This is a speech by Professor MAO Yushi at China’ Real Estate Owners' Summit that was held on June 9th in Tianjin, China. Translated by Mr. MA Junjie, Project Researcher at Unirule Institute of Economics.
It is essentially important to protect private property rights. However, it is difficult for people to recognize the importance, but rather easy for them to violate others’ property due to the appeal of doing such a thing. As a result, violations of private property rights are frequently taking place.
Therefore, I think the protection of private property is utterly important.
The first point I’d like to stress is a quotation from John Locke, that is, property should not be owned by the public, and power should not be vested by private individuals.
Why do we talk about the ownership of properties? Because it involves the origin of wealth.
We used to believe that labour created wealth, which is now obsolete. It is since China’s opening-up and reform that our labour has begun to create wealth, thanks to the market.
Hence, in different context, labour can either create or eliminate wealth. What is really the origin of wealth then? I believe it is the good allocation of resources.
To put it in a simple way, wealth is only created by putting people’s talent and things into good use, without much waste.
The way to do it is through free trade. For example, China imports crops from the US. This trading process changes resource allocation in both countries. The cost is high in China and low in the US. Given constant aggregate output, when the country where the cost is high reduces its production, and the country where the cost is low increases its production of crops, the total cost is reduced.
In this way, trade creates wealth, or to say, resource allocation creates wealth.
The proper resource allocation is the reason for wealth creation, instead of labour. Similarly, entrepreneurs create wealth, not workers.
The exchanges create wealth. It is very different from gambling, where the winner takes all. Trade is where both the sellers and the buyers benefit and wealth gets created in the process.
China used to require all its provinces to guarantee self-sufficient supply of food, and trade between these provinces were prohibited. This sounds good, but the policy is wrong.
Now that the global trade and globalization provides a stage for mutual benefit from all trading countries advantages, wealth is created. Free trade has been a common sense for all countries in the world.
Exchanges also create wealth, but the premise of exchanges is the establishment of ownership. There will be no exchanges when there is no ownership. Essentially, we are exchanging ownership of properties when we trade with each other. Therefore, I said the premise of exchanges was the clear establishment of ownership.
In a society where the ownership system is full of vagueness, thieves and robbers thrive. If we have very vaguely defined ownership, we leave the door open for bad people. They would take advantage of the system when the ownership of things cannot be clearly defined, and make a fortune.
If the ownership of property is vague, the society would be amoral. It would be a society of everyone for themselves, the production relation would be that of exploitation, deprivation, and occupation.
Therefore, I think private property right is the god of morality. Only when there is clearly defined and universally recognized property rights would there be a moral society.
There have been radical changes in property rights in China. Right after 1949, the land property rights of land owners were deprived, then there was urban collectivization or public-private partnership that was a violation of the property rights of business owners in cities. Later, there was the people’s commune system that disrupted all property rights and led partially to three years of famine.
After the opening-up and reform in 1978, China adopted a new economic political model that canceled the people’s commune system, and established the household property rights. These policy measures helped solve the food shortage. There has never been food shortage ever since.
Putting the two periods into comparison, we would see the importance of private property rights.
Let me give you another two examples to show the evil of disrupting private property rights.
Zimbabwe used to be a beautiful and abundant country. It had a strong economy, and people’s livelihood was satisfactory. After it won independence, new leaders took office and chose to be dictators. They despised law, and redistributed the land of the white people to their revolutionary comrades, disrupting the land property rights.
Ever since then, the economy of Zimbabwe plummeted, and it became a bad example for economic incompetence. The inflation rate was skyrocketing. At last, the national currency went insolvent, and US dollars took over the market.
Another example is Venezuela. Its oil reserves are bigger than that of Saudi Arabia. You would’ve thought Venezuela must be a wealthy country. However, the dictators interrupted the economic rules. They even determine the prices in a super market, leading to the fleeing of super market owners.
Venezuela is the most unlucky country in the world with very high unemployment rate, high criminal rate, and high inflation. This country goes default on its own debt in the international community, which sacrificed its credential.
Take a look at China then. Our agricultural efficiency has always been pretty high. When the Qing government signed unequal treaties with foreign countries, the debt it owed were ultimately shouldered by farmers due to the less developed industries and commerce. Our farmers were strong and productive. They managed to last the Qing government some time under heavy stress of territory cession and indemnity.
During the Japanese Invasion, there was no pandemic famines or the collapse of agriculture when the Japanese invaders were scraping food. Farmers maintained the food supply during the war. It showed the the agricultural efficiency was high and sufficient to supply for people’s basic needs.
In fact, by 1954, there had been shortage for meat, poultry, milk and eggs supply, and it lasted for over 30 years.
Some people worry that even though free trade is good, what if there is an embargo? It is irrelevant. Taking North Korea for an example. North Korea is in a lot of trouble in many ways, but due to humanitarian reasons, there has never been an embargo on food.
The most profitable businesses in China are state owned, such as the financial sector, telecommunication, power supply, and oil, etc. Common citizens are not allowed to invest in these industries, which makes them to invest in the real estate market, pushing up the housing price.
How to get rid of the housing bubble then?
One way is to allow citizens to invest their capital in the monopolized industries, the profitable ones.
There were two economic booms in China’s economic history, and both were the results of thoughts liberation. The first one was the third plenum of the 11th CPC congress, and the second was Deng Xiaoping’s south tour. Both times worked wonders and enhanced China’s International competence.
Now we need another thoughts liberation, that is to liberate ourselves from the false belief in public ownership.
Lastly, I would like to talk about the economic goals for China.
There are two goals, one is to create wealth, the other is to distribute wealth.
Distribution without creation would lead to chaos. Regarding this, China’s has done well. I would like to emphasize the second goal. I mentioned earlier that protection of private property rights was very important, because it was very appealing to deprive other people of their properties. If the wealth of someone is easily taken by others, and there is no guarantee for the protection of rich people’s wealth, how would anyone dare to be rich?
Although everyone wants to get rich, but since rich people get robbed all the time, no one would dare to be rich. That leaves the country full of poor people.
Now it is less and less likely for rich people to get robbed. That’s why we say it matters to protect the rich and help the poor. And to help the poor to get rich eventually.