Lessons from Chinese Growth: Rethinking the Role of Property Rights in Development

Abstract

This chapter addresses two questions that arise from China's more than thirty years of economic growth without a robust property rights regime. First, should social scientists rethink the conventional wisdom about the economic role of property rights? Second, if so, can China's experience with property law serve as a model for other developing countries? In other words, does it make sense to think in terms of a “Beijing Consensus” on the role of property rights in development that would replace the Washington Consensus, which dominated development economics from the 1980s to the turn of the century? To cut to the chase, my answers are yes and not really. The chapter proceeds as follows. Part I reviews the current conventional wisdom on property and development. Part II summarizes the evolution of China's formal property law over the high-growth period. Part III compares the actuality of law's role in China with the role that conventional wisdom would predict with particular attention to three areas. The first area is the interaction between what I call bureaucratic order and formal law; the second area is the nature of informal property rights in investment, one in the township and village enterprises of the early reform period and the other in foreign direct investment in contemporary China; the third area is the creation and sustainability of informal and illegal land markets in Chinese cities. Part IV discusses whether the deviations from social science theory found in Part III represent simply a variation on expected general patterns or are so different in nature that they demand a fundamental rethinking of the doctrine. Part IV concludes provisionally that China presents a fundamental challenge to the status quo of development theory, at least as that theory has been put into practice by the vast majority of first world law reform practitioners. Part V addresses the fundamental question surrounding this publication: should social scientists use the data of Chinese economic growth to create a “Beijing Consensus”? What Is Orthodox Theory of the Role of Property Rights in Development? The World Bank in 1996 summarized the conventional wisdom on the role of property rights and growth as follows: Property rights are at the heart of the incentive structure of market economies. They determine who bears risk and who gains or loses from transactions.