LOS ANGELES, November 27, 2013 — In America, finding oil on your land is a celebratory event. In Africa, it’s a cause for consternation. Discovering oil, gas or diamonds on your land means you will probably lose your home. That is because owning land does not mean that you own the rights to the natural resources found beneath the surface of the land.
Recent data from the U.S. Energy Information Administration shows that for the first time in nearly 20 years, the U.S. is producing more oil than it imports. This is due in large part to the process of hydraulic fracturing, or “fracking.”
Natural gas production has increased and natural gas prices have fallen more than a third in the last six years. Lacking a sufficient domestic market for natural gas, the U.S. is preparing terminals to export the excess.
Ingenuity and innovation have companies developing more efficient natural gas engines. This is exciting for the U.S. economy and good for American energy independence. What is missed in all this excitement, though, is the nature of property rights, which allow land owners to benefit along with the the oil companies and politicians.
This ownership of property, whereby landowners own the minerals underneath their land, might be taken for granted by Americans, but this is not the case in other countries. In other countries, mineral rights belong to the government.
Doug French of the Ludwig von Mises Institute says, “when private owners (farmers) own mineral rights, rather than an entity enjoying a monopoly of force — government — the way is paved for many to benefit, starting with property owners and oil production companies. But ultimately those who benefit most are consumers. Private owners have the incentive to see that the resource is exploited to the greatest benefit. Government is motivated by politics, not profit. If government owns mineral rights, government will exploit them for its benefit, not for consumers.”
If mineral rights belong to the government, when minerals are found, people can be pushed off their land and the minerals exploited in the name of national interest. People are moved off their land without fair compensation. Instead there is an elitist, colonial mentality that a certain class has more rights than others even to the land they own.
This is a colonial mentality that America rid itself of in 1776.
Today, natural gas and oil booms in America bring shared prosperity. People who were recently of modest means are now receiving huge royalties. They should thank the heavens they are in the U.S.
Attenuated property rights hinder economic and social progress for the many in favor of vast profits for the politically powerful and well-connected. In the Middle East, the state exploits oil resources, and revenue and profits go to the small circle of friends and family of the ruling families.
If the Middle East had the property rights we enjoy in the U.S., then people would receive a royalty for the oil exploited on their land. This would distribute oil income to a broader class of people who would then be free to spend that income as they please. This larger group of modestly wealthy people would spend more locally, promoting the development of the national economy. Instead, the money goes to a few fabulously wealthy families who park their wealth in Luxembourg or use it to fund shopping sprees in London and Paris.
A sad example of this type of inequality is the diamond finds in Zimbabwe. Thousands were pushed off their land when the government took over, exploiting the diamond fields and not giving a cent to previous occupiers of the land. Land owners, instead of rejoicing, felt lucky to get away with their lives, while the well-connected reaped fortunes.
If Zimbabwe were a free country, royalties would have gone to the previous land occupants. African countries have failed to create free societies after colonialism; well-defined, full and secure property rights are a necessary condition of freedom. With the end of colonialism, property rights in Africa should have developed along the path charted by the United States after it broke away from the British Empire in 1776.
Instead, Africa kept the colonial system of mineral rights that benefited European colonial powers before independence, and that benefit the national governments now. A system of theft has been replaced by a system of theft; the only difference is the nationality of the thieves.
U.S. property rights are the standard for free people; anything less is not freedom.
It is interesting to note that those countries that have property rights that can be voided with the stroke of a pen have one thing in common: Their people are legally disarmed, and they look with disdain and horror at the ideals represented by the American second amendment.
The U.S. still has a lot to show the world about freedom; the American system of property rights trumps the world, even in the wake of Kelo v. City of New London and its assault on property rights. American landowners are still among the most secure in the world, their rights to develop and profit from their land among the most extensive. The developing world, especially those parts of it that are most impoverished, would do well to revamp their laws on property to look more like the United States. Zimbabwe and Saudi Arabia are not attractive alternatives.
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