The Importance of Property Rights

Markets cannot work effectively if people do not have well-established, well-enforced, and well-protected property rights. This concept lies at the heart of the Coase Theorem and Adam Smith's "invisible hand". It is what Paul Heyne meant by "The Rules of the Game."

Without these types of property rights (or more generally, legal entitlements), people have much less incentive to invest in capital, and they have much more of an incentive to loot and steal. Without investment, and with the need to divert more scarce resources to protection, economic growth inevitably falters. Thus, thievery and corruption lie at the heart of the lack of economic development in many countries. And after seeing this, I fear for Gaza and the PA:

Palestinians looted dozens of greenhouses on Tuesday, walking off with irrigation hoses, water pumps and plastic sheeting in a blow to fledgling efforts to reconstruct the Gaza Strip.

American Jewish donors had bought more than 3,000 greenhouses from Israeli settlers in Gaza for $14 million last month and transferred them to the Palestinian Authority. Former World Bank President James Wolfensohn, who brokered the deal, put up $500,000 of his own cash.
Palestinian police stood by helplessly Tuesday as looters carted off materials from greenhouses in several settlements, and commanders complained they did not have enough manpower to protect the prized assets. In some instances, there was no security and in others, police even joined the looters, witnesses said.

Defending property rights takes a lot of scarce resources. Using them to do so is probably a wise investment in the future at this point.

"We need at least another 70 soldiers. This is just a joke," said Taysir Haddad, one of 22 security guards assigned to Neve Dekalim, formerly the largest Jewish settlement in Gaza. "We've tried to stop as many people as we can, but they're like locusts."

Of course, if people had better options, they would be less likely to loot and steal. But those better options will not emerge until investors have more confidence in the Gaza economy. And that won't happen until property rights are better defended.
[Thanks to both Sean and Jack, who sent this to me independently.]