“Communist” China’s parliament recently passed a law guaranteeing the protection of private property. Although many years in the making, this is truly a momentous occasion for China’s market economy and for the Chinese people.
In his excellent book, The White Man’s Burden, William Easterly takes a few pages to tell the story of the beginning of modern property rights in China(see page 107). In 1978, a small group of families in the tiny village of Xiaogang held a secret meeting in which they decided to divide their communal lands into family plots and farm them as their own. As private property was forbidden in China, the conspirators could have very well ended up dead, but even the prospect of speedy executions seemed preferably to slow starvation. As each family could now keep the output form their own land, rice production in Xiaogang shot up. Hungry neighboring villages became curious, and de facto property rights soon spread throughout the region. Faced with such a large spontaneous outbreak of property rights and the accompanying dramatic rise in rice production, Communist Party officials wisely granted their tacit approval, and by 1984 communal farming in China effectively ceased.
In Market-Based Management employees have their own version of property rights, which we call decision rights. Decision rights represent the authority earned by individual employees. Like property rights in a market economy, employees who successfully employ their decision rights to create superior value are rewarded with additional decision rights. For years, Koch Industries, Inc. has emphasized to employees that they “own” their roles and authority and, much like the farmers of Xiaogang, can expect to reap the rewards of ownership.
Of course, like private property owners, employees who do not take care of the decision rights they own can expect to see them diminished. However, this responsibility is what makes property rights and decision rights so effective at building a free and prosperous society – something that one sixth of humanity just took a very big step towards.
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