Economic theory increasingly asserts the importance of property rights to economic development. Yet, while much has been written on what property rights are, and why they are so important, less has been written on which types of rights should be recognized. This chapter accordingly discusses which types of property rights should be recognized in East Timor. It focuses on rights to land, both for reasons of space and because competing land claims are the most urgent property issue facing the East Timorese.

PROPERTY RIGHTS THEORY

Recently, developmental economists have placed increased emphasis on the importance of institutions to economic development. Property has been highlighted because it is allegedly an institution that, along with ‘good governance’ and ‘civil society’, is vital to sustainable economic development. At its simplest, enforceable rights to property are said to create incentives to expend time and effort working that property. Why build buildings or cultivate crops when your entitlement to the product of your labour and investment is either not clear or not enforceable? In more complex terms, enforceable rights to property allow development of markets for credit and capital. Loans are more likely to be granted when they are secured by a valuable underlying property right. Capital is more easily raised when underlying rights to business undertakings may be divided into shares and traded among outside investors.

Ultimately, a system of enforceable property rights allows the complex forms of commercial activity that are characteristic of developed economies and a globalizing world of rapid financial flows. It is the confidence that property entitlements may be enforced across time and distance, according to laws and processes available to all and known in advance, that allows the flow of rights to those who are most capable of putting them to their most productive use. In practical terms this means that, subject to necessary and legitimate regulation of foreign investment, enforceable property rights are essential to attracting the private investment so necessary for reconstructing East Timor and creating jobs for East Timorese.