property rights — VOICES for REASON

Do you know what Venezuelan strongman Hugo Chavez said the other day? He was speaking at a televised ceremony in his presidential palace. In the room were representatives of Chevron, the American oil giant, and other multinational oil companies. They had just signed on to invest billions of dollars to exploit oil in Venezuela’s Orinoco basin.

“Dear friends, partners, allies,” Chavez told the assembly, “you know you have all the guarantees of our Constitution and our laws.”

Really? And exactly how strong are those guarantees?

Chevron might want to ask ExxonMobil about that. Whatever Chevron’s reasons (or rationalizations) for going in, the record of Venezuela’s treatment of foreign companies speaks for itself. Less than three years ago, Venezuela nationalized massive oil facilities operated by Exxon and several other western companies. They all had signed agreements guaranteeing long-term concessions. Chavez just tore those up and tossed them away.

I call it theft by engraved invitation. I say “theft” because I reject the widespread view that a nation owns the natural resources within its borders and is therefore entitled to seize private assets; when a state like Venezuela seizes private assets, I think that should be regarded as a kind of theft. And I say “engraved invitation” in reference to the so-called contracts that western companies sign with eyes wide open, delivering their advanced technology—and the engineers and technicians who understand and operate it—to the custody of thuggish governments with long histories of seizing private assets whenever they please.

What would happen if companies like Chevron and ExxonMobil were to stand up and declare that nationalization is theft? What if they called upon their own government to issue similar condemnations? What if such companies ceased propping up the world’s failing socialist economies?

I’d like to see what would happen to Chavez and his ilk if they were deprived of victims.

Image: WikiMedia Commons

The Supreme Court is wrestling with a case involving a state-funded program of beach sand replenishment that’s threatening the property rights of private beach owners. But the conflict that gave rise to this case should never have arisen at all.

The lawsuit was brought by owners of beachfront property in Florida whose deeds include the beaches themselves. (That’s not always the case—in some states, private ownership of beaches is forbidden by state governments that declare them all public property.) Like many states, Florida has a program of beach replenishment to compensate for erosion from hurricanes and natural wave action. These programs pay for powerful dredging machines to pump new sand onto the beach at public expense.

The plaintiffs in the case (called Stop the Beach Renourishment Inc. v. Florida Department of Environmental Protection) object to the program because the new strips of sand become public property—raising the specter of sunbathers and surfers parading between the plaintiffs’ private houses and the ocean’s waves. The landowners say that’s a “taking” of private property by eminent domain, requiring a money payment to compensate for the diminished value of a beach subject to public access.

Notice how the beach replenishment program creates an insoluble conflict between property owners and taxpayers. The property rights of beach house owners—who presumably paid a premium for their own private stretch of beach—are violated when a public beach can be grafted by government fiat onto the shorelines of their property. But the property rights of all Florida’s citizens are violated when their money is taken to pay for beach replenishment, which is no part of a government’s proper functions.  Read the rest of this entry »

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

A thoughtful reader sent in a comment I’d like to discuss, in response to my post, “What are the property rights of mall owners?” In that post, I argued that a private shopping mall’s owners have the right to decide what conduct is permissible on their property. In the particular case at issue, a mall was being sued because it had called the police to remove protestors who were urging shoppers to boycott the mall.

My commenter wrote this:

Mall owners hold their property out as a public space for people to gather, shop, get entertained. Seems unfair to allow them to hold themselves out as a public asset, get public financing in many cases, provide space for public events (which many malls do), and make serious dough doing so, without expecting that they would be treated as a semi-public place when it comes to Constitutional protections for free speech at the core of our democracy.

I don’t see why property owners need special protections from democratic principles.

This comment certainly reflects widespread views, but it contains a number of confusions (for instance, confusions over the meaning of “democracy” and over the meaning of the Constitution’s protection of free speech). For now, though, I want to focus on just one confusion. It’s this idea of a “public space” as any area where members of the public who are strangers to each other might congregate for a common purpose.

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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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It’s vital to see how the “bundle of rights” approach obliterates property rights as a moral principle. In truth, property rights are inviolable moral principles, protecting each individual’s sovereign right to keep the material values he earns and use them to support his life. This principle is violated when the very first “stick” is removed—that is, when property rights are infringed for the very first time. The crucial benefit of principles is that they serve as early warning systems, like the nerve endings in your skin, alerting you to any damage, no matter how slight, so that you can quickly identify the source of the pain and fight it. The “bundle of rights” approach is specifically designed to anesthetize you against awareness that your rights are being violated. That way, a thousand cuts can be inflicted—a thousand regulations can be imposed—and you won’t know what’s happening to you. Here’s how the authors sum it up: “[F]raming property as bundles of rights and forewarning of limitations weakens perceptions of ownership and decreases resistance to subsequent restrictions.” (Italics added). Here’s my translation: If legal professionals systematically avoid telling people they have a moral right to their property, there will be less messy resistance when those rights are taken away by government fiat. Under this concept, property rights can be selectively violated (or eradicated) by majority vote—rendering them in fact (but not in name) “bundles of permissions.” Read the rest of this entry »

Do you remember the moment when you turned the key in the lock of your first automobile, or your first house? Can you recall the sense of exhilaration you felt? “This is mine, all mine, and nobody can tell me what to do with it,” you may have thought. Part of what you were experiencing was the pleasure of ownership—exclusive personal dominion over an important material value.

If you’ve ever felt such owner’s pride, then you should be aware that according to theories long dominant in law schools, you don’t really own a car or a house—you only have a “bundle of rights” pertaining to its use. For example, if you have land, your “bundle” might allow building on it, walking on it, cutting down trees on it, digging in it, growing plants on it, fencing it off, and so forth.

This way of looking at property might strike you as idle academic chat. But it has serious real-world implications for anyone who values their property rights. Consider a recent scholarly article called “Property Frames” by two law professors (Jonathan Remy Nash, of Emory University School of Law in Atlanta, and Stephanie Stern, of Chicago-Kent College of Law) who use the bundle theory to answer the startling question with which they begin their paper: “How can we most effectively weaken property rights?”

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Today, the Supreme Court will be deciding whether to accept an appeal involving the following scenario:

Forty-five people carrying placards and handing out leaflets show up inside a shopping mall.  Their message? Boycott the mall’s stores. When mall management asks them to leave, they refuse—and so the police throw them out. The boycotters sue the mall for interfering with their speech rights. They win.

What makes such a legal outcome possible? At bottom, it’s a certain conception of rights as entitlements to the property of others. On this view, the right of free speech is empty unless someone provides the speaker with a newspaper, a blog, a microphone—or, in this case, a mall full of shoppers. But that’s a perversion of rights. In reality, the right of free speech pertains only to freedom of action, on and with one’s own property (or the property of others who agree to allow its use). Because a shopping mall is private property, every visitor is there by permission of the owner. That owner has a moral right (which should be recognized legally, but isn’t) to forbid visitors from staging a boycott campaign on that property.

The case I’m talking about is Macerich Management Co. v. United Brotherhood of Carpenters. If the Supreme Court accepts the case, what’s the chance it will apply a proper view of rights? Zero.

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Joseph Tanen operates a violin repair shop in Manhattan. His neighbors have not complained about noise (not surprising, since fixing violins is a delicate, quiet activity). Nobody has identified a fire hazard. Nobody has been bothered by a large amount of customer traffic in and out of his shop. Nobody has alleged that the shop is a nuisance. Nevertheless, zoning officials have shut it down. Why? Because the business is operated out of a residential apartment, and the New York City zoning law forbids that.

Have you ever actually read a zoning law? It’s essentially a long series of finely detailed permissions and prohibitions. Depending upon where your property is located, property owners are granted government permission to operate this type of business, but not that one. New York’s City’s zoning law comes in at 3,056 pages of picayune classifications and distinctions having no relation to whether a person’s use of his property physically interferes with someone else’s use.

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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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