INTRODUCTION
Fifteen years ago, I was an LLM student at New York University School of Law, sitting in a large classroom for a course on law and development, which was taught by Frank Upham. I knew a bit about the economic miracle in Taiwan and elsewhere in East Asia. I was amazed at my JD classmates’ experience in undeveloped countries. I was also impressed with Upham’s language skills—other than English, he can speak Mandarin Chinese, Japanese, and French very fluently. With an uncanny eye for real-world situations, language skills to do first-hand research, and a willingness to think differently, Upham guided students through the different development hurdles around the world. Looking back, I did not know at the time that I would become a property scholar, not to mention studying property law around the world. It is now a happy surprise that the Law and Social Inquiry invited me to review Upham’s (2018) book, The Great Property Fallacy, which, in a way, sums up his life-long thinking on law and development.
Economic development of nations is a huge topic that attracts a wide range of different perspectives. Nobel laureate economists Abhijit Banerjee and Esther Duflo in Good Economics for Hard Times (Reference Banerjee and Duflo2019) and Poor Economics (Reference Banerjee2011) focus on economic factors such as the misallocation of resources and the usual macroeconomic factors like trade openness. Economist Daron Acemoglu and political scientist James Robinson (Reference Acemoglu and Robinson2012), in Why Nations Fail, focus on political institutions. New institutional economists, such as Ronald Coase (Reference Coase1988), Douglass North (Reference North1990), and Harold Demsetz (Reference Demsetz2008) (the first two are Nobel laureates and Demsetz deserves the prize, too, in my view), in a somewhat broader context, focus on both formal and informal institutions. Law and development scholars, instead, understandably are interested in the role of formal law in development.
When it comes to studying the driving force for economic development (rather than development in other social dimensions), many contributors to law and development are economists. Rafael La Porta, Florencio López-de-Silanes, Andrei Shleifer, and Robert W. Vishny’s trailblazing works in the late 1990s and the vast number of works that follow explore whether a country’s adopting common law versus civil law impacts their long-term growth (La Porta et al. Reference La Porta, López-de-Silanes, Shleifer and Vishny1997, Reference La Porta, López-de-Silanes, Shleifer and Vishny1998). Hernando De Soto (Reference De Soto2000) also famously champions law as the most useful instrument of change. For those who focus on the role of law, some emphasize the role of constitutional regimes such as separation of powers and freedom of the press or the rule of law more generally (Davis and Trebilcock Reference Davis and Trebilcock2008). Some scholarship, like the book reviewed here, focuses instead on whether formal property rights contribute to economic development.
The thesis of The Great Property Fallacy is clear from literally page one: the development theories initiated from the works by new institutionalists are broad enough to accommodate both formal and informal institutions, but later practitioners focus too narrowly on formal property rights (which Upham uses interchangeably with legal property rights). For Upham, the fact that formal property rights are a necessary—not to mention sufficient—condition is the great property fallacy. China’s economic success in the past four decades is a prime example of the fact that economic growth is possible in the absence of formal property rights. The Chinese case is the focal example of my review. I reflect on this thesis in the first two sections.
For Upham, the mainstream development theory is flawed also because it implicitly assumes that, before the establishment of development-facilitating property rights, there had been no formal property rights—perhaps Demsetz’s (Reference Demsetz1967) vivid example of the spontaneous emergence of property rights among Indians over beavers is just too memorable. Using the transformation of property law in England, the United States, and Japan, Upham (Reference Upham2018, 2) points out that old regimes of property rights existed before the new regimes of property rights, which became the engine for growth; thus, the rigid enforcement of property rights may prevent, rather than foster, growth. Moreover, the property right holders of the old regimes become losers during the transformation. Put differently, these changes in property law may be Kaldor-Hicks efficient, but they are not Pareto improving. With so many attempts at reforming formal institutions in underdeveloped countries, which have often led to failures, no doubt many changes in property law have been Kaldor-Hicks inefficient. I reflect on this point briefly in the third section.
PROBABILISTICALLY NECESSARY CONDITIONS
Upham (Reference Upham2018, 95) argues that formal property rights are neither a necessary nor a sufficient condition for economic development. My first critical reflection is that, even if formal property rights are neither, it does not mean that they are not useful at all for development. I am a quantitative empirical legal scholar, whereas The Great Property Fallacy does not rely on quantitative works—indeed, there are barely any statistics in the book. Quantitative empirical works now are keen on using research designs that can identify the causal effect of a treatment variable. Here, the treatment (independent) variable of interest is formal property rights. Quantitative empirical works do not assess whether the presence of a feature always leads to certain outcomes; instead, they assess whether, other things being equal, the presence of, say, formal property rights would increase the probability of economic growth (Chang and Wang Reference Chang and Peng-Hsiang2015). Put differently, the presence of formal property rights may on average increase the extent of development, but the average treatment effect may mask the lack of impact of formal property rights on some occasions. China may have grown in the absence of formal property rights, but formal property rights may be useful elsewhere. That is, protecting formal property rights may make a difference but not in every case.
Moreover, quantitative research often uses interaction terms in regression models, and interaction terms, as a concept, are useful in thinking further about the role of formal property rights. Plainly, interaction terms aim to capture heterogeneous effects of a variable under different conditions. As Upham (Reference Upham2018, 1) points out, “the role of property rights in growth is contingent on the surrounding social, political, and technological context.” For instance, formal property rights may be a catalyst for economic growth in a loose-knit society, but they are redundant with a strong social norm of respecting others’ title claims. While the prior literature may be too strong in asserting the necessary role of formal property rights, The Great Property Fallacy seems to brush aside formal property rights too fast. Moreover, as Weitseng Chen (Reference Chen2015, 96) points out, the function of property rights in the initial stage of development may differ from that in the later stage.
From a quantitative scholar’s viewpoint, the limits of relying on a small number of case studies are that the case studies may all fall into the group in which formal property rights (or any treatment variable of interest) are not effective, whereas observing another group may lead to a different conclusion. As a scholar who has used mixed methods, I believe in the value and complementarity of both quantitative and qualitative works. Upham’s case studies provide rich contexts, but they cover only a tiny fraction of the developmental scenarios that humans have experienced. Cross-sectional and time-series quantitative studies have the potential for covering a lot of ground, but past research has been too hasty in making causal claims.
WHAT IS PROPERTY?
While doing causal inference with comparative law data is extremely difficult, it is worthwhile to conduct a thought experiment here. Assume that a quantitative scholar plans to collect data to tease out whether formal property rights drove economic growth. The first step is to design the codebook for the key treatment variable—formal property rights. The Great Property Fallacy highlights the “definitional” problem of property. Lawyers and institutional economists apparently have different ways of using the term “property.” Upham puts the definitional problem in context but does not offer a crisp, alternative definition of property. I was left wondering, under Upham’s or institutional economists’ definition, does China, finally having promulgated a Civil Code in 2020, have formal property rights now? In the 1980s, China enacted two statutes on contract law and a barebones civil code. Why can they not be counted as recognizing formal property rights (Chang and Xu Reference Chang and Ke2018)? The answer, for an institutional economist as recounted by The Great Property Fallacy, depends on whether the property system is functioning. This does not offer the level of precision that would be required to code property law for quantitative analysis. If the law and development literature cannot come to an agreement on how to define (and code) formal property rights, scholars may easily be talking past one another in debating their role.
What is more, I contend that the term “property” is ambiguous even among legal scholars. Putting aside the debate on whether property is a bundle of sticks, what is the scope of property? Many scholars agree that property is in rem (that is, good against the whole world), but the shadow example is almost always land and sometimes chattels. The draft Restatement of the Law Fourth, Property stipulates that intangible property is property (§1.1.1.2) and, according to the comments accompanying this section, intangible property includes “a stock, bond, note or account receivable, franchise, license or permit, demand or time deposit, certificate of deposit, share account, share certificate account, share deposit account, insurance policy, annuity, pension, cause of action, contract, patent, copyright, trademark, and goodwill.”Footnote 1 Thus, contract, among others, is (intangible) property. But contract, if anything, is in personam (that is, against specific persons, usually the other contracting party), not in rem. If this is the case, property is not always in rem.
One may ask: why can property not be narrowly defined, to make it always in rem? In the American context at least, the answer may be the Fifth Amendment. Under a broader interpretation of the takings clause and the due process clause, property is not just land or other tangible things. At least some would understandably contend that adopting a broad definition of property in constitutional law and a narrow definition of property in private law causes confusion. Fine, but when lawyers rely upon the constitutional (broader) definition of property, the domain of property for lawyers converges with that for institutional economists, who often fail to distinguish between contractual rights and property rights.
The discussion of the takings clause also brings out another dimension of the role of property rights in economic development: private versus public property law. By private property law, I mean formal legal norms that delineate the scope of property rights among private parties, while by public property law, I mean formal legal norms that stipulate when the state can condemn or regulate property rights. Are private property laws necessary or sufficient for economic growth? As Robert Ellickson (1991) suggests, (informal) social norms may fill in the void of, or even replace, formal legal norms, and the former may be more efficient. Still, clear private property law may increase the probability of economic growth. In Peru, real estate registration enables household members to go out in the day for work, instead of staying at home to protect the turf (Field Reference Field2003). In Taiwan, during the Japanese colonial period, real estate registration incentivized farmers to make long-term investment (Koo Reference Koo2011).
That said, my prior work demonstrates that private property laws contained in Civil Codes resemble one another to a great extent (Chang, Garoupa, and Wells Reference Chang, Garoupa and Wells2021). Several former French colonies in Africa still largely adhere to the Code Napoléon, and their private property law doctrines are similar to dozens of countries that have emulated the French Civil Code, and yet their levels of economic development diverge. For some property issues, it is important to have a solution, but any solution would do. Thus, even differences in the substance of private property law are unlikely to be the underlying reasons for the divergence of economic development. Hence, private property law may indeed be largely irrelevant to economic growth.Footnote 2 I am with Upham here.
By contrast, informal norms are less likely to constrain the power wielded by the state. The Chinese court may be weak when one party is the state (Mao and Qiao 2021), but it more resembles an independent judiciary when both parties are private persons. China has had formal private property law since the mid-1980s, but whether it has established satisfactory formal public property law is debatable. The Great Property Fallacy draws on Shitong Qiao’s (2017) fieldwork in Shenzhen to argue that the informal (or quasi-formal) “small property rights” can be traded in a robust market exchange. The more important point, I think, is that housing with “small property rights” is built and traded not because owners do not have to worry about trespassers but, rather, because owners do not have to worry about the Shenzhen government actually enforcing the formal law against housing with only “small property rights.”
Hence, perhaps whether China (or other countries) has a Civil Code is not the point. One hypothesis is that what gives domestic and foreign investors pause in developing countries is the lack of clear and enforceable public property law. China’s economic success has been predicated on the government’s refraining from interfering with people’s choice. The household responsibility system has worked because the state no longer forces farmers to work and produce in communes. As discussed in The Great Property Fallacy, rural land in China cannot be fully developed unless first condemned by the state, converted to developable state-owned land, and then (use rights) sold to developers. Think about a counterfactual world in which Chinese villages could, with the permission of provincial or central governments, choose to sell all or part of the collectively owned land to developers who offer the best deal. Would China’s economic growth become faster? My hunch is that formal public property law that reduces under- or un-compensated (regulatory) takings should make economic growth more likely. I do not think Upham would disagree.
ALL THAT GLITTERS IS NOT GOLD
Limited by space, I can only briefly lay out my final point. Upham makes an important point that property rights do not always evolve from a vacuum into an efficiently allocated state. Sometimes, existing property systems are inefficient. To generate economic growth, old property rights must make way. Thus, property rights cannot always be stable and static. Taisu Zhang (Reference Zhang2017) demonstrates that the spontaneous Confucian social order was intertwined with the ancient Chinese property system, and the dian, the idiosyncratic property form that emerged as a result, may not be the form that a country vying for economic growth needs (Ellickson Reference Ellickson2012). The rub is that it is often hard to know in advance whether and when an existing property form becomes obsolete. After all, there is a hot debate on whether fee simple absolute is inefficient. As The Great Property Fallacy shows, there are still puzzles in law and development. The inquiries must go on.
CONCLUDING REMARKS
The Great Property Fallacy combines cases from both the East and the West. For a scholar who grew up amid Taiwan’s “economic miracle,” economic development appeared to come easily and naturally, until Taiwan’s gross domestic product growth rate, like that in Western Europe and the United States in the past, leveled off. The lesson of The Great Property Fallacy is that development is not easy to come by—nations often fail, and even those that have succeeded do not necessarily know what they did right. A fallacious theory that, say, formal property rights are necessary only does developing countries a disservice. It is thus important to continue the dialogue. Looking forward, I believe that both qualitative and quantitative studies are important. We need case studies on the role of property law from more countries and preferably from different developmental stages. Eventually, these case studies can be transformed into multiple observations in quantitative studies so that key institutional features can be better controlled for. As property scholars, both Upham and I would hope that formal property law is up to something, but it cannot be right for policy makers in international organizations to impose certain property regimes that are only spuriously useful.
