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Getting Prices Right

HONG KONG – Building and maintaining the infrastructure of property rights – the rules, laws, registers, and administrative and judicial structures that define, protect, and enforce such rights and regulate economic transactions – has traditionally been the responsibility of national governments. But, as the world economy has become increasingly interconnected, a global property-rights infrastructure (PRI) has emerged – further raising the stakes of developing effective national PRIs and accurate price-discovery mechanisms.

The global PRI has arisen through countries’ widespread accession to the World Trade Organization, international accounting and regulatory criteria like the Basel Accords, standards established by the International Organization of Securities Commissions, and some aspects of international law. As national economies and multinational companies compete for market share, global standards of market behavior become increasingly important.

Consider the smart-phone industry, in which corporations like Apple, Samsung, Sony, Nokia, and Huawei compete fiercely to secure their global market shares. Given that companies cannot compete effectively in global markets without a sound domestic PRI, such firm-level competition has driven countries to improve the national PRI over the longer term.

Furthermore, establishing accurate asset-price levels is essential to a well-functioning market. The state affects asset prices indirectly through its influence on inflation, interest rates, and the strength of the currency. Governments can directly influence the prices of key resources like energy, money, and public goods and services through taxation, customs duties, production quotas, and natural-resource ownership.