Eminent Domain

Megan McArdle wrote about this some months ago and I’m just now getting around to discussing:

Unless you’re a libertarian, or a lawyer, you probably didn’t pay too much attention to Kelo v. New London, an eminent domain case that worked its way all up to the Supreme Court. New London wanted to hand over its ability to seize private homes to a private entity, the New London Development Corp, in order to “develop” the area for Pfizer, which had a plant in the area. Libertarians objected strenuously, and helped Susette Kelo push her claim to the highest court of the land . . . which then ruled against her.

Now Pfizer is pulling out, following their merger with Wyeth. Incoming mayor Robert M. Pero wanly says: “Basically, our economy lost a thousand jobs, but we still have a building”.

Alex Tabarrok coins an aphorism: “Those who would sacrifice property rights to development end up with neither.” Too true–it’s worth noting that the other landmark eminent domain case, Poletown, was in Detroit. But it’s not really that tempting to gloat, because this is a pretty tragic disaster for New London.

This is a pretty good demonstration of not just the craziness of eminent domain aimed at helping businesses, but also the larger problem of businesses being subsidized to come build in a certain locale and never delivering on the jobs they promised. I wrote about this problem in May of 2008. More has to be done to hold companies accountable when they are being offered incentives to come to a particular area. When I wrote about the issue then I referenced a plan used in Minnesota that has had a positive effect on this problem. Here are the highlights:

• Communities and public agencies that provide economic development subsidies must develop uniform criteria for all their subsidy deals, including a specific wage floor for these jobs.
• Public hearings must be held before business subsidies worth more than $100,000 are awarded
• All businesses receiving more than $75,000 in loans or $25,000 in other subsidies must enhance jobs or create a net increase in jobs in Minnesota within two years; subsidies to retain existing jobs are permitted only if the job loss is “specific and demonstrable;”
• Businesses receiving subsidies must continue operations on the site for at least five years;
• Businesses that fail to meet job creation and wage goals must repay the subsidy with interest and face other financial penalties, and be barred from receiving future subsidies in the state;
• Subsidy agreements, including the type, public purpose, and amount of assistance, as well as specific job and wage goals and the date they need to be reached must be disclosed annually to the public
• Progress in achieving the goals of each subsidy and information on businesses that did not meet goals must also be disclosed.

As you can see, this is pretty commonsense stuff, or at least it seems like it should be to the average citizen like myself. I don’t know what makes some political leaders gamble otherwise, unless they are so desperate for jobs they are willing to gamble. This may often be the key motivation for making risky offers to businesses but it seems it is often a fool’s bet.