The effects of private property rights and state ownership on the allocation and use of resources

The right of ownership in an asset, whether by a private party or the state, is understood to consist of the right to use it, to change its form and substance, and to transfer all rights in the asset through, e.g., sale, or some rights through, e.g., rental. However, even though this definition suggests that the right of ownership is an exclusive right, ownership is not, and can hardly be expected to be, an unrestricted right. The right of ownership is an exclusive right in the sense that it is limited only by those restrictions that are explicitly stated in the law as it is interpreted from time to time. Such restrictions may range from the substantial to the minor. For example, on one hand, there is the serious case where an individual’s right of ownership in an asset cannot be transferred for a price higher than the ceiling price stipulated by the government; on the other is the situation where a land owner is constrained from building a fence within two feet of the property line. In general, then, it is important to recognize that the attenuation of private (or state) property rights in an asset, through the imposition of restrictive measures, affects the owner’s expectations about the uses to which he can put the asset, the value of the asset to the owner and to others, and consequently, the terms of trade. Because of these interrelations, the term attenuation represents a significant concept; when used in the paper, it will always signify the existence of some degree of restriction on the owner’s rights to: (i) change the form, place, or substance of an asset, (ii) transfer all rights to an asset to others at a mutually agreed upon price.

Finally, the point must be stressed that most of the restrictions discussed here are those imposed by the state. To argue for a change in the content of the right of ownership, therefore, is to argue for a change in the allocation of resources to which legal support is given. In other words, as Samuels has noted:

… opportunities for gain, whether pecuniary profit or other advantage, accrue to those who can use government… If income distribution and risk allocation is a partial function of law (of property) then the law is an object of control for economic or other gain… whether the instances be tariff protection, oil subsidies, real estate agents’ attempts to ban “for sale” signs on private homes or any other type of property rights[40].

The standard theory of production and exchange can be criticized for its somewhat limited applicability, but the approach has still been able to provide fundamental insights into the problem of scarcity.

Perhaps its most significant accomplishment has been to explain and assess the efficiency characteristics of competitive organisation.

Welfare theorists, in particular, have carried the discussion in useful directions and, on the basis of certain restrictive assumptions, have been able to establish the precise relationship between Pareto optimality and competitive equilibrium[41]. Property rights considerations have not played a major role in this literature, but understanding of the structure of property rights has direct relevance for the questions at issue. It can be shown, for example, that privately owned resources will always tend to be allocated to the highest valued uses.

Competition for and transferability of the ownership right in the market place thus perform two main functions for contracting. First, competition conglomerates knowledge from all potential owners - the knowledge of alternative contractual arrangements and uses of the resource; and transferability of property rights ensures (via flexible relative prices) that the most valuable will be utilized. Second, competition among potential contract participants and a resource owner’s ability to transfer the right to use his resource reduce the cost of enforcing the stipulated terms in a contract… because competing parties will stand by to offer or accept similar terms[42].

In general, the logic of competition (e.g., the heeding of alternative uses) suggests that a more complete specification of individual property rights diminishes uncertainty and tends to promote efficient allocation and use of resources. ⁵ Study of efficiency, then, necessarily involves understanding of the institutional background and the conditions under which transactions take place. By implication, the limitations of the traditional theory are traceable, in part, to the highly simplified assumptions made in this area. Specifically, the standard competitive model envisions a special system where one particular set of private property rights governs the use of all resources, and where the exchange, policing and enforcement costs of contractual activities are zero. While this conception of the business environment need not prevent useful analysis, it does have the effect of narrowing the range of phenomena that can be explained.

Regulation theory

Regulation theory is not a relatively coherent theoretical system but a `set of research approaches' that has evolved over the past twenty-five years. Its origins are in the France of the midseventies with its specific political, economic and theoretical climate (student and workers' movement, rising unemployment, dominance of structuralist Marxism) after the onset of economic crises in all advanced capitalist economies.

Marx's criticism

As a first step, we can understand the regulation approach as an attempt to reformulate Marx's critique of political economy in order to analyse the reasons for economic stability, or crisis, of a concrete social formation at a given period of time. On the one hand, it opposes a-historical, determinist or static interpretations, which dominated the Marxist discourse of the time. On the other hand, it rejects neo-classical economic theory on the basis of its premises and general assumptions: rational acting individuals, transparency of markets and, especially, the self-regulation of `pure markets' towards a general equilibrium. From this perspective, institutions appear primarily as obstacles in the process of self-regulation via markets. Regulation theorists, however, reject the idea of an automatic equilibrium, and emphasise the importance of economic and extra-economic institutions for the stabilisation of capitalist accumulation. Only the embeddedness in a network of institutions (ensemble of structural forms) can secure the stability of economic processes over a period of time; however, capitalist accumulation is `by nature' crisis-prone.

In this light, we can also describe regulation theory as a (Marxist) part of the debate within institutional economics. Or, if we approach it from the level of micro-economics or industrial sociology, we can call it -with a pinch of salt-a type of `Kern-Schale-Theorie' (`kernel-shell theory') on a macroeconomic or societal scale.

`Regulation theory' encompasses diverse and conflicting theoretical strands, which have become remodelled (extended, deepened or simplified), and combined with other approaches in social sciences, geography and economics. The regulation approach has been applied to a rising number of research areas at various levels of abstraction. It has found adherents and contributors in many academic communities all over the world. Some of its key terms have become quite popular, for instance 'Fordism' or 'Postfordism', and can be found in articles and contexts that have not much, or even nothing, to do with regulation theory.

Date: 2016-03-03; view: 676