We are meeting today, the day that signifies this convergence of Law and Economics in the form of adopting the Constitution of India 74 years ago in 1949. The person who was largely responsible for this wonderful event was Dr.B.R.Ambedkar was a symbol of the unity of Economics and Law in modern India; he had two Ph.Ds in Economics from two different countries and Bar-at-Law from Grays Inn in 1923. He served as Professor of Economics and Principal of Government Law College Bombay till 1938 and had practiced law at Bombay.
Economics and Law as human sciences have emerged after the Reformation Movement in Europe, particularly after Adam Smith as the harbinger of the First Industrial Revolution recorded how the Wealth of Nations could be improved and welfare ensured. Bentham as his junior has further extended the argument of providing the greatest happiness to the largest number through the concept of utility. Bentham and his follower J.S.Mill were responsible in denying the primacy of natural law advocated by Hume, Locke and others by saying law is the command of the sovereign. In other words, classical writers were a blend of Economics and law unlike what we see today as diverse subjects of study. However, Judiciary as an Institution that administers justice had emerged during the feudal era and still appears to be continuing in the same (smug) leaning in most of the countries including India. We will discuss it when we look at the legal framework of India later.
Now let us look at how the two disciplines are intertwined particularly during the transition from feudalism to capitalism. Some of the concepts that Adam Smith developed had helped the judiciary to solve some problems like value, for instance through the elaboration of the water diamond paradox. The judiciary as a legacy of feudal order in the West or dharma sastra or Rajdharma in India helped to sustain governments or establishments with their delivery of justice as super structure institutions. Law as code of conduct was as old as the Hamurabbi code of 1760 BC that led to the development of Babylonian Law and other ancient religious codes including the Hindu Dharma sastras based on Vedic liturgy. Modern Civil Law systems have emerged in the Roman Republic with the empire authorizing to adjudicate cases that led to the foundation of a body of Law or Corpus Juris Civilis ( Justinian came as Roman Imperial head at Constantinople in 527AD). This has reached all the colonies through European colonial rule after 17th century. Later, Judiciary as a mediating institution to deliver outcome in the modern period is bound by the Constitution in most of the cases. The importance of Economics in Law became evident when the concepts of value, property, development, welfare, utility, cost etc as individual and collective concerns have emerged after the Industrial revolution.
The Concept of Property in Economics and Law
The notion of property did not exist in primitive society as everything was commonly held and used by the group and in a condition of nomadic life, it was unimaginable to own. Land was considered as an important asset in a settled life. William Petty, the English philosopher and economist noted that ‘Land is the mother and Labor, father of Wealth’ giving importance to labour in the acquisition of wealth. Adam Smith considered that ‘property is the right to exclusive possession of a thing and the power to recover a thing owned from any other possessor’. However, he has qualified it by saying that the property vary with the form of the government. In other words, the function of Economics was to delineate the quality and character (water diamond paradox) in a thing and find out how it facilitates exchange. It was Adam Smith who discovered that the inherent propensity of human beings to truck, bargain and exchange one thing for the other as an important human instinct. He has elaborated it how “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chooses (chuses) to depend chiefly upon the benevolence of his fellow-citizens. Even a beggar does not depend upon it entirely. The charity of well-disposed people, indeed, supplies him with the whole fund of his subsistence.’ The discovery of self interest and its economic potential was eminently brought out by Smith to revolutionize human society to transform the feudal stage in to an advanced economy.
It was again Smith who wrote on the concept of contract. According to him Contract is a promise to perform and the failure to perform results in injury. It is a condition necessary to facilitate economic transactions between people and nations. Bentham as the father of Jurisprudence and the author of theory of utility as a measurable pleasure and pain has advanced the theory of value based on which Law of demand in Economics was developed by Marshal later. Contrary to what John Locke and Hobbes stated, Bentham has noted that law is not rooted in nature but is an outcome of the command of a state. Lawyers are according to Bentham experts in ‘artificial reason’ and keep the Law shrouded in mystery for ordinary people. Law according to Bentham is an ‘assemblage of signs declarative of a volition conceived or adopted by the sovereign of a state’. It is with the sanction of the state the notion of property is legalized.
Private, Public and Common Property
There are different concepts of property that are evolved over a period of time based on the formal definition of exclusive right of possession of a thing. It was land as the mother of all wealth that was considered as property in the beginning and in association with labor different categories of property such as capital, machinery, buildings as tangible items or shares, intellectual property rights, etc as intangible property have been developed. They are further classified as private or public or common based on the possession of the right. If the ownership does not result in conflict of exclusion of others and does not result in reduction in value, it may be called public property. It is generally held by the state as owner. A private property is solely owned by an individual or individuals at the exclusion of others (excludable and rivalrous ) . Common property is one where access to its use is given to the members who contribute to it can be exclusive ( controlled) and in the case of natural resources such as water courses, public roads, parks and other such properties where access is not restricted to members of the community. Club goods as common property are different. John Locke has recognized lives, liberties and estates are the property of every one and human beings have property in person. This is further developed by Marx by distinguishing between labor and labor power, the latter being the property of the laborer. The discipline of Law or Jurisprudence may not recognize the definitions of economists and develop their own reasoning to attribute certain additional qualifications to adjudicate.
Critiques of Property
Proudhon, the French Philosopher and Economist was an ardent critique of the concept of property and has given his reasoning for this. He has noted that property is physically and mathematically impossible., because it demands something for nothing, it is homicide and property is robbery (theft).Property wherever it exists production costs are more than the worth and with a given capital, production is proportional to labor and not to property. The value or wealth produced by all is collective wealth, the use of which like that of land may be divided but by the nature of the property remains undivided, property in capital is indivisible consequently inalienable. The downfall and death of societies are due to the power of accumulation possessed by property. Therefore, he advocated social ownership of property. Marx, following Proudhon has extended the argument by elaborating how the property being the product of labor is stolen by the owners of capital and called for overthrowing of the capitalist class.
The role of market in the economic development of countries particularly in the less developed countries was emphasized by some economists. The state versus market is an ongoing debate among scholars particularly after the Washington consensus and its failure thereafter in the academic circles. Economists like Coase has developed the concept of transaction costs that are hidden like the costs of negotiations, information gathering etc in the operation of markets that makes it subdued. He has further analyzed that the market exchange will be free if robust property rights are ensured. He wanted that government should create institutions that minimize transaction costs. This has helped to develop a new school of Institutional Economics that brings in disciplines like Law to formulate rules for the effective utilization of common goods like Club Goods in the emerging Real Estate market with gated communities and the legal issues involved. How the concept of property has helped some groups and deprived others can be reflected here from the experiences of United States of America.
Dispossession of Land Property in America
Law and Economics as a separate discipline and or as special subject is found to be very relevant in the era of globalization and corporate capitalism. Most of the themes and ideas appear to be emanating from the Anglo-Saxon countries mostly from the United States. Therefore, we need to reflect on the experiences of the groups of people such as Whites, African American, Hispanics, Native Americans in the USA and how the course of ownership rights over land has taken place there. The process of sanctity of property rights in America might throw some light on our history, legislative and judicial process so as to probe how land property is still an obscure area of academic study. It is reported by scholars like Gerald Friedman that more whites in America ‘became wealthy through conquest and theft’. It is noted by the scholar from the Judicial processes in the United States how in 1837, the Supreme Court used instrumental arguments to favor some corporate like Charles River Bridge Company and others. The protection of private property in the USA is considered to be important to promote economic prosperity and efficiency and the Fifth Amendment to the Constitution made in 1791 as part of Bill of Rights. The amendment reads as, ‘no person(s) shall be …deprived of life, liberty or property without due process of law; nor shall private property be taken for public use, without just compensation.’ Gerald Friedman one of the economists who has published extensively on this question is of the opinion that property is a social construct in America and we have examples from the history of the country how it has evolved over a period of time. American property rights have been created by judges and politicians through a process of democratic and bureaucratic action. There are occasions; Friedman noted that the Supreme Court has approved special government powers to regulate property in terms of extraordinary economic distress as in the 1934 judgment.
Despite the strong expression about the life, liberty and due process in the Constitution, African Americans claimed that they have lost land. In one of the important studies, ‘Race, Gender and Financial Well-Being-Black Land Loss 1920-1997’, published in AEA proceedings in 2022, the authors estimated the value of loss was $326 billion equal to market capitalization of Ford Motor Company, Starbucks and Target combined. It is reported in several studies that after 1862 Act, land grants were given liberally to Whites and Blacks were discriminated. Despite of all the adverse conditions, Blacks have secured 3 million acres by 1875, 12 million by 1900 and 16 million by 1910. But, by the end of 2017 when the recent agricultural census was done they had only 4.7 million acres left in their hands. In other words, in a period of rapid economic growth (with a break in 1920s) in America, the Blacks lost 12 million acres in hundred years. Black land loss in the United States refers to the loss of land ownership and rights by Black families and farmers residing or farming in the United States .The reasons for dispossession of land property of the hard working Black farm hands were examined by several scholars. The contributing factors were summarized by the research team of World Food Policy Centre of Duke University as follows;
- Emancipation Proclamation freed slaves but did not provide the right to own land
- After the Civil War, some states passed laws prohibiting persons of color from owning real property
- Lack of documentation (such as birth certificate) commonly used to prove identity in legal transactions–a common situation after the Civil War
- Land promised to freed blacks through the Freedmen’s Bureau was ultimately returned to original white owners of the land
- Lack of legal wills allowing black property owners to pass land to descendants and thereby build wealth
- Morill Act of 1862 offered land to whites-only colleges that taught agriculture and mechanical courses
- Homestead Act of 1862 restricted acquisition of land in the West to whites only
- Jim Crow policies that allowed separate treatment of whites and blacks
- Racist implementation of the GI Bill – white veterans obtained low interest loans for homes and tuition benefits for college education; Black veterans were funneled into vocational education programs and few received home loans
- Racist farm lending by the USDA that denied Black farmers from credit to operate, improve and expand farms.
- Sharecropping became a common practice where tenants were charged high interests rates that created inescapable debt
- Crop lien system where blacks get credit on the anticipated harvest
- Heirs property laws – all descendents of owners have a share in the land and must consent to sales
- Partition sales/Torrens Laws – system of officially registering ownership of land with the government; enables forced sale of land
- Redlining, which is a practice where black people were only allowed to live in certain areas and then allowed to obtain loans to improve property – contributing to neighborhood decline
- It is reported that the federal government made the infrastructure of the property law system to expand interests in land that defined the real estate market (noted in a paper on Race and Property Law of Georgetown University in 2021)
There are several research findings and reports like ‘Racial Discrimination in the Administration of Justice’ by an NGO in 2004 and the United Nations ‘Chronicle on Racial Discrimination and the Legal system’ etc to demonstrate that all is not well in the United states judiciary to take lessons for emulation in a Country that is more diverse and historically distinct from that of Anglo Saxon culture. Libertarians and their adherents in India may not consider the historical background while recommending certain policies based on the received theories are entreated to look at the snag in the concept.
Property Rights were not universal in India
The concept of property as noted above did not exist in Ancient India as everything on earth belongs to the Brahmin (Verse 1.100) as per Manudharma and the King is only the custodian. Kautilya was not specific in defining what is property in general but mentioned about the personal jewelry of women is their property and also noted about barrowed and hired property. K.V.Rangaswamy Aiyangar Professor of Economics of BHU wrote on Rajadharma in 1941 and explained how it is a living subject. According to him there was no difference between secular and religious dharma as observed by Europeans as dharma is a continuous flow. Rajdharma is king-craft and the king is the subject as well as the protector. The Yagnavalkya Smriti, Brihaspati smriti, Parasara Smriti and Jeemutavahana Smriti have laid down the rules of property and the methods of inheritance. Therefore, we have in India Mitakshari of Yagnavalkya in some parts and Dayabhaga of Jeemutavahana in East India based on which adjudications relating to property were made. The use of dharma sastras in the judicial process has been used throughout our history irrespective of the realm, Muslim or British for the Hindus. Therefore, some castes and groups including women were prohibited to own property beyond subsistence based on the rules laid down by the sastras. Therefore we can find in our country some castes like Scheduled castes who are Ex untouchables supposed to live outside the habitations were considered as Varna bhahyas. The varna bhahya was also artha-bhahya or prohibited to own property. Hindu women though not varna bhahyas were subjected to several restrictions including owning of property. This is different from that of USA where both the blacks and the whites who were the owners of slaves, were settlers, not the original inhabitants. It appears that the experience of the United States in terms of the concept of property, contract, affirmative action (different from caste based reservations) and some economic and legal concepts are of limited application here. However, the experience of the marginalized and the racially discriminated as noted by the UNO above can be studied to understand the methods of discrimination as practiced in the administration and in judiciary in the USA, as we are increasingly following the foot prints of the Capitalist America both in our economic and legal structures.
The Evolution of Right to Property in India
The concept of property as noted by classical economists is a title of ownership in relation to tangible or intangible property. In India we have dharmasastras that are still being used for succession and inheritance of property. Property was considered at that time was limited to only to land. The judiciary is pro active in protecting the rights as enshrined in the Constitution. It is at this stage we may reflect how the right to property was debated in the Constituent Assembly while debating on Article 24 (Art 31-2) in the draft on 10th September 1949. The debate on the issue was invariably gone in to the abolition of Zamindari system as most of the land was held by them and the Nehru government wanted to abolish it. It was Kala VenkataRao from Madras (Telugu) who argued that the Zamindar is only an agent to collect rent and no property was conferred on him and it cannot be abolished. He has further contended that clause 2 deprives the citizen of fundamental right to property and the compensation is left to the sweet will and pleasure of legislature. T.M.Ahmad countered it saying that we have different kinds of zamindars in different regions in India and it should be abolished. Lakshminarayana Sahu of Orissa noted that the High Court was in Calcutta and therefore many people in Orissa lost their lands amounting to two thirds of the lands in Orissa were grabbed by absentee land lords and appealed to the house not to pay any compensation to those lands that were enjoyed by incumbents for 30 years.
The right to property was repealed by the 44th amendment in 1978 and a new chapter IV was added under Article 300A as Constitutional Right. The objects of amendments to the Right to Property and the subsequent Acts up to 2013 Act on Fair compensation were declared to benefit the poor. Have we realized the objects? In fact more number of amendments and judicial pronouncements were delivered on this article and the process of legislative action speaks about the course of change that took place through negotiations between the Legislature and the Judiciary in India. It is also interesting to note that Articles 15 and 16 were also subjected to interpretation and reinterpretation time and again for about 8 times staring from the First amendment involving lot of transaction costs. Jaivir Singh and Anant TCA have published on the social costs involved in the whole process of judicial activism, is an issue that can be deliberated by the scholars of Law and Economics. We are discussing the issue of right to property in the context of how African Americans lost land property even under the protective wings of judiciary. It is interesting to cite from Jaivir Singh how the Basic Structure of Constitution is introduced to protect Kesavanand Bharati , a mathadhipati whose landholdings were subject of takeover by the Kerala Government in 1973. It is said that, “the constitutionality of these Amendments was challenged—albeit unsuccessfully in the monumental Keshvananda Bharati case. However the majority judgment, while overruling many aspects of the Golak Nath case on amending the Constitution, did rule that a constitutional amendment could not alter the basic structure of the Constitution. It is impossible to go into the nuances of the basic structure doctrine as explicated in this judgment—the case was judged by 13 judges, who not only divided into a majority and a minority but also expressed eleven opinions.” In other words, the social costs of protecting the Rights appear to vary from case to case, may be in relation to their socio-economic background as alleged by Justice P.Shivasankar , the then Law Minister.
Case of Property Denied and Nomad Groups in India
India has some peculiar and typical characters that are eminently protected by the ritual practices in the name of dharma for a long time. We are not going to discuss the merits and demerits of it but only to make out the way state and judiciary look at it. We have some social groups who are denied right to own not only property but also arms. There are also groups who are nomads and do not have settled life to own any immovable property like land and the category of migrant or precariat laborers in India. They are not just few individuals, but constitute almost 30 percent of our population. We can find from the official statistics how the landed property of these groups is less than 10 percent of the total. It is found that the total agricultural land is around 18 crore hectares of which operation holdings were 15.9 crore hectares in 2011. The amount has come down to 15.7 crore hectares by 2015-16. Interestingly scheduled castes who were denied property during the pre-independence period were given some land after independence. It comes to 1.37 crore hectares in 2011 and has been plunged to 1.34 hectares by 2015-16 being deprived of around 2.4 lakh hectares during the period. These holdings of dalits constitute 8.54 per cent of the total land for a 20 per cent of population in India (NSS). The land holdings of dalits include the homestead that was registered in the name of the traditional residents after land reforms. The agriculturally advanced states where dalits constitute more than 16 per cent of population such as the landless Dalits constitute in Punjab (88.9%) Haryana (84.4%), Bihar (72.o%) Tamilnadu (78.7%) Andhra Pradesh (64.5%) ,Maharashtra (69.6%) and so on . Thus, the landlessness is substantial among the Dalits. It may be due to the ancient practices and the absence of affective legal framework to protect the victims.
We do not have data relating to the nomads who are spread across adivasis, dalits and in some states OBCs. The settled adivasis have some land that is being encroached upon every day. It is reported by the Loksabha Secretariat that about 5 crore people were displaced due to projects. They are mostly from Adivasi and Dalit social backgrounds. In order to protect the displaced and dispossessed populations, the Government has brought out the 2013 Fair Compensation ( LARR) Act replacing 1894 Act. In order to shun the provisions of the 2013 Act, some governments and private agencies through government partnership have brought the concept of Land Pooling where the evacuee does not lose his rights over property, but get share/compensation in proportion to the agreement. It seems it is applicable only in urban centres where real estate is booming is a real estate approach to the issue and do not help those who are denied property or do not have any land due to historical conditions. What is to be done?
Presumptive Legal Framework in aid of the Property Denied Groups
The landless in India are mostly drawn from the socially and economically deprived who were thrown in to the margins of the society. There hasn’t been a serious effort to look in to the social, economic and legal foundations on which they are deprived their rights in the colonial period. The founding fathers of the Constitution including Jawaharalal Nehru, B.R.Ambedkar among others looked at the issue and found that landlessness among some groups was due to the Zamindari system. They wanted to abolish the Zamindari system and introduce land reforms to provide lands to the poor. They had the USA Constitution before them where Right to Property was guaranteed and at the same time have reasonable restrictions to take the property for public purpose with just compensation through due process of law. It appears that it did not work well in India due to the judicial overreach and may be weak legal frame work or may be the class orientation of ruling classes and the judiciary as analyzed by several scholars( see the references). It is interesting to note that in a recent dissent note by the Members of the Law Commission; a very important issue is brought out that is considered to be one of the reasons for the true owners particularly the first generation persons who had acquired some land, have lost. It is related to the ‘Adverse Possession’. It is noted that the law of adverse possession is exceedingly severe to the true owner and advantageous for a dishonest person who had unlawfully seized the property. Invariably, the grabber is a powerful, politically connected, moneyed and can engage expensive legal services to defend his possession. The dissent note says, “ for the Supreme Court, one must show exclusive possession , open and continuous possession, and possession for the required statutory duration in order to establish adverse possession of real estate.” The legal process in these land litigations takes years and brings in other provisions like the Limitation Act to strike down the case if land is in the possession of the grabber for 12 years with false claims. It is reported that 66 percent of the pending civil cases in the apex court relates to property. We do not have data to say that majority of the victims could be the first generation land holders dalits, adivasis and the poor. This needs to be addressed. A modest attempt is made here to formulate a policy framework.
The legal framework of a republic should consist of the provisions in the Constitution to protect the interests of the citizens and the corresponding Acts and rules framed to implement. It is also necessary that institutional framework to reduce transaction costs should be the part of the framework. It appears that the higher Judiciary in India has taken to itself a very prodigious responsibility of appointing the judges through in house group and interpreting the provisions by invoking the powers vested under articles 32, 143 seemingly to protect the basic structure as interpreted by some and reinterpreted by Justice Chandrchud senior differently. However, legal scholars like Marc Galanter, Upendra Baxi and others have been expressing their critical remarks on our Judiciary, if reflected seriously might provide enough inputs to formulate a legal Framework. As noted in the beginning of my submission, the purpose of the presentation is to initiate a presumptive framework based on the above position.
The Indian Constitution has provided certain safeguards and protections to citizens through fundamental rights and directive principles of state policy. Unlike the American Constitution (except Civil Rights Act 1964), the Indian Constitution has a separate section under part XVI with ‘Special Provisions to Certain Classes’ through Articles 330-342. The Parliament and the Judiciary have been live to the emerging issues of these sections and found the existing clauses were inadequate in a globalized economy to meet the imminent needs of the people. Therefore, Article 338 was split in to A and B to facilitate different identity to the three constitutional categories, Scheduled castes, Scheduled tribes and Other Backward classes by creating separate commissions. The content of the commission’s clauses were extended to facilitate each commission ‘to participate and advice on the planning process of socio-economic development’. It can be proactively interpreted now in relation to Articles 17 and 39 to create institutional structure to help the special categories with economic and other support arrangements in the absence of Planning Commission allocations like SCP and restrict the concentration of Wealth and means of production that helps directly the landless poor to improve their sources of income. There can be legal provisions, Acts and rules to review the government policies and gaps in implementation including considering new clauses in the existing Acts. It can also be considered to include room for strict punitive action for the gaps and lapses at the stage of execution of the legal provisions. The developments in Law and Economics in the globalized World require institutional structure to provide expert advice on economic issues to reduce transaction costs of delivery of justice. This will ensure the cooperative effort between Law and Economics professionals to improve the efficiency of cost effective delivery of justice in India.
1.Ananat TCA and Jaivir Singh, “An Economic Analysis of Judicial Activism”, Economic and Political Weekly, Vol37 No 43 November 2002
2.Dania V.Francis and others, “Race, Gender and Financial Rights in America-Black Land Loss:1920-1997”, AEA Papers and Proceedings, 112, 20022
3.Gerald Friedman, “The sanctity of Property Rights in American History”, Political Economy Research Institute, Amherst, Working Paper 14, 2001
4. Godlow-Legiaz, Jania, “ The Coase Theorem and Idea of Transaction Costs their Significance for the Development Economics, CERC, Central and Eastern Europe Vol 12, Lodz
5.Open Society Justice Institute, Racial Discrimination in the Administration of Justice, Submission to the UNCERD, 65th session, 2004
6. Michael Hodge and others, ‘Institutionalized Discrimination in the Legal System: A Socio-historical Approach’, Explorations in Ethnic Studies, vol16 No 1 Jan 1993
*Keynote Address at the 9th International Conference on Law and Economics, Babasaheb Bhimrao Ambedkar Central University, Lucknow, November 26, 2023.
K.S.Chalam is the author of ‘Political Economy of Caste in India’, Sage. Chairman, Institute for Economic and Social Justice, Visakhapatnam [email protected]