Undermining property rights and individual liberty is economic suicide – as Europe’s former communist states are finding out
The absence of corruption and the presence of the rule of law and property rights (for all forms of assets, physical and financial) are taken for granted in the UK. We tend to think that the protection of property rights is only a problem in countries such as Zimbabwe or Venezuela.
As a result, we fail to realise that huge levels of corruption are a fact of life on our doorstep in Europe, for countries such as Romania, Lithuania and Hungary. Decades of communism made corruption an institution. The 25 years since the fall of the Berlin Wall have simply made corruption more profitable.
According to surveys of those admitting to bribery, the UK is the least corrupt country in Europe, with only one in 100 citizens saying they regularly paid bribes (I was surprised even 1 per cent admitted to it). The comparable figure for Hungary is one in five and for Lithuania it is one in four. Romania is the most corrupt country in Europe, with one in three citizens admitting to regular bribery.
This matters, it really matters, because of the economic, political and harrowing personal consequences of corruption beyond just bribery. From an economic standpoint, undermining property rights is playing with fire. Without strong property rights the foundations of capitalism are built on sand, because investors are denied the fruits of their investment. A lack of property rights is the economic equivalent of declaring war. Why would you invest in something, which could be forcibly removed or destroyed?
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Property rights have been likened to the oxygen of an economy. As a general rule, the difference between poverty and prosperity is property. Nations prosper when private property rights are well defined and enforced. And when they’re not, economies begin to die. At the very least property rights are a necessary but not sufficient condition for prosperity.
There is powerful empirical evidence showing property rights are a critical factor in explaining economic performance. Per capita GDP is twice as high in nations with the strongest protection of property rights. Countries with a very corrupt judicial system are also very poor – on average.
Property rights are foundational to political freedom as well. Nobel Laureate Milton Friedman argued that property rights are “the most basic of human rights and an essential foundation for other human rights”.
Perhaps most damaging of all are the personal testimonies of those who have been the victims of state sponsored corruption. I recently became aware of the case of Alexander Adamescu, a German national, whose father Dan Adamescu (a hugely successful entrepreneur in Romania) has been thrown in jail in Romania on trumped-up charges. Anyone familiar with this case becomes very angry, not just for Dan Adamescu, but for his son as well (who is living with his family in London).
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Romania has issued a European Arrest Warrant for Alexander Adamescu, in gross violation of key tenets of Romanian and international law. The entire process stinks, and was accompanied by a raid against the businesses the Adamescus led. One commentator has coined the term “lawfare” to describe the harassment of legitimate firms and political enemies by politicians.
Romania is one of the few countries which can claim a former Prime Minister indicted for corruption. In 2015 the then Prime Minister, five other ministers and 21 members of both houses of parliament were indicted. Imagine that happening in the UK! You would think this might be the end of the story, but it isn’t, far from it.
Despite a high profile anti-corruption drive, the country has been so impregnated by decades of communism that the drive itself has been corrupted. Communism is dead, but its mindset – of the forceful expropriation of property rights – is alive and kicking.
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The Heritage Foundation Index of Economic Freedom stated in 2016 that “Romania has struggled to meet the EU’s anti-corruption requirements amid resistance from much of the political class. The courts are under-resourced and subject to chronic corruption and political influence… high levels of corruption weaken prospects for dynamic long-term development.” Should we enforce a European Arrest Warrant in such circumstances? I think not.
Corrupt officials, blinded by their own retro communist thuggery, greed and resentment may succeed, but it is ordinary Romanians who will ultimately suffer. In a twenty-first century world of footloose capital, innovation and ideas, countries with a poor reputation for property rights, corruption and individual liberty will be last in the queue for inward investment.