Ever heard of the Stevenson Restriction Scheme?
My congratulations if you have, because even the most devoted aficionado of obscure trivia would be hard pressed to know of the plan to restrict output in Malaysian rubber plantations in the year 1922. The reason was because of a steep fall in demand for rubber, after the end of the First World War, and rubber plantation owners in Malaysia wanted to control output to ensure better prices.
Bad economics, sure, but as one might expect if one had a cynical bent of mind, the demand got passed, and output restrictions came into play. If you were a small plantation owner (and this was for that time in Malaysia a guarantee that you were not British), you could produce no more than 320 pounds per acre per year.
Where did this number come from? Well, large British owned plantations produced 400 pounds per acre per year, so if you made the seemingly reasonable assumption that smaller outfits would work with lower efficiency, say 80% of the British levels, you ended up with the 320 figure.
Except things didn’t go according to plan.
That’s one of the cornerstones of our lessons in economics here, and repeating it, ad infinitum, is one of my jobs.
One of the many reasons we say that incentives matter is because you are likely to do a much better job when you stand to gain more, or lose more, because of the quality of the job you do. If the money you get is directly linked to how well received your product/service is in the market, you are likely to do a better job.
Want a real life example of what I mean? Ask the next twenty people you meet if they have a BSNL/MTNL sim-card.
As Nicholas Nassim Taleb says, having skin in the game really, really matters.
Joe Studwell, in his book How Asia Works, tells us the story of the Stevenson Restriction Scheme, which is where I read about it first.
When the restrictions were announced, instead of being happy about perhaps getting higher prices as a consequence of restricted supply, there was near rebellion in British ruled Malaysia. Upon investigating the matter, an embarrassed government found out that Malay rubber plantation owners, in spite of working on far smaller farms with much lesser equipment, produced up to thrice as much as British plantation owners.
How? Well, they had skin in the game.
It was their plantation.
They had property rights.
Google tells us that the etymology of the word property comes from Latin, via Old French, and it means “one’s own”.
And if we, as students of economics are going to say that trade matters – and hell yes, it does – then we need to have something to trade, which means we need to own that which we sell, and which is why for economics to exist, property rights need to exist.
Except they don’t. Well, that’s wrong: they do, but they’re not fundamental, and it’s complicated.
Fundamental rights are those rights which are essential for intellectual, moral and spiritual development of individuals.
That’s the very first sentence from the Wikipedia article on Fundamental Rights in India.
There are, the article goes on to say, six fundamental rights:
- The Right to Equality
- The Right to Freedom
- The Right Against Exploitation
- The Right to Freedom of Religion
- Cultural and Educational Rights
- Right to Constitutional Remedies
Property rights, as it turns out, isn’t a fundamental right. It was, at one point of time, a fundamental right as per the Indian Constitution, but not as of today. As I said, its complicated.
LSE-trained socialist professor KT Shah sent a detailed note demanding abolition of all property rights, and provided no protection from takings. Shah wrote: “The Union of India shall be free and entitled to acquire any private property held by any private individual or corporation as may be authorized or permitted under the law.” At the other end of the spectrum was the liberal lawyer KM Munshi, a strong advocate of constitutional protection of property rights and limited government. Munshi suggested a Madisonian takings clause inspired by the American Bill of Rights, which placed significant restrictions on the ability of the government to take property. Somewhere in the middle were members like Ambedkar and Ayyar, who attempted to find a balance between individual rights guaranteed by the constitution against a passion of the government to pursue socialist welfare policies.
That excerpt is from the third essay in an eight part series written by Shruti Rajagopalan for Think Pragati, and all essays are worth repeated readings. Each of them deal with the evolution of property rights in India.
We had to choose, back then, if we wanted to have, or not have, the concept of property rights. If we had to have the concept of property rights, to what extent? Was it a fundamental right, or not? If it wasn’t to be a fundamental right, but was to be a right nonetheless, how should it be framed? The third essay in the series lays bare all of the debates that went into the making of Article 31 of the Constitution. Articles 12 to 35 make up part III of the Constitution. It is this section that speaks of our Fundamental Rights as Indian citizens, and so, in 1947, it was the case that the Right to Property was in fact a Fundamental Right.
But then came the First Amendment, which in effect changed our Fundamental Rights. Especially relevant to us, the following:
The Parliament of India noted that validity of agrarian reform measures passed by the State Legislatures had, in spite of the provisions of clauses (4) and (6) of article 31, formed the subject-matter of dilatory litigation, as a result of which the implementation of these important measures, affecting large numbers of people, had been held up. Accordingly, a new article 31A was introduced with retrospective effect to uphold such measures. Further, another new article 31B was introduced to validate 13 enactments relating to zamindari abolition.
If the Right to Property was fundamental, then you couldn’t take away the titles to land from those who owned them. How then to abolish zamindari and institutionalize meaningful land reform? And abolishing zamindari was seen as (and in my opinion largely was) a desirable thing.
By the way, without meaningful and reform, things simply don’t take off for a country is one of the fundamental lessons of How Asia Works:
Developing countries are not just little ships blown about on the developmental ocean by the winds of rich states. In agriculture they have a greater capacity to chart their own course than in any other sector of the economy because land policy is entirely a domestic affair. In this respect, land policy is the acid test of the government of a poor country. It measures the extent to which leaders are in touch with the bulk of their population – farmers – and the extent to which they are willing to shake up society to produce positive developmental outcomes. In short, land policy tells you how much the leaders know and care about their populations. On both counts, north-east Asian leaders scored far better than south-east Asian ones, and this goes a long way to explaining why their countries are richer.
These weren’t easy decisions to make. But, all that being said, there was some political maneuvering involved too:
The episode of the Provisional Parliament enacting the First Amendment deserves detailed analysis that has been overlooked by historians and legal scholars. First, it shows that there was a severe failure in terms of post-constitutional credible commitment. The Provisional Parliament was a little too eager to amend the takings provision and dilute the protection to the right to property. Political exigencies trumped constitutional principles. While this is expected to some extent by all legislatures, it is a shame that the provisional parliament, which was essentially the same individuals as constituent assembly in a different role, made this hasty move. It also goes to show that incentives matter. The members of the provisional parliament now faced different incentives in the post-constitutional world, where they had to contest elections. Populism must necessarily trump principle.
So, for reasons outlined above, the right to property was now Fundamental – except it really wasn’t, not quite.
Have you ever been on a diet, and resolved to not cheat, but ended up cheating just a little bit? And then thought to yourself, well, now that I’ve cheated, may as well cheat a little more – and found yourself an hour later with a recently emptied tub of ice-cream? Or savings that you resolved never to touch, except in case of emergencies, and then took out a little bit… you can see where I am going with this.
Well, so also with the Right to Property.
The First Amendment led, as Shruti Rajagopalan’s series informs us in painstaking but entertaining detail, away from the sacrosanct nature of Fundamental Rights. Then followed further modifications to laws pertaining to the right to property. If I understand the subject correctly, of particular concern were the twenty-fifth and the forty-fourth amendment.
Which brings us, ultimately, to Article 300A, which has replaced Article 31.
The most important thing to note about Article 300A? It is not a Fundamental Right. And it has created problems: cronyism and ineffectual land reform being just two of them.
Can India go back to having the Right to Property as a Fundamental Right? More than the legal hurdles, of which there would seem to be plenty, the biggest barrier is likely to be a lack of political appetite for such a reform.
The revival of the right to property has attracted relatively little attention in political and legal circles. Political rhetoric over property is much more muted than in earlier periods, partly because none of the leading parties have called for the redistribution of land or the nationalisation of key industries in recent years. Indeed, there has been some commentary calling for reversal of the Forty-Fourth Amendment, even though the right to property as it stood immediately before the Amendment was weaker than the right that has been constructed from Article 300A (and Article 14). The Amendment has even been the subject of public interest litigation: in Sanjiv Kumar Agarwal v. Union of India, the Supreme Court dismissed a petition for a declaration the Amendment’s repeal of the right to property was contrary to the basic structure. This was noted in the press, along with the Court’s recent declarations that property is a human right.
But assuming we can, should we? Niranjan Rajadhakshya says yes, and I wholeheartedly agree:
It is the poor who have the biggest reason to cheer a reinstated fundamental right to property. There are two reasons for this. First, the poor have neither the legal resources nor the political heft to fight laws or administrative orders that allow governments take over their land. Second, the poor do not have enough opportunities to make a living in formal jobs in case they are forcibly separated from their property. It is important to reiterate that the most resonant battles for property rights over the past decade have been fought by the poor rather than the rich. The showdown in Singur a few years ago is a useful case in point.
It is, to my mind, quite simple: economics means trade. Trade necessarily means ownership. And ownership necessarily means property rights. To the extent that one thinks trade is indispensable, property rights need to be fundamental.
And in India, they aren’t.
EconForEverybody 