Property Rights and Public Security

I had planned an entry on the foreclosure mess and property rights in the United States, but I will save that topic until next week and instead write about a specific instance of weak property rights in Mexico. Unfortunately, the story I will recount seems to be a common one in Quintana Roo and, probably, other parts of Mexico.

There are at least two important economic functions of the legal system. First, the system must protect life and property. Second, the system must provide a means of resolving disputes in a timely, relatively low-cost fashion according to the law, not personal preferences of those in authority. A legal system that satisfies these two requirements is one characterized by strong property rights. One can argue that such a system is desirable because it is fair or just. But apart from these arguments, economies with strong property rights generally grow faster and have higher levels of income. Individuals and businesses are more likely to invest if they do not fear expropriation of their property by the government or the cronies of those in power.

Sadly, today (26 October, 2010) I witnessed firsthand the weakness of property rights in Quintana Roo. My brother-in-law is owner of two taxis. His name is on the titles so there is no question of ownership. Some time ago he rented each of these taxis to individuals. Contracts were signed in which the individuals promised to pay a fixed amount periodically for the rentals. All the legal formalities were followed. Both stopped making payments shortly after getting the taxis. More than a year ago he filed the necessary documents with the appropriate authorities, the judicial police, to recover the taxis. The police knew who had his property and that the taxis were still being operated as taxis in Chetumal, yet nothing happened. His property had been stolen.

Today, he found one of the taxis parked in downtown Chetumal and informed the judicial police, as well as my wife and me. The driver fled. Although there was a key in the taxi, an alarm installed by the thief prevented starting the motor. The police stated that my brother-in-law should call a tow truck and have the taxi towed to the police impound lot. While my brother-in-law was on the phone trying to contact a tow truck operator, the judicial police received a call from one of their superiors ordering them to leave the taxi parked on the street and vacate the scene. Other than to inform my brother-in-law of the order they had received, the police offered no explanation. About a minute after their departure, the thief showed up with 3 other men and tried to take the taxi but were not allowed to do so. Shortly thereafter, the state police arrived and, also acting under orders, let the thief take the taxi despite my brother-in-law's protest.

So, what does this story the protection of private property in Quintana Roo and elsewhere in Mexico? The moral I draw from this tale is that anyone with influence can subvert the rule of law. The ominous implication is that such a system of weak guarantees of property rights depresses investment and citizen confidence in the law. Why invest if the legal system does not protect your property, as happened to my brother-in-law? Why support a system where the police are viewed as tools of those in power? Weak property rights and public insecurity are probably not the only reasons for Mexico's rather dismal macroeconomic performance since 1981 but they surely must rank high on the list of the most important reasons for slow economic growth.