Trust and ownership rights

How long is a metre?

A metre is defined as the length of distance which light travels in a vacuum in 1/299,792,458 of a second.  

Like most people, I don't have the first clue how far light travels in any given period of time (in a vacuum or otherwise), but I do remember my junior school teacher Mrs. Mitchell telling us that somewhere in France there is a one metre bar which we actually could go and check to prove how long a metre is.

I just looked it up...and there is! In 1885 a prototype one metre bar was built and stored in agreed conditions in France.

Not that in reality we'd ever get to see it, though. To a great extent, we still have to trust that the metre is what we are told it is, because without that trust the metre would be redundant as a measurement of distance. 

Without the trust, in fact, we'd be in a spot of bother - how would we ever know how far a centimetre or a kilometre was? Would the whole system of distance measurement disintegrate? Would we have to invent a new system?

Without standards, enforceable laws, property rights and a government to police them, what we would be left with would be chaos: an anarchist system.

Reliance on trust

The reliance on trust extends to the wider capitalist system. One of the reasons why Britain was the world leader at the time of the Industrial Revolution was that it had a well-developed and regarded system of law which allowed capitalism to flourish. European countries such as Germany did not exist in the form which we know today - instead they often consistent of many smaller states where land disputes and conflicts continued unabated for decades.

Fundamental to the capitalist system are property rights. 

If you or I buy a plot of land in Sydney or South Australia tomorrow, we need to be able to prove that we own the land so that someone can't later claim it as theirs, leaving us wondering why we parted with our stash. This is one of the challenges facing countries such as East Timor where repeated internal displacements of the past lead to land rights disputes in the present.

Indeed, the notion of property rights now extends beyond the ownership of physical property such as land and buildings. There are also property rights relating to brands, ideas and words - intellectual property rights. And this is one of the challenges which the world faces in coming decades as countries with cheaper labour such as China become able to clone products originally made in developed countries.

This morning, I can tune in to watch the Ashes cricket on my laptop i-Player, for a cost of £10, payable to Sky Television. Alternatively, I could probably find a free live stream on the internet. It would be illegal because Sky own the rights to the broadcast, but, realistically, who is going to police their ownership? 

They say that there is no such thing as a victimless crime, but who would be the victim in this case? Arguably the players would miss out because I hadn't paid my ten quid, but more likely it would be Sky Television, who would then ultimately pass on the cost to other viewers in the future. In the end, we'd all lose out.

This is why the policing of intellectual property rights and piracy is also important to allow capitalism to succeed, just as is the governing of rights to physical property.

The tragedy of the commons

One of the many reasons why 'mixed' housing developments are preferred to social housing only estates is that it has been realised that property dwellers are generally more likely to redecorate property which they own rather than property which they do not.

The worst case scenario is what is known in economics as the tragedy of the commons - resources can be abused by people if they do not own then. 

The most pertinent modern example is perhaps the environment: because officially nobody 'owns' the environment, we feel more able to pollute it, because there is not always a dollar cost attributed to pollution. Although of course in a sense, we all own the environment - we only have one planet for us to share - and the potential cost of pollution over the long-term could be unimagineable.

One of the reasons that capitalist economies have flourished where communist systems have flagged has been related to ownership rights. Food shortages often occurred in eastern European states where farmers did not own the land and therefore were disincentivised to maximise production, instead allowing fields to lie fallow. 

Trust in property investment

The word trust crops up in modern property investment frequently. 

Property investors may elect to hold their assets in a trust as a means of asset protection. 

If you use property professionals, you need to trust that they will do the right thing by you and offer the service you require for a reasonable fee.

When a bank lends you money via a mortgage, it needs to trust that you will eventually be able to pay it back and not default on the repayments.

If you become an experienced investor, you may eventually be able to borrow many millions of dollars from the bank, but only once you have established a level of trust between yourself and the lender.

If you are buying a property, you need to be able to trust that the counterparty holds up their end of the bargain, as well as been able to trust your reliance on the contract laws and the legal system in place in that state. 

Perhaps most importantly of all, we need to trust that our government bodies continue to provide a fair and consistent legal system which they enforce. 

A large part of being a successful investor, therefore, is being able to make yourself someone that can be trusted - someone others view as truthful, strong, consistent and reliable.

In the meantime, we'd better hope that no-one loses that prototype metre bar. Because if they do, we're all stuffed.