Area 2: Legal System & Property Rights

Protect persons and their rightfully acquired property.

Other Information:

Protection of persons and their rightfully acquired property is a central element of economic freedom and a civil society. Indeed, it is the most important function of government. Area 2 focuses on this issue. The key ingredients of a legal system consistent with economic freedom are rule of law, security of property rights, an independent and unbiased judiciary, and impartial and effective enforcement of the law. The nine components in this area are indicators of how effectively the protective functions of government are performed. These components are from three primary sources: the International Country Risk Guide, the Global Competitiveness Report, and the World Bank's Doing Business project. Security of property rights, protected by the rule of law, provides the foundation for both economic freedom and the efficient operation of markets. Freedom to exchange, for example, is meaningless if individuals do not have secure rights to property, including the fruits of their labor. When individuals and businesses lack confidence that contracts will be enforced and the fruits of their productive efforts protected, their incentive to engage in productive activity is eroded. Perhaps more than any other area, this area is essential for the efficient allocation of resources. Countries with major deficiencies in this area are unlikely to prosper regardless of their policies in the other four areas.

Objective(s):

2A: Judicial independence

2B: Impartial courts

2C: Protection of property rights

2D: Military interference in rule of law and politics

2E: Integrity of the legal system

2F: Legal enforcement of contracts

2G: Regulatory restrictions on the sale of real property

2H: Reliability of police

2I: Business costs of crime

2: Legal Structure and Property Rights

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