University of Botswana Law Journal - PULP

14 UNIVERSITY OF BOTSWANA LAW JOURNAL DECEMBER 2010
entrepreneurship and economic growth. Private property rights are protected
in this way from being violated by government officials or arbitrary laws.
Individuals who are not secure in their property lack the incentive to
undertake investment or engage in entrepreneurship. Individuals and
businesses must be confident that their efforts will not be wasted before they
will engage in commerce, save income, and make long-term plans. The Rule
of Law provides a stable system of protection within which people can engage
in economic activity and have the incentive to do so. Investors are particularly
concerned about the prevalence of law and order, the burdens of arbitrary
regulation, and the possibility of expropriation. The amount of investment in
countries without the security provided by the Rule of Law is severely
restricted, limiting the possibility of economic expansion.
A well functioning legal system is also a key determinant of capital
accumulation. An ever growing capital structure is essential for a vibrant,
growing economy. Hernando De Soto, in his groundbreaking work, “The
Mystery of Capital,” argues that the degree of capital formation in an
economy depends largely on a country's legal system, specifically, how easy
or difficult is it for a landowner to establish clear, recognized legal title to his
land. 49 For only with clear, legal title, De Soto argues, can small-time
landowners, who comprise a large component of every economy, “capitalize”
on their land, their main asset, and become able to acquire the funds and tools
that they need to be more productive and to contribute to further capitalization
of the larger economy.
No country can develop without economic freedom and the
protection of private property rights. The Rule of Law, by providing the
framework for protecting private property and individual freedom, creates the
stability and predictability in economic affairs necessary to promote
entrepreneurship, saving and investment, and capital formation. It is
nonsensical to expect that foreign aid will lead to economic development in
Africa without addressing the institutional factors, such as the lack of Rule of
Law, which are responsible for Africa’s failure to develop in the first place.
4. EMPIRICAL EVIDENCE
In our consideration of the role that a well functioning legal system plays in
protecting private property rights we have seen that the Rule of Law should be
an important determinant of economic performance. It is obvious from simple
observation that countries that secure the Rule of Law have much more
productive economies than those that do not. This everyday experience is
formalized and confirmed by evidence from the Fraser Institute’s economic
49 H. De Soto, The Mystery of Capital, (Basic Books, 2000).