Protection of Property Rights

U.S. financial columnist William J. Bernstein analyzed how the U.K, the U.S. and France became wealthy countries in his 2004 bestselling book “The Birth of Plenty.” The four sources of the wealth he identified are scientific rationality, protection of property rights, the capital market, and advances in communications and transportation. The four occurred simultaneously for the first time in the world in Britain around 1820. France became the second as the four sources could not fully be developed due to regulations and transit duties imposed by bureaucrats, aristocrats and mercantilist governments.

Capitalism is based on a private property system and the system is maintained through property rights. Korean novelist Bok Geo-il said in his book “Capitalism As a Just System,” “The existence of property rights guarantees not only economic freedom but also political freedom. The lack of property rights leads to poverty, suppression and standardization as seen in a communist society.” The reform of state-owned companies and the rapid development of privately held companies are the cornerstone of the rise of China. The People`s Republic of China marked its 60th anniversary last year. The start of the reform of state-owned companies is a de facto recognition of property rights.

The Washington-based Heritage Foundation said the more economic freedom a country allows, the more its economy develops and the higher its per capita income grows. The conservative think tank ranked Korea this year 31st (69.9 points), nine spots higher than last year, in the 2010 Index of Economic Freedom released in January. North Korea ranked 179th (one point). The index assesses 10 sectors such as trade, labor, investment and property rights protection, and each sector is measured on a scale of zero to 100. North Korea got zero in eight sectors and five in property rights and anti-corruption each. Heritage, however, said most properties including land belong to the government and the judiciary is not independent in the communist country.

North Korea last month launched an investigation on properties held by South Korean companies around Mount Kumgang. This signaled the possibility of a freeze on the properties and contradicts Pyongyang’s announcement of a full-scale campaign to attract foreign investment. In an urgent situation, the North seeks foreign investment but easily changes its mind and talks about “confiscation and freeze.” The South Korean Unification Ministry said in a statement, “If property rights are not guaranteed, inter-Korean cooperation projects cannot be carried out. The violation of property rights will undermine all commercial transactions.”

Editorial Writer Hong Kwon-hee (konihong@donga.com)