaii nearly all of the land is owned by either the government or a few oligarchs. Such situations are virtually feudal in nature and can create artificial land shortages even though there is plenty of land.

Gathering all of this information for every state and province might be tedious, but the Fraser Institute is willing to use proxies to measure some of its indices. The obvious proxy for property rights regulation is housing prices. No Canadian province or American or Mexican state has a shortage of land for new housing. Yet housing prices, either by themselves or relative to incomes, vary tremendously. Nearly all of this variation is due to government control of the land either through ownership or strict land-use regulation.

Without accounting for property rights, any measure of economic freedom is missing what may be the most important component of freedom. The Fraser Institute and others who compile these measures should use property rights in their next editions.

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2 thoughts on “Economic Freedom & Property Rights

  1. LazyReader

    I’m certain beyond a shadow of a doubt, they want land to be “Scarce” in California, if land suddenly became massively available those mansions in Los Angeles would collapse in price. And all that equity sunk into a house with gold toilets and drywall made of endangered rhino horn (okay that I made up).
    But the same can be said for a lot of those McMansions out West…………..Yes I used the M word. If it’s more than 2,700 square feet and has a finished basement…….it’s a McMansion. If it looks like a castle burger joint………it’s a McMansion. If the kitchen looks like the set for a Food Network or Public TV cooking show………it’s a McMansion. If no one cooks in that damn kitchen……it’s a McMansion.

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