The Importance of Property Rights

Afghanistan FlagThe New York Times discusses the diversity of revenue streams which support the Taliban in Afghanistan. In recent months, US forces have begun to express doubt over whether a policy to damage the opium trade will really hurt their finances.

Surprisingly, lessons can be learned from Peru’s experience fighting the drug trade and the ‘Shining Path’ guerilla movement in the early 1990s. In that case, the forces aligned against the government drew their power from an unlikely source.

As principal advisor to the President at the time, the economist Hernando de Soto went about creating a system of formalising property rights in Peru. He realised that a major source of income for the Shining Pathwas their ability to enforce these rights, and arbitrate disputes between individuals. But once the government of Peru established the necessary institutions, they were able to do so as well.

It sounds simple, but it’s not. In many developing countries, property rights are extremely informal. The people in a village know who owns what, but not much beyond that. This informality can precipitate disagreements, which a central government can find difficult to settle.

As the government of Peru extended their rule of law around the nation, their people no longer found it necessary to house and support the Shining Path. Since the guerilla group relied on both financial and popular support, they were forced to respect the people’s wishes.

The knock-on effects of this included the elimination of the drug trade. Now they were just working for themselves, the citizens of Peru seemed relatively happy to move onto legal crops. The government gradually gained respect and extended its sphere of control. Meanwhile, lacking their major source of income in the drug trade, the Shining Path were financially crippled and eventually defeated.

The situation sounds very similar to post-conflict situations, such as Afghanistan. In the absence of an effective rule of law, insurgencies supplant government in exchange for a fee – all the while, this anarchy is fueled by drug money.

Could the same lessons be applied in Afghanistan then? The formalisation of property rights and proper enforcement by government could make the Taliban obsolete in the eyes of the many citizens who are currently reliant on them. In a recent visit to Trinity College, Hernando de Soto argued as much.

Indeed, President Hamid Karzai of Afhganistan actually approached the Peruvian economist a few years ago and a joint summit was held with his Ministers at the ‘Institute for Liberty and Democracy’, his think-tank in Peru. As it happens, their plan fell through – despite the positive results experienced in Peru and elsewhere under similar circumstances.

It seems to external observers that the situation is not exactly similar, though. The problem in Afghanistan don’t seem to stem from the absence of property rights, but the absence of government to enforce any order at all.

Consider the American mafias in the 1920s. It didn’t matter if the government respected property rights or not – they were just powerless to stop Al Capone shaking down some poor business owner for protection money. If the government forces in Afghanistan weren’t similarly powerless, everything else could follow quite easily.

But de Soto claims that the political element changes everything. If Al Capone was in charge of the Taliban, we would have a serious problem. But although the Taliban routinely intimidates the citizens of that country, they have to treat their supporters with some degree of respect.

The Taliban needs to maintain some degree of consent and support amongst the populace, or else risk a similar fate to that suffered by Al-Qaeda in Iraq (where a disgruntled population finally turned on them and initiated what became known as the Sunni Rising).

Thus, if the Afghani government formalised property rights and went about enforcing them for citizens, they could eat into the Taliban’s base of support. Remember that much of the nostalgia for the Taliban has its roots in their ability to enforce the rule of law – something which the corrupt government in Kabul has so far systematically failed to do.

Will people be averse to the government’s involvement, preferring the Taliban and the more profitable drug crops? Empirically elsewhere, they seem not to. But de Soto notes the costs associated with the drug trade – the chance that your son might be recruited to the insurgency and killed, the possibility that your daughter might be carried off by some mujahideen. Life is easier when you earn an honest living.

As noted in the article above, the opium trade is not the Taliban’s only source of income. But it is a considerable source, and it’s critically linked to its support amongst the population. This plan seems much better than taking drug crops from the people by force and fostering resentment.

Unfortunately, it relies on the same government which recently rigged an election. If he’s unwilling to respect the democratic rights, how likely is President Hamid Karzai to be bothered about respecting their property rights? More likely, he’ll continue to corruptly and poorly govern in the absence of a credible alternative. What a wasted opportunity.

Republished as “Property Rights, the Simple Solution to the Taliban’s Authority in Afghanistan” in Trinity News (16th of November, 2009).

© The Free Marketeer 2009



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