[Market Economy Guide] Property Rights Are Fundamental to Economic Activity

“The Koreans in Joseon were lazy, while the Koreans in Primorye were diligent”

Checkpoint

Let us look into a figure named Isabella Bird Bishop. After seeing Koreans in late Joseon, Mrs. Bishop said, “This country has no hope.” But after seeing Koreans living in Primorye, Bishop changed her mind. Let us discuss why she changed her mind in connection with property rights.

In a society where private property is not recognized, the boundary between “mine” and “yours” is unclear, making it difficult to expect honest and fair transactions. Moreover, even if transactions do take place, one cannot expect the gains from them to be fully protected as “one’s own.”

Why Russia Is Poor

That is why, in a society where private property is not recognized, individuals’ rights to possess or use their own property are not protected, voluntary market transactions cannot develop, and economic growth cannot be achieved. This is precisely why Russia’s economic growth remained sluggish even after communism collapsed and capitalism was introduced.

After the collapse of the Soviet Union, many predicted that Russia would adopt a market economy and achieve significant economic growth. But the Russian economy remained stagnant for a long time, and economists identified the absence of property rights as the reason. Russia had long been a serf society under monarchy, and even after becoming a communist state, property rights were not recognized. This cultural background, they argued, made economic activity and growth sluggish.

Russia also has the structural contradiction that property rights are poorly protected because of organized crime by the mafia. So-called “protection crimes,” in which mafia groups plunder citizens’ property under the pretense of “protection,” are widespread. As a result, citizens inevitably lose the motivation to engage in economic activity, and for this reason it was difficult to expect economic dynamism in Russia.

Joseon and Primorye as Seen by Foreign Missionaries

The relationship between property rights and economic activity is clearly revealed simply by comparing the lives of Koreans living in Joseon with those of Korean migrants living in the Primorye region. Travel accounts left by past visitors to Joseon often draw attention because they point out the laziness and indolence of the Korean people. They said the people seemed lazy, with fields overgrown with weeds because they did not farm properly. Diligence and sincerity are traits traditionally regarded as representative virtues of our people, so why did such evaluations arise?

During the Joseon Dynasty, ownership of all farmland belonged to the state. As a result, the people had to pay high rents to the state, and even when they farmed well and produced abundant harvests, corrupt officials and local yangban would often descend upon them to borrow money or rice. But “borrow” was only a polite way of putting it; once they borrowed, it was common for them never to repay, and if the farmers refused the demand, they could instead be punished with flogging. Under such conditions, even successful farming could bring disaster, so peasants cultivated only enough not to starve. That is why Koreans appeared lazy and indolent to foreign observers.

By contrast, Korean migrants living in the Primorye region at the time are said to have farmed diligently, prospered in trade, and enjoyed comfortable lives. Why did the people living in Joseon and the migrants living in Primorye show such starkly different 모습을? At that time in Primorye, migrants who reclaimed land and achieved abundant harvests were granted the right to purchase and own that land. For this reason, although they were living far from home, Koreans in Primorye were able to own “their own land,” something they could never have dreamed of throughout their lives in Joseon. The harder they worked, the more they harvested, and the more they could expand their landholdings. That is why Koreans in Primorye farmed diligently and enjoyed more prosperous lives than those in Joseon.

If Property Rights Are Not Protected, People Do Not Work

In a society like Joseon, where property rights are not protected, people lose the motivation to work hard and are also likely to lose the will to engage in long-term activity. In the end, economic growth is difficult in such a society. In particular, in a socialist society where the state owns property, not only visible property but also invisible property—that is, even labor—is managed and controlled by the state. As a result, transactions among market participants are bound to be extremely restricted, and the quantity, quality, and even diversity of economic activity remain at a low level.

Sung-no Choi

President, Center for Free Enterprise (CFE)

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Original title: [시장경제 길라잡이] 재산권은 경제행위의 근본

Author: Sung-no Choi

Date: 2018-10-22

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=16&idx=11170