Land seizures, security of property rights, and efficiency in Ihumātao

In my ECONS102 class this week, we'll be talking about property rights. One of the key points in that part of the topic is discussing the characteristics of efficient (that is, economic welfare maximising) property rights. For property rights to be efficient, they need to have four characteristics. They need to be:

1. Universal - all resources are privately, publicly, or communally owned and all entitlements are completely specified;
2. Exclusive - all benefits and costs accrued as a result of owning and using the resources should accrue to the owner whether directly or indirectly;
3. Transferable - all property rights should be transferable from one owner to another in a voluntary exchange; and
4. Enforceable - property rights should be secure from involuntary seizure or encroachment by others.

For the weekly assignment in that class, I was going to assign a question about the current standoff in Ihumātao, which has been widely covered in the media over the last several months and has come to a head in the last couple of weeks (see this New Zealand Herald story as one example). My initial thought was that I could ask a simple question about how land occupation by protestors affects the efficiency of property rights. The straightforward answer is that land occupation reduces enforceability, and therefore property rights become less efficient and therefore less valuable - if your property rights are being encroached upon (and are therefore both less secure and less exclusive), then you would be less willing to have those rights. In a sense, this provides a simple explanation for why Fletcher Building may have become willing to sell the land at Ihumātao.

However, as with many things, the issue isn't quite that simple. As I was thinking about this potential assignment question, I began to consider the original land seizure by the Crown in 1863. If I asked about how efficient property rights are, some students might consider that the original land seizures as reducing the efficiency of property rights. And they would have a valid point. Obviously, if the Crown is seizing land, then that makes the property rights a whole lot less efficient. So, land occupations that result in the return of the property to its original owners could increase the efficiency of property rights, if you took a longer run perspective. At that point, I decided the assignment question was a whole lot more difficult that I had anticipated. But also, the question had become a whole lot more interesting.

What happens if land seizures are only being executed against one population group, and not others? Then the group subject to land seizures would have less efficient property rights than other groups. Consequently, the group with inefficient property rights would be willing to pay less to hold onto land (including any land that hadn't been seized!), or willing to accept less to sell their land, compared to groups with more efficient property rights. This disparity has important implications.

In the absence of market failures, economists accept that markets maximise economic welfare. Nobel Prize winner Friedrich Hayek argued that markets are efficient because goods are transferred to those who value them the most. In the case of land, we would expect land to be transferred to those who valued it the most, being those who could make the best use of the land (whether that be for farming, forestry, housing, infrastructure, or cultural values). If land seizures directed against one group (but not others) makes the targeted group willing to pay less for land, then the market would eventually transfer land away from that group, and to groups that are willing to pay more for it. However, the difference in willingness-to-pay is being driven (in part, if not entirely) by the difference in the security (and efficiency) of property rights for the targeted group. The transfer of land is not towards those who value it more, except as a result of the land seizures.

For many years, I've been wondering if there was an economic argument for redress for Crown land seizures from Māori, aside from the ethical and moral arguments that are already pretty clear. I haven't thought through all the implications here, but I think that the efficiency of property rights probably provides a basis for making such an argument.