Reflections on Property Rights

By Leandro Castelluccio

The referendum on social security in Uruguay, held during the recent national elections on October 27, 2024 (which failed to gather enough votes for approval), sparked countless debates centered around the practical effects of the proposed reform. Discussions ranged from how the reform could potentially benefit the most vulnerable sectors to concerns about its possible long-term drawbacks.

Although the referendum did not pass, the issues surrounding the sustainability of social security, the retirement age, and the purchasing power of future pensions—particularly the lowest ones—remain highly debated. New reforms are likely to follow, as an increasingly vocal group of advocates calls for greater wealth redistribution and a pension system with more “social justice” and “solidarity.”

Beyond the economic technicalities, however, lies a fundamental issue that has been overlooked in these discussions: property rights. This is a concern that should weigh as heavily on us as the economic implications.

Uruguay’s AFAPs (Administradoras de Fondos de Ahorro Previsional) are private financial institutions created in 1996 as part of the social security reform, introducing an individual capitalization system. Each worker contributes to their own savings fund, managed by an AFAP, which invests these funds in various financial instruments to generate returns.

AFAPs complement the intergenerational solidarity system of the Banco de Previsión Social (BPS), forming a mixed retirement system. This hybrid system is mandatory for dependent workers born after 1973 with middle and high incomes, who must contribute to both an AFAP and the BPS, diversifying their retirement income sources.

The referendum proposal aimed to eliminate AFAPs and transfer workers’ savings to the BPS, presenting a crucial philosophical dilemma. John Locke, in his Second Treatise of Civil Government, argued that private property is a natural right derived from each individual’s labor. From this perspective, the State lacks the moral authority to take private property, as this right precedes and supersedes State power. The referendum’s proposal challenged this principle by suggesting that funds accumulated in AFAPs could be appropriated by the State without compensation.

Property rights, viewed as an extension of individual liberty, are considered by many philosophers and economists to be an essential pillar of a just society. Private property allows individuals to enjoy the fruits of their labor, thereby promoting personal responsibility and economic progress. As Hernando de Soto pointed out in The Mystery of Capital, countries that protect property rights have achieved higher levels of development and welfare. De Soto argues that in a society that respects private property, citizens can transform their work into capital, and thereby into wealth, creating benefits not only for individuals but also for the economy as a whole. Without a strong property rights system, value creation and individual incentives for effort are significantly limited.

This explains why there was market concern and investor unease in an atmosphere of uncertainty. Repealing the recent reform would have implied maintaining the previous social security system, which many experts and organizations consider financially unsustainable in the long run. In light of this potential reversal, investors feared a growing fiscal deficit and increased public debt, as the State would likely face greater obligations to cover pensions. This perception of risk heightened investor caution, affecting market confidence and the country’s economic stability.

Beyond the fiscal impact, the possible approval of the referendum risked legislative stability and legal security—factors that have been instrumental in attracting investment to Uruguay. The country has been known for its institutional stability and reliable legal framework, elements that provide predictability to investors and set Uruguay apart in the region.

This is a crucial point that the quasi-linear and biased thinking of the left-leaning groups promoting the referendum fail to grasp. This linear, biased logic overlooks the complexities and cascading effects within an interdependent economic system. By criticizing “big capital” and pushing for policies to limit or abruptly alter it, they tend to ignore that investments and capital don’t just come from an abstract elite—they represent resource flows that generate employment, innovation, and well-being in the real economy. In a globalized world, where financial markets and businesses have diverse investment options, policies perceived as unstable or hostile toward capital can lead to a relocation of these resources to countries with more predictable and stable regulatory climates.

This has very real effects on citizens’ prosperity: reducing investment slows job creation, wages can stagnate, and growth opportunities become limited. Wealth in an interconnected system is not generated by isolating the country from global capital flows; rather, it’s the very openness, coupled with a foundation of stable, growth-oriented policies, that enables resources to flow, encouraging production and enhancing overall well-being.

In other words, seeking social justice by targeting and extracting resources from “big capital” without considering the global context often has the opposite effect, causing capital flight and limiting economic development. Often, it’s those with lower incomes who end up paying the price, as fewer funds become available for social programs, infrastructure, and other critical areas that depend on a stable and growing financial ecosystem—one that doesn’t drive away savers and investors.

The rule of law is one of Western civilization’s greatest inventions, serving primarily to protect the individual—their life, liberty, and property—not only from abuses by other individuals but also from the State itself. This principle is inherently individualistic, as it places the individual above the collective, without distinctions based on class, race, religion, or personal capabilities. As Ayn Rand argued, recognizing individual rights implies that each human being is an end in themselves, not a means to the ends of others. From this premise, the injustices one might perceive in the world, such as disparities in retirement benefits, do not justify violating these rights or unequal treatment under the law. An individual remains an individual, regardless of their circumstances, and any policy affecting society must respect this inviolable sphere of individual rights.

In the case of property rights and the referendum, as Robert Nozick argued in Anarchy, State, and Utopia, forced redistribution is morally indefensible because it infringes upon each person’s fundamental right to the fruits of their labor. For Nozick, justice in property can only arise from voluntary exchanges; any state intervention that enforces the collectivization of individual resources—such as the referendum—represents an unacceptable violation of this principle.

Supporters of the reform argue that it’s time for those who have more to contribute more, citing arguments like “there are too many tax breaks for big capital” or “the wealthy should contribute more to fund pensions.” But this approach, as Friedrich Hayek would argue, endangers individual freedom. In The Road to Serfdom, Hayek warned that when the State claims the right to dispose of private property for collective purposes, it opens the door to authoritarianism and abuse of power. If we accept that property rights are a social construct that the State can redefine, we strip individuals of one of their most fundamental freedoms.

On the other hand, if we understand property rights as natural and inalienable, as enshrined in Uruguay’s constitutional foundations, we cannot justify the expropriation of workers’ savings under any collective criterion. Neither I, nor a group of citizens, nor the State itself has the right to appropriate someone else’s wealth, no matter how “just” or “noble” the cause. As Kant rightly argued in Groundwork of the Metaphysics of Morals, human dignity lies in the unconditional respect for the rights of others, and property rights are among those.

And precisely because rights are individual and not collective, the violation of property is equally unacceptable, regardless of the economic or social situation of the affected party. This principle holds true for both the corner shop owner and the large business owner or landowner. There is no moral right that justifies taking even a single peso from the grocer who works every day to keep his business afloat, nor from the independent professional or the large investor who has accumulated capital over the years. As Kant rightly affirmed, human beings should be treated as ends in themselves, never as means to a collective end. Justice cannot be relativized based on wealth level; individual rights are universal and should not be conditioned by economic success or anyone’s circumstances. Any forced redistribution, even under the guise of social justice, is a violation of these fundamental rights.

On the other hand, some argue that the money in AFAPs isn’t truly yours, because you didn’t choose for that money to go there, and if you wanted to withdraw it, you couldn’t. While we can agree that the system isn’t perfect—yes, I’d also like to decide what part of my savings goes toward retirement and how it’s invested, or, if I work independently, I’d like to contribute voluntarily to a fund rather than being forced into it—this is not a valid argument in favor of the referendum or similar measures in the future, as these worsen the right to property. With reforms like those proposed by the referendum, those contributions would no longer be in my name and would no longer directly serve my future retirement; rather, they would be managed by the State, which increases uncertainty about their destination and my control over them.

When analyzing the left’s stance, we often find a tendency to prioritize resource redistribution over the defense of property rights. Many progressive approaches view this right as a flexible social construct that can be subordinated to collective goals. The libertarian philosopher and economist Murray Rothbard argued in The Ethics of Liberty that any act of forced redistribution—even if aimed at promoting equality—constitutes a form of aggression against individual freedom. Rothbard asserted that only individuals and companies, not the State, can allocate resources efficiently and justly, as the State lacks the moral authority to expropriate, even for equity purposes. This perspective highlights a critique of the left’s approach: in their eagerness to address perceived inequalities, they often intervene in private property without fully considering the ethical and economic implications of their policies.

Authors like Milton Friedman, in Capitalism and Freedom, also warned that when the State expands its power in the name of social justice, it often ends up reducing individual freedom and economic dynamism. Friedman saw the role of private property as a counterbalance to state power; without this counterbalance, State power could become excessive, jeopardizing individual rights in favor of imposed collective ideals. In this libertarian tradition, private property is viewed as a necessary barrier against centralization and authoritarianism.

We can see this illustrated to its fullest extent through the evolution of dictatorships like Venezuela’s or the expansion of Kirchnerism in Argentina, where state interventions have significantly impacted individual rights and economic prosperity.

In Venezuela, the regime of Hugo Chávez and his successor, Nicolás Maduro, has been marked by the expropriation of private property and the redistribution of resources in the name of social justice and equity. While initially popular among certain sectors of the population, these measures have resulted in a devastated economy and widespread loss of freedoms. The expropriation of businesses and land, coupled with state control over key industries, has led to a drastic decrease in private investment and capital flight, exacerbating the economic crisis. Legal insecurity and uncertainty regarding the future of private property have dissuaded entrepreneurial initiative, resulting in shortages of basic goods, rampant inflation, and a collapse of public services. This exemplifies how subordinating property rights to collective goals can ultimately lead to significant deterioration in economic prosperity and individual rights.

In Argentina, Kirchnerism implemented policies that, while not as drastic as those in Venezuela, have also had adverse effects on the economy and property rights. During the presidencies of Néstor Kirchner and Cristina Fernández de Kirchner, nationalizations of companies, price controls, and export restrictions were enacted under the justification of protecting the national economy and promoting social justice. However, these measures created uncertainty and distrust among investors, both domestic and foreign, contributing to chronic economic problems such as inflation, fiscal deficit, and capital flight. Additionally, market restrictions and state intervention in the economy have limited companies’ ability to operate efficiently, impacting job creation and economic growth. The advance of Kirchnerism has shown how state intervention, even if well-intentioned, can weaken economic dynamism and erode confidence in respect for private property.

Both cases highlight the importance of property rights as a fundamental pillar for individual freedom and economic prosperity. Policies that ignore or subordinate this right in the name of collective goals tend to create more problems than solutions, weakening both the economy and individual freedoms.

While neither the right nor the left is infallible in their approach to property rights, one can observe a stronger inclination from the right to preserve this right compared to the left. The right tends to value the role of private property as a central axis for freedom and individual autonomy, arguing that respect for property is essential for economic development and social stability. Although authors like Thomas Sowell have criticized conservative policies for sometimes being contradictory in terms of economic intervention, Sowell also notes in A Conflict of Visions that the right generally has a greater tendency to accept the inherent risks of the market, relying on individual freedom over centralized state interventions.

In contrast, from a left-wing perspective, the State is seen as a necessary agent to correct “market failures,” which often justifies policies that intervene in private property. This approach presents a view of the economy where private property is seen as subordinate to collective well-being. But as Ludwig von Mises warned in Human Action, attempts at socializing the economy, whether through expropriation or redistribution, tend to erode the foundations of prosperity, as they break down individuals’ incentives to produce and save. For Mises, the protection of property rights is not only an economic issue but an ethical basis for coexistence in society.

In this referendum, what was really at stake was not only the sustainability of our pension system but also the ethical foundations on which our society rests. As citizens, we must deeply consider whether we are willing to sacrifice property rights—the foundation of our freedoms—for an approach that, while well-intentioned, could erode essential principles for coexistence in a free society and ultimately harm prosperity and economic growth. This right, understood from a classical liberal and libertarian perspective, represents an inalienable principle that allows the individual to keep and manage the fruits of their labor. As thinkers like Locke and Kant argued, private property is a natural right that must be respected, and its violation in the name of social justice or redistribution undermines individual autonomy.

The analysis of property rights in the context of pension reform presents a dilemma between two political visions. The left, in prioritizing social justice and redistribution, tends to view property rights as a construct that can be adapted to collective needs, even if this reduces an individual’s control over their assets. While this stance may seem noble in intent, it poses significant risks: by granting the State greater power to intervene in individual resources, it weakens the barriers that protect personal freedom. As Hayek warned in The Road to Serfdom, state power to control private property can lead to authoritarianism, as restrictions on property often translate into restrictions on freedom itself.

Beyond this, the moral balance in our culture increasingly needs to lean towards an understanding of individual interest, personal sovereignty, and private property as ethically superior to attempts to see the individual and their property as mere instruments for an alleged collective good.

Although this reflection does not aim to cover the entirety of this debate, it is crucial to understand that looking after one’s own well-being is both legitimate and ethical. Solidarity or imposed altruism do not have to be intrinsically superior or take precedence over personal values, goals, and interests. Defending individual ownership and sovereignty against attempts at expropriation—whether through taxes, new laws, plebiscites, or phenomena like inflation—is, in essence, just and moral.

As Rand argued, imposed altruism is incompatible with individual freedom, as it nullifies each person’s ability to act according to their own values and goals. According to her, living for one’s own well-being, guided by reason and without mandatory sacrifice for others, is not only the path to a fulfilling and free existence but also represents a more advanced ethical framework. Defending personal property and autonomy is not only a practical matter but also a moral one: relinquishing this in favor of collectivist demands would mean denying each individual’s fundamental right to live as an end in themselves. In this way, mechanisms that compromise freedom of choice—such as taxes, inflation, or forced regulations—represent an unjust erosion of individual rights and are immoral.

On the other hand, although the right is not perfect in its defense of property rights, it tends to maintain a more favorable stance toward individual autonomy in economic matters, more consistently protecting market freedom. From this perspective, as Friedman and Rothbard argue, the State’s role should be limited to protecting individual rights, allowing people to prosper through their own efforts without risking their assets due to political decisions. Friedman, in particular, upheld the idea that respect for private property is essential to freedom, as without a foundation of economic security, there can be no true political independence.

Understanding private property as a foundation for prosperity and justice implies that the State should commit to respecting this right, ensuring that the protection of individual resources is not subject to ideological shifts or policy swings. Without reducing property rights to a utilitarian justification, history shows that societies that protect property rights achieve higher levels of economic growth and general well-being, as each individual is motivated to contribute to development, benefiting both the individual and the community.

Ultimately, the real question is what kind of society we want to build. A society where the State has the power to intervene in citizens’ assets for redistributive purposes may, in the short term, reduce some economic inequalities; however, in the long term, this tendency erodes freedom and discourages wealth generation, as Mises warned in Human Action. Conversely, a society that respects private property and individual rights is more resilient and capable of adapting to economic changes, fostering genuine equality of opportunity based on personal effort rather than dependence on the State.

This referendum brought to light a much deeper issue than just pension system reform: it confronts us with the need to decide whether we are willing to defend the principles underpinning individual freedom and personal responsibility, or if we prefer to delegate our future to a paternalistic, collectivist State. The choices we make going forward will have lasting consequences, not only for our economic well-being but also for the ethical character of our society.

Sources:

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Friedman, M. (1962). Capitalismo y libertad. University of Chicago Press.

Hayek, F. A. (1944). Camino de servidumbre. University of Chicago Press.

Kant, I. (1785). Fundamentación de la metafísica de las costumbres. Felix Meiner Verlag.

Locke, J. (1689). Segundo tratado sobre el gobierno civil. Cátedra.

Mises, L. von. (1949). La acción humana: Tratado de economía. Ludwig von Mises Institute.

Nozick, R. (1974). Anarquía, Estado y Utopía. Basic Books.

Rand, A. (1964). La virtud del egoísmo. Signet.

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Sowell, T. (2009). Conflicto de visiones. Gedisa.