It’s hard to believe, but the only reliable recipe for creating widespread economic prosperity is over a quarter of a millennium old. Adam Smith, the Father of Economics, dashed it off in 1755: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice.”
For the most part, these instructions are as simple as those for baking chocolate-chip cookies, and the ingredients are too. Except for that last one – which can actually be pretty hard to come by, and having it makes all the difference.
The Chocolate Chips in the Cookie
Publicly provided police, courts, and laws are imperfect, but on the whole, government does a pretty good job of defining and enforcing “mine and thine”. What Smith called “a tolerable administration of justice” today, we might call “protecting people’s private property rights”. Private property rights are the source of wealth-creating incentives – the reason you find it worthwhile to deliver the economy what it needs – and the source of wealth-generating information – the reason you know what the economy needs in the first place. Private property protection isn’t just an ingredient in Smith’s recipe for economic prosperity; it’s the crucial ingredient, like the chocolate chips in chocolate-chip cookies.
So where can we find private property protection? How do we get it? Smith’s answer, and the answer of most contemporary economists, is from government. In the United States, for instance, publicly provided police, courts, and laws are imperfect, but on the whole, government does a pretty good job of defining and enforcing “mine and thine”.
Trouble is, globally, the United States is the exception in this regard, not the rule. Most governments not only fail to protect their citizens’ property rights; they do something worse: violate those rights instead. In the developing world, government itself is the chief source of property insecurity that citizens face. Injury, meet insult.
So what do you do if you want to make chocolate-chip cookies but they’re all out of chocolate chips? You substitute: maybe with M&Ms, maybe with walnuts. The cookies won’t be as good, mind you, but they might just be “tolerable” – at the very least, edible.
M&Ms Aren't Chocolate Chips, but They'll Do
This, in a manner of speaking, is what citizens do in some of the world’s least-developed countries. Where people can’t rely on government to protect their property, they find substitutes. The result isn’t widespread economic prosperity – at least not yet – but it is more prosperity than these citizens would otherwise have, which, when you’re trying to eke out a living day-to-day, can mean a lot.
What are citizens’ “M&Ms?” The answer might surprise you: often, it’s superstition – popularly held, scientifically false beliefs – like belief in the “evil eye,” deities, even witches. Superstitions are found everywhere, but they’re especially pervasive in the least-developed world. An important part of the reason for this is that, in these societies, “chocolate chips” – reliable, public institutions of property protection – are much harder to come by, making substitution with superstition much more common.
Any of these superstitions could help protect your property, and none requires dealing with corrupt public officials. Suppose you inhabited a community wherein public officials, if they were to find out that you had assets worth taking, might swoop in and do just that. In this environment, if your neighbor stole from you, you definitely wouldn’t want to take the matter up with “the law.” Do that, and whatever your neighbor didn’t take might be taken by the state instead. Damned if you do, damned if you don’t…
Unless your community is superstitious. Maybe its members believe strongly in a god, to whom theft is abominable, punishable in the afterlife with supernatural terrors. Maybe they believe in curses – convinced that devastating misfortunes will befall those who cheat. Or perhaps people believe in witches, who out themselves by misbehaving socially, and whose proximity to evil makes shunning them the only way to safely respond.
Any of these superstitions could help protect your property, and none requires dealing with corrupt public officials. It’s hardly magic: people’s beliefs, true and false alike, affect their incentives – their costs and benefits of behaving in different ways – which includes whether they respect other people’s private property rights.
Thus superstition has helped people who couldn’t rely on government to protect their private property rights do so nonetheless. Seemingly senseless, these beliefs actually make a great deal of sense – and can supply the crucial ingredient in Smith’s recipe for economic progress.
Reprinted from CapX