eminent domain — VOICES for REASON

In a post of mine called “Eminent domain ‘abuse?,’” I wrote that eminent domain “has no place in a free society” and that it would be practical to build roads, bridges, and power lines without calling on government to seize land by force of law.

A reader challenged my position, noting that a private contractor who tried to build a road without eminent domain could not obtain the land at a price that would allow a profit. The closer he got to completion, the commenter worried, the higher the price each landowner would charge for the last pieces of the puzzle.

Here’s the kind of scenario this comment suggests. Suppose the New Road Company wants to build a highway from Point A to Point B. It starts quietly buying up plots of land along the planned route. After a year or so, however, word leaks out that millions of dollars have been invested in this route. The planned route is apparent from the locations of the properties being bought. And it’s obvious that the entire investment will become worthless unless the company can acquire a one-acre parcel owned by Joe Lucky, whose land offers the only practical entryway to Point B. “Kind of in a bind, aren’t you?” Joe says when the company’s representative comes calling. “Sure, I’ll sell my land–for $100 million.” The project collapses in debt, and the road never gets built. The implication is that modern transportation would grind to a halt without government’s power of eminent domain to seize property at lower-than-market prices.

Okay, let’s come back to reality. Consider the fact that successful developers are not idiots. No businessman with this little planning ability would ever be trusted with the millions necessary for such a project. On a free market, a typical developer would ensure (before spending millions on purchases) his ability to acquire the entire right-of-way for a reasonable price. How? One approach would make use of option contracts. In an option contract, a landowner agrees to sell his parcel of property for $X, but only if the developer can reach agreements with other owners permitting acquisition of the entire right-of-way for a reasonable price (that is, a price that will allow a profit). What’s more, a smart developer would be working on one or more alternative routes, to encourage price competition among landowners. No single landowner would be able to jack up his asking price arbitrarily, because the developer would never put himself in a position where he had to pay a price so high that profit became impossible.

The idea that public roads, built by eminent domain, are the only practical option for modern transportation is a myth that should long ago have been shattered. But we are too complacent. We sit idly in stopped traffic on inadequate highways and curse the rush hour, never imagining there could be a better option than a government monopoly built on coercion. Of course, a free market does not guarantee that every developer will invest his money wisely. Nor does it preclude the existence of landowners who refuse to sell at any price. The point is that on a free market, such people could do nothing to prevent others from making the necessary transactions to get roads built.

Just imagine, in this age of email, Internet, and FedEx, if someone argued that the only practical means of communicating across the American continent is through the federal government’s postal monopoly. That person would be laughed out of town. It’s high time people understood that not only communication but transportation can flourish under a regime of property rights and freedom of contract.

Image: Wikimedia Commons

Much has been written lately about the pitiful epitaph to the long-running eminent domain dispute that gave rise to the Supreme Court case of Kelo v. New London. Several years ago, the city seized Susette Kelo’s house (and a number of surrounding properties) in a scheme to enhance tax revenues. The idea was to clear a large tract of land on which private developers could build offices, residences, and commercial buildings. That complex would, it was hoped, please Pfizer, the pharmaceutical giant whose R&D facility in New London was one of the city’s biggest cash cows.

Now Pfizer has announced it is pulling up stakes and leaving New London. Not only will its R&D facility become a ghost town, but the vacant land where Kelo’s house once stood will remain a weed-choked wasteland for the indefinite future.

This whole ill-begotten folly is a valuable reminder of an important truth about the taking of property through eminent domain: it’s essentially an act of destruction, not of economic production. And that would be true even if a new development were to go up in New London.

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Eminent domain, the government’s power to seize private land for “public use,” was once confined to such humdrum business as condemning land for highways and power lines. But nowadays, eminent domain is being used to assemble large tracts of land for politically favored projects designed to fatten the tax rolls. According to Institute for Justice senior attorney Dana Berliner, writing recently in the New York Daily News, “anyone’s home, business or church can be taken” because courts have interpreted the Constitution to give “little or no protection to home or business owners.”

This expansive view of eminent domain has, in effect, given state and local government planners a blank check on the power to take land without the owner’s consent. In one such case that went to the Supreme Court back in 2005, Kelo v. New London, a local government made headlines by confiscating a woman’s home to make way for a private retail development. Civil liberties law firms such as the Institute for Justice have been trying to put the brakes on that trend by filing lawsuits and urging legislative reform, with some success.

As a result, however, public debate has increasingly centered on what’s called “eminent domain abuse.” This phrase has become so common that I think it’s a good idea to stop and examine what it assumes—and to question whether it’s the best way to think about eminent domain.

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A recently published book, Objectively Speaking, contains edited transcripts of some fascinating interviews Ayn Rand gave in the mid-1960s.

One of the interviews caught my eye because she discussed a legal issue that’s been in the news recently. The issue involves eminent domain (the government’s power to seize private property without the owner’s consent).

She began by making clear her radical position against eminent domain. She saw it as a “strictly statist principle” whose presence in the Constitution is a “major contradiction” to the principle of property rights. Then she analyzed problems that eminent domain causes in practice:

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