America at one time was a market economy, but as the country has aged, we have slid toward socialism in many respects. Among the signs of this slide is the loss of freedom to control one’s own land. That’s the case with farmers, for example, who must abide by government regulations on the crops they may grow. It’s the case with urban landowners, who must abide by zoning regulations. And it’s also the case when land is taken from owners under what is called eminent domain. This is the theme of Abuse of Power by journalist Steven Greenhut, who has followed this subject for years. What Greenhut gives us is a thorough investigation of the rampaging growth of this assault on private property, which frequently leaves the reader shaking his head in disbelief at the villainy of the process.

The original concept of eminent domain sanctioned in the Constitution is that government may take private property when it is necessary for a public use, and then only if just compensation is paid to the owner. Even that is a dangerous departure from libertarian principles; government should no more make anyone “an offer he can’t refuse” than should criminals. But so long as eminent domain was limited to property seizures only for true public uses—roads, for example—the damage was fairly small. The problem, Greenhut informs us, is that eminent domain is now routinely used to take land from people not for some public use, but instead to advance anything that might be called a public purpose. By going along with this, the courts (the U.S. Supreme Court is now the main culprit) have allowed an almost limitless expansion of eminent domain.

As Greenhut shows with many, many cases, eminent domain is now routinely used to transfer land from one party to another simply because politicians believe that it will be put to better use. “Better” here simply means “paying more in taxes.” An old house or a small business brings in a small tax take. Condemning the property and forcing its sale in order to hand it over to a big commercial enterprise that will generate far more tax revenue is regarded by many politicians as a public purpose. They have no qualms about slapping the label “blighted” on people’s homes or businesses so they can force them out.

Forced transfers to satisfy politicians and well-heeled developers are appalling enough, but the other side of the transaction is also terrible. The requirement of “just compensation,” Greenhut contends, is often ignored. “Almost always,” he writes, “the government tries to lowball the property owner, in many cases offering a fraction of the property’s value.” The unfortunate property owner usually loses. Even if he hires an attorney to contest the amount offered, the legal expenses involved generally mean a considerable net loss in wealth for him. (Of  course, “compensation” in a forced sale can never be just; justice requires consent.)

Where is the judiciary in all this? Won’t judges step in to stop these seizures? Unfortunately, no, as Greenhut demonstrates. Judges are often indifferent to the plight of individuals targeted for removal. Most seem to share the mindset of the politicians: that people who fight against eminent domain are greedy opponents of social progress.

Not even churches are safe from eminent domain. Actually, tax-exempt property is among the least desirable of all uses from the standpoint of tax-hungry politicians. Greenhut’s cases where churches have been eminent-domain victims will raise the reader’s ire further.

An instructive side lesson is that many of the politicians guilty of eminent-domain atrocities are “liberals” whose campaign rhetoric oozes with “compassion” for the supposedly downtrodden citizens.They don’t mind treading all over real people, however, if it will enable them to achieve the supreme objective of an expanded tax base, enabling them to spend more on their favorite projects and constituencies. Eminent domain is another piece of evidence for the Public Choice economists.

At the book’s end Greenhut offers helpful advice to people who find that they need to fight back. It can be done. Bravo to the author for showing how.

A casual reader could be forgiven for skimming through a front-page Los Angeles Times article from February 12 and thinking that the story was just another Times exposé of political corruption in some Third World backwater. The article is like so many others, offering a tale of a government without contested elections, the use of police powers against political insurgents, and leaders who enrich themselves and choose economic winners and losers within their domain.

On closer examination we learn that the story took place, not in some far-off nation, but in California, in the tiny industrial city of Vernon, located only a few miles south of that newspaper’s downtown offices.

“Twenty-five years after its elected officials last had a contested ballot, eight strangers took up residence,” the Times reported, noting that the newcomers had instantly filed papers to run for city council. “Within days, city utility trucks had turned off their power. The building they shared was slapped with red tags by inspectors who said the property was ‘unsafe and dangerous’ as a residence. Strobe lights flashed through their windows. They and some of their relatives were placed under surveillance. Shortly, city police and the officials drilled holes in the locks and evicted the would-be office-seekers. Having deprived the interlopers of city residence, Vernon officials on Jan. 27 disqualified them from the ballot.”

With the newcomers gone, the old guard could stay in power, eliminating yet another election and clinging to the benefits they receive for running this five-square-mile city of 93 people. Who says small towns can’t be plagued by big government?

Because Vernon is, in essence, an industrial park that is incorporated as a city, it is an oddity. But in reality, the city is just an extreme example of what’s happening in California and nationwide when it comes to municipal government.

City officials don’t see themselves as representatives of the “people” who busy themselves with protecting their rights and providing a few fundamental “services,” such as infrastructure, public safety, and the like. Instead, city staff and city councils view themselves as economic developers, charged with luring new businesses, keeping old ones from leaving, and micromanaging their micro economies.

Sometimes their goals sound high-minded (rejuvenating downtown), but basically it’s about the cash. Municipal governments are hell-bent on maximizing tax revenues at every turn, and they use their vast powers to achieve that end. It’s the corporate state at the local level, yet something that many observers and activists—even libertarians and conservatives—overlook as they fixate on state capitals and Washington, D.C.

Cities have carrots and sticks available to achieve the desired outcomes. In Vernon we see the stick in action. The city controls the entire housing market and used its regulatory powers to deny legal residence to newcomers. One cannot live in a non-approved industrial building, so the city sent code officials and police to drive the new residents out of town. I’ve never seen this before, but I routinely watch cities deny conditional-use permits (CUPs) to churches that want to locate in industrial parks. That’s because city planners know that by shifting a use from industry to religion, they lose some of their tax base.

I have repeatedly seen cities deny approvals for housing tracts for similar reasons—officials view such tracts as a drain on their budget. They much prefer that raw land be used for the construction of big-box stores, hotels, and auto malls, which offer lucrative sales-tax bounty.

The biggest economic-development stick is, of course, eminent domain. That process has gained much attention since last summer, when the U.S. Supreme Court ruled in Kelo v. the City of New London (Connecticut) that it’s okay for cities to use eminent domain to take nonblighted properties from their owners and give them to developers in order to improve economic development.

The public, understandably, has been outraged at the notion that their homes or small businesses are not safe from the greedy eyes of developers colluding with tax-hungry city officials, and the backlash is still unfolding in Congress and state legislatures. But most of the considerable nationwide focus, and all of the proposed legislative fixes, have been on the act of taking property from one owner and giving it to another owner. Yes, there is a broad understanding that cities do this to expand the tax base, but there has yet to be a wider understanding of the dangers of the entire economic-development process—the driving force behind the eminent-domain controversies.

Too often foes of the eminent-domain aspect of that process bend over backwards to assure officials that they agree with the concept of removing blight and boosting local economies. It’s just that cities shouldn’t rob one set of owners and benefit another set. Redevelopment is good, as long as eminent domain is left out of the picture, they say.

But it’s not just eminent domain that’s the problem. It’s the entire economic-planning regimen, spoon-fed to cities nationwide by groups such as the National League of Cities and the American Planning Association. It’s not just the stick that’s the problem, but the carrot, also.

Tools of the Trade

Governments have vast economic-planning tools at their disposal, which usually come with complicated names (Strategic Investment Programs, Tax Increment Financing, Industrial Development Bonds, Enterprise Zones, and more) designed to disguise what they truly are: corporate welfare. The two main categories are direct subsidies and tax breaks, or abatements, in which specific companies or businesses located in specific areas get reductions in their tax payments.

Libertarians are united in recognizing the evil of the first category. Government should not be in the business of robbing Peter and paying Paul. They have different views on the second category. Some argue that any tax break is good, in that it reduces government’s transfer of dollars from the private sector to the public sector. Others argue that giving a tax break to one targeted recipient increases the burden on all other taxpayers.

“One theory,” says Steve Frates, director of the Rose Institute for State and Local Government in Claremont, California, is “that because government is bloated and not efficient, a targeted tax break can be efficient. The government might tighten its belt, and anytime you cut taxes, it’s a good thing. The other argument is that targeted tax breaks allow government decision-makers to make value judgments. Very rarely are government officials good at making such judgments. When they make a decision about economic rewards, it’s not based on economic efficiency but on aesthetics, such as deciding they want a new boutique downtown.”

Sometimes, Frates argues, government planners succeed at doing things that benefit the city, from a government-finance point of view. Giving a tax break to a car dealership, for instance, might help a city’s tax base if the alternative is the dealership locating in a nearby city. But that doesn’t necessarily benefit local citizens or the region in general.

The basic question, according to Frates, is: “Does city staff make better decisions than the market?”

Not too tough to answer.

We can argue philosophically about whether a targeted tax break is ever acceptable. The broader point is that such breaks are part of a process whereby local officials pick winners and losers, and those companies that win typically are the ones most adept at political gamesmanship.

In addition to targeted tax breaks, cities offer industrial revenue bonds (IRBs), the interest on which is tax-exempt for investors. As the city of Albuquerque explains in promoting such bonds, “The city issues the bonds but is not making the loan. The investor buying the bond makes the loan. The company must find its own bond purchaser. It can also buy its own IRBs. The city technically owns title to the facility built with IRBs and leases it to the company for up to 20 years. At the end of the term, title is transferred to the company. . . . Because the city owns the title to the project, it’s exempt for up to 20 years from 95 percent of property taxes on land, buildings, and equipment. And a company may also receive gross receipts and compensating tax exemptions on initial purchases of equipment made with bond proceeds.”

Cities can offer direct loans to companies. I’ve seen cities give major companies valuable commercial real estate for some nominal fee, such as $1. Sometimes cities will float a bond and use that money to build something for the developer. In one California case, the city of Mission Viejo built a parking garage at a privately owned mall, defending its action as part of the city’s infrastructure mission.

Sometimes cities will kick back tax revenues to the business, or offer low-interest loans, subsidized by taxpayers. Pretty much any way you can think of to provide benefits to a favored company has been proposed or tried. These financial benefits are often mated with favorable land-use approvals. Usually, city officials defend these policies as net gains: the city supposedly gets more back in tax revenue than it loses from the transfer. How many times have we heard mayors boast about the latest “win-win” situation? It’s not much of a win for taxpayers, who see some of their dollars used to build infrastructure for the new project. Typically, tax dollars are diverted from traditional public services, such as police, fire, and libraries, to parking garages, roads, and other elements of the new redevelopment project.

The Grand Plan

Specific incentives, whether tax breaks or outright subsidies, aren’t offered in a vacuum. They are usually part of some grand redevelopment idea. If, for instance, a city wanted just to keep a business from leaving by reducing that business’s taxes, that’s fairly understandable, even if objectionable compared to an across-the-board tax cut. I’ve witnessed that in small rustbelt cities which were sure they couldn’t afford to lose a major employer.

Increasingly, though, cities are not content using incentives for the occasional hard case. The goal is to embrace an overall central-planning vision, in which local officials carefully control land use and manipulate the market to bring in the highest amount of tax revenues for the city.

There are slightly different rules and processes in each state, but it’s done basically the same way everywhere. In California the process is known simply as “redevelopment.” Everyone is in favor of redeveloping grimy areas, so the process has marched along its merry way with little criticism for many years.

“There is an unknown layer of government in California, which few understand,” explains the booklet “Redevelopment: The Unknown Government,” by Orange County supervisor Chris Norby. “This unknown government currently consumes 8 percent of all property taxes statewide. . . . It is supported by a powerful Sacramento lobby, backed by an army of lawyers, consultants, bond brokers and land developers. Unlike new counties, cities and school districts, it can be created without a vote of the citizens affected. Unlike other levels of government, it can incur bonded indebtedness without voter approval.”

This unknown government can lavish subsidies on companies and use eminent domain to take properties away from existing owners. Cities—the redevelopment agency is typically run by the city council and city staff—create project areas within their boundaries. Some cities have made their entire boundary a project area.

In California and some other states the agency must first discover “blight” before creating a project area. Almost anything passes for blight. For instance, municipalities can call areas blighted if they have excessive urbanization or too little urbanization, if the median property values are below the state median, or if officials find “piecemeal development” (most properties in an area owned by different owners) or even chipping paint on a few houses.

Blight is usually discussed in the context of eminent domain, because once an area is found to be blighted officials can use that power. But the discovery of blight is also the cornerstone for the creation of these often massive redevelopment areas that transfer decision-making from individual property owners to the government. Within those areas, government can do largely as it chooses, from taking properties to lavishing subsidies on specific developers.

The key financial mechanism that supports “redevelopment” is Tax Increment Financing, or TIF. It works this way: property-tax revenues from a project go to the city’s redevelopment agency, which must use those dollars to pay off bonds that were floated to finance the project. So instead of the tax dollars going to traditional government services, such as road building, schools, and the fire department, the money goes to the agency for development, which gives cities a huge incentive to create as many project areas as possible. It means money and power.

The theory is that the city deserves the new tax dollars because its efforts are improving the supposedly blighted area. But the reality is quite different. Cities don’t often use TIF to fix up blight, but to increase their tax base. Often they engage in what is called “growth capture”—city planners wait until a stable or depressed area is starting to bounce back on its own. They then brand the area “blighted” and use that as an excuse to capture the new values and transfer the gain from the old owners, who held onto the properties during the lean years, to new developers who savor the prospect of getting prime property for far-below-market rates.

Because those tax-increment dollars must be used to pay off debt, the cities engage in wild debt-spending sprees. One small city in California with 32,000 people (Brea) racked up more than $600 million in total indebtedness in part to bulldoze its old downtown and create a brand-new one from scratch, built by one developer.

The financial aspect of this is shaky. The redevelopers depend on a constant long-term stream of revenue (usually for the 30-year life of the bond) to pay off the debt used to fund the project. But central plans don’t always work as well as the central planners hope. I’ve witnessed quite a few failed projects, and have watched cities constantly ratchet up the redevelopment game to feed the beast.

Is the tax increment in the project area less than expected due to an economic downturn or competition from a neighboring city engaged in a similar retail project? If yes, then cities create new project areas that can bring in even more tax dollars to backfill the shortfall from the old project areas. Redevelopment debt gets constantly refinanced, and cash-hungry cities frantically look for new projects by luring businesses from neighboring cities.

In southern California, where one city runs into the next, the cross-town rivalry can become intense. It doesn’t often matter to, say, a car dealership whether it locates on one side of the 57 freeway in Placentia or the other side in Fullerton. So cities will bid up the subsidies, and current councils will let future councils clean up the mess if the promises don’t pan out.

Does It Work?

When these proposed projects are debated before the public (sometimes the projects are snuck through redevelopment agency meetings as quietly as possible to avoid public outrage), city-council members and staff talk about all the great economic benefits that will flood the community. The Favored Developer will stand before the council and show his architecturally lovely drawings of the new downtown, new industrial park, new neighborhood, or new retail center.

I’m reminded of journalist Henry Hazlitt’s story about the bridge in Economics in One Lesson: “When providing employment becomes the end, need becomes a subordinate consideration. ‘Projects’ have to be invented. Instead of thinking only of where bridges must be built the government spenders begin to ask themselves where bridges can be built. Can they think of plausible reasons why an additional bridge should connect Easton and Weston? It soon becomes absolutely essential. Those who doubt the necessity are dismissed as obstructionists and reactionaries.”

While redevelopment is more about tax revenue than job creation, the same process is at work. Officials look for reasons to create a project. Then the whole economic well-being of the community rests on the shoulders of that project. Those who criticize the project are indeed deemed reactionaries who don’t care about the future of the community. Years later, no one examines whether the project actually did as promised, and by then a new council is on to another great idea.

Here’s Hazlitt’s bigger point:

The bridge exists. It is, let us suppose, a beautiful and not an ugly bridge. It has come into being through the magic of government spending. Where would it have been if the obstructionists and the reactionaries had had their way? There would have been no bridge. The country would have been just that much poorer. Here again the government spenders have the better of the argument with all those who cannot see beyond the immediate range of their physical eyes. They can see the bridge. But if they have taught themselves to look for indirect as well as direct consequences they can once more see in the eye of imagination the possibilities that have never been allowed to come into existence. They can see the unbuilt homes, the unmade cars and washing machines, the unmade dresses and coats, perhaps the ungrown and unsold foodstuffs.

Yes, redevelopment and corporate subsidies bring to fruition specific projects, some of which are pretty nice, create jobs, and offer valuable things. The issue is what we don’t see. Redevelopers act as if nothing would be built on the spot had they not built it. This is a ludicrous argument here in Orange County, where land often tops $1 million an acre. Something good, even better than the current project, would certainly have been built in most instances had the market been left to its own devices.

A Net Loser

Even on their own terms, however, these projects typically don’t pan out. In Garden Grove, California, officials were intent on capturing tourist dollars from the nearby Anaheim Disneyland resort area, so they “invested” heavily in hotel construction. As an Orange County Register editorial explained in 2004, officials in 2000 predicted $33 million in revenue to the city after seven years, but revenues ended up at a mere $13.6 million after three and a half years. Then after the loan and bond payments were subtracted, the gain totaled $2.7 million over that period. Activists argue that if the cost of the land and other costs are figured in, the city was a net loser in the process.

And because the dollars are far short of what was predicted, Garden Grove officials have been on a mission to develop an attraction (theme park or Indian casino) that will keep the underused hotels filled. That mission has driven them to consider using eminent domain against well-maintained neighborhoods and to shower even more subsidies on corporations. Here we see how central planning pushes officials to first abuse taxpayers and then abuse landowners.

“Does the tax abatement method meet with success?” asked Michael LaFaive of the Mackinac Center for Public Policy in a 1999 article. “Not as much as if local officials simply would keep taxes low in the first place. CRC [Citizens Research Council of Michigan] found that economic growth takes place in jurisdictions where taxes are low and which consequently grant fewer abatements.”

Even free-enterprise-oriented economic development ideas fall short. Remember “enterprise zones,” the brainchild of former congressman and Housing and Urban Development secretary Jack Kemp? Based on the sound idea that grimy areas could be fixed up by reducing regulations and taxes, the Reagan administration made this the basis of its urban policy. Yet because the zones ultimately became the creature of government rule-makers, the results have been less than stellar. A Los Angeles Times article from January found that such zones have produced few jobs for low-income people in California.

“Businesses in upscale areas such as the Long Beach waterfront and San Francisco’s fashionable South of Market district get tax breaks because zone boundaries are based on decades-old census data,” the newspaper reported. “Employees of such companies who live in town houses in and around parts of San Francisco’s exclusive Nob Hill neighborhood, beach lofts in Long Beach and vintage bungalows of Oakland’s upscale Rockridge district can qualify their employers for credits; dated maps show those neighborhoods as low-income. The state is subsidizing six-figure salaries in these zones.”

The obvious point: If fewer regulations and lower taxes cause an economic boom, why not simply reduce regulations and taxes across the board?

Local economic planning, especially the creation of redevelopment project areas, actually slows down neighborhood improvement. Once an area is deemed a redevelopment area, property owners stop investing in their properties because they are not sure that they will ultimately reap the benefit of the investment. They become subjects of the central planners who will make the main decisions that affect the economic vitality of the area.

The L.A. Times in 2000 did a computer analysis of North Hollywood, recipient of some of the most aggressive redevelopment activities in the region. “Two decades and $117 million in public money later, efforts by the city of Los Angeles to rescue suburban North Hollywood from creeping blight have largely struck out,” the newspaper concluded. “Of perhaps greater significance, North Hollywood’s recovery has lagged behind other depressed areas in Los Angeles that improved without any money from the city’s CRA [Community Redevelopment Agency], according to the Times analysis of census, property and employment data.”

Could it be that the marketplace works after all?

Problems with Incentives

Most city managers and economic-development officials that I’ve talked to fancy themselves as CEOs of companies, and they argue that what they are doing is no different from what private companies do: maximizing revenues. “Why wouldn’t a libertarian support what we’re doing given that you value private business and understand the importance of profit?” I’ve often been asked.

The answer is simple. Cities are not businesses. They take the tax dollars of residents and make decisions about land use that are backed by police powers. They do not operate in a market; they do not have voluntary stockholders. Despite the delusions of city managers, the city staff usually is not as sophisticated or as skilled as corporate staff, which means cities often get a poor deal when negotiating with rent-seeking corporations.

When cities insert themselves into the economic development game, either with carrots or sticks, they:
• Shift decision-making from individuals to governments;
• Take money from taxpayers and redistribute it to individuals and companies;
• Undermine property rights and other freedoms;
• Encourage a class of rent-seekers, who learn to lobby city officials for favors and special financial benefits;
• Put unfavored businesses at a competitive disadvantage with those who are favored; and
• Stifle political dissent, as companies that are dependent on the city for lucrative work become reluctant to speak their minds about any number of city issues.

Despite what city managers will tell you, the choice is not between economic development and letting a city rot. The choice is between central planning, empowering officials to decide which businesses are worthy of their help, and the good old free market, which lets free people decide which business should succeed or fail.

City officials like to be “proactive,” as they say, and help with economic development. There is something they can do. They can get out of the way, by lowering tax rates, deregulating, ending zoning restrictions, and eliminating exclusive contracts with utilities and developers. It’s not out of the question. The city of Anaheim is doing just that, with remarkable results.

Mackinac’s LaFaive puts it well in a 2003 article: “The best business climate is one in which government ‘sticks to its knitting’ and does its particular assignments well, at the lowest possible cost while creating a ‘fair field with no favors’ environment for private enterprise.”

Not a bad template. Sure beats a world of central planning, where city officials can choose who gets handouts and even who gets driven out of town.

There are occasions, however, in which that resigned complacency is replaced by a collective gasp of indignation that sounds a clarion call for action. The two key conditions for a popular uprising are not easily satisfied. First, the government action has to be simple and direct, so that it hits people right in the gut. Second, it has to be an affront to a constitutional provision simple enough for everyone to understand. Outrageous actions that are flatly illegal do produce a firestorm of protest by ordinary citizens turned constitutional lawyers.

There are few cases in which this explosive mix seems to occur. It certainly happens with school prayer, abortion, and affirmative action. But land-use planning and condemnation has been such a fixed feature of our urban landscape for so long that is hard to believe that it could trigger that kind of social firestorm. But it did, big time, on June 23, 2005, in Kelo v. City of New London. That case catapulted private property rights into the top position of American problems, according to a Wall Street Journal/NBC poll. And why? Because a regrettable decision of the United States Supreme Court upheld an ambitious land-use planning scheme that the City of New London devised with the ostensible purpose of reviving the flagging fortunes of a small Connecticut city that had fallen on hard times. One portion of the plan, viewed in its most favorable light, authorized the condemnation and destruction of a number of family homes, with payment of compensation, which is always set below the actual loss to its owner—which is another, related, story. The land was to be transferred to private developers for use to promote general economic development, create jobs, and increase the tax base of the town. In its original inception, these were no modest aspirations: luxury hotels, fancy apartments, upscale stores, and wishful thinking.

Kelo required the Supreme Court to construe three little words,“for public use,” in the Takings Clause to the Fifth Amendment, which is short enough to quote in full: “nor shall private property be taken for public use, without just compensation.” A five-member “liberal” majority led by a determined Justice Stevens (who like Will Rogers has never found a government spending program he did not like) upheld the project. Justices Souter, Ginsburg, and Breyer happily signed on, and Justice Kennedy waffled a bit, but went along nonetheless. Their bottom line: any project that had some indirect public benefit in the eyes of the city elders was sufficient. The project could go forward. Four conservative justices, so-called, Rehnquist, O’Connor, Scalia, and Thomas, signed on to pointed dissents that castigated the Court for making the public-use clause a dead letter.

Outrage is the only way to describe the public reaction. (See, for one account, Timothy Egan, “Ruling Sets Off Tug of War Over Private Property,” New York Times, July 30, 2005, p. A1.) I had written on behalf of the Cato Institute (with Mark Moller) a brief that had decried the action of New London. For my pains I was besieged with phone calls from legislative aides in the United States Senate, California, Florida, Illinois, Missouri, Texas, and perhaps some others, who were determined to pass some constitutional or legislative fix that they thought would undo the massive damage that the Kelo decision did to their fundamental institutions. Legislation is pending just about everywhere. The U.S. House of Representatives condemned the decision by a vote of 365 to 33, with the likes of Tom DeLay and Maxine Waters at last finding common ground. Quite simply, they were all pushed by ordinary citizens who do not care one way or another whether John Locke had the right explanation for the origin of private property. But those folks went ballistic over the proposition that the state could take their lands simply to transfer them to someone who was richer and more powerful than themselves. Conservatives who believe in property and populists who dislike pushy corporations made a common cause.

After the Supreme Court decision, moreover, the New London Development Corporation only added fuel to the fire, both by serving eviction notices on the Kelo defendants and demanding back rent from them for the interim period of occupation. Those steps brought howls of protest from Connecticut Governor Jodi Rell and the New London Council, which announced that at long last it had lost confidence in its Development Corporation. At last word, the eviction orders have been rescinded and the rental claims dropped. Indeed, at the eleventh hour, even the status of the ill-starred grand plan is in issue. Stay tuned.

Since the worst thing that anyone can say about a Supreme Court justice is that he or she has engaged in the sin of judicial activism, Justice Stevens and his progressive liberal crew were quickly branded with that unseemly label. The four conservative horsemen, almost by default, now became the redoubtable defenders of the common man.

This whole overheated picture requires some unpacking—but none that will restore respectability to the dreadful mishmash in the Stevens opinion. First off, the phrase “judicial activism” should not be hurled around as an uninformed epithet, but should be given some precise meaning, along with that of its sometime traveling companion, the canon of “strict construction” of the Constitution. In its original inception these two concepts were thought to be closely entwined. The judicial activist was a judge who usurped legislative functions by invoking exotic conceptions of constitutional interpretation. Thus efforts to take over school systems and to pass legislative appropriations for prisons do count as instances of judicial activism.The activist judge strikes down legislation that democratic bodies have properly passed after due deliberation.

No Judicial Activism Here

But however grievous the sins of Kelo, “activism” is not the word to describe them. Quite the opposite, in Kelo Justice Stevens performed judicial somersaults to allow the city to go forward with its comprehensive plan to rip down the houses. He was too soft on government, not too hard. But strict construction raises a different flag, for how could the words “for public use” be read to allow the state to take land that was headed by design straight for private ownership and private use, whereby its new owners could exclude the entire world if they so chose. The first important lesson of this sorry exercise is that the principle of a strict construction often requires the invalidation of laws that violate an express constitutional prohibition.

Here it does not take a great lawyer to realize that the phrase “for public use” does not easily translate into “for private use, so long as there is any ‘conceivable’ indirect benefit from a planning scheme hatched by City of New London and its privately created Development Corporation.” More simply, every private home generates some public benefit, so that any time property is taken from A to B, it meets the capacious test of public use. That perverse rendering just writes the words out of the Constitution.

The abuse of legal doctrine is not something new: it is an inseparable part of Supreme Court jurisprudence. But in this instance, the judicial misadventure hit home. Justice Stevens lives in the thrall of a Progressive worldview that sees only good when the bulldozer knocks down a private home. The traditional view that property is the central institution for preserving and promoting the settled expectations of ordinary people is a view that has commended itself to such outdated thinkers as Locke, Hume, Smith, and Bentham. But ironically it was just that view that resonated so powerfully with people on all sides of the political spectrum, many of whom never heard of any of these eminent thinkers to whom they owe such an enormous debt. They could not see the wisdom or justice of throwing folks out of their homes to make way for the richer folks who could take their place.

Indignation in this case is a wonderful tonic because it wakes people up to the dangers that government can pose to institutions that they take for granted—which is itself a phrase taken from general property law. Indeed, if they had stopped to look at the particulars of the Kelo situation they would have been still more appalled. The best that could have come out of that sorry exercise in city planning was that the land on which the homes of Ms. Kelo and her fellow landowners sit would be occupied by fancier homes with a fine view of Long Island Sound. In fact the blundering planners of New London did not contemplate that the land would be used for that purpose. Rather, it was set aside for “park support services” that no one could define.

More generally, it turns out that this particular plan is best described as a “nonplan.” The city had full control over about 90 acres of property that were already in its possession; it had spent about $73 million in state funds to build infrastructure, do environmental cleanup, and engage in long-term planning. The only problem was that it did not have any private developers who were committed to putting any particular project on the land that it already owned! As often happens, there is a competition for development between different localities in the same region. And while New London dithered over its “plan,” smaller parcels of land outside of city limits had been turned into the hotels, shops, and office buildings that scooped the ones New London had hoped to put on its land. The houses were, for the most part, a sideshow, which never stopped the main plan anyhow. The plan that it had could have gone forward if those houses had just been left alone and not slated for senseless destruction on spec. Property is not taken for public use when the state has no idea why it is taken.

So What Do We Do Now?

Faced with so outlandish a decision, it is no mystery that people wonder when they go to sleep whether they will own their homes in the morning. The one silver lining in Justice Stevens’s opinion was that he noted that state legislatures could include in their constitutions and statutes protections that are more extensive than those (paltry) protections that he found in the public use provision of the Takings Clause. So the rush begins. Just what should be put in place of the despised Kelo ruling? And it is here that the job gets a lot more complicated. One key feature of the public-use language is that it does not specify at all what kind of property is taken. Yet to most individuals, Kelo would be just another property-rights case if the City of New London sought to take a vacant lot, abandoned store, or even farmland for public use. Sentiment would be more divided if it were a small business, or perhaps even a large one. But it is not so clear that the Constitution embeds in the public-use clause these very sensible judgments that some forms of property are more personal than others, and thus should receive a higher level of protection. Yet at the same time, a provision that says that private homes should never be taken for public use runs into difficulties the other way: do we really think that under no circumstances a private home should ever be taken for a public road, a hospital, or even an office building? There is only so much weight that we can place on three little words.

The situation becomes more clouded when we look to the historical evolution of the public-use language. The recent decisions before Kelo did not speak well for the intellectual or political acumen of the Supreme Court. Its 1984 decision in Hawaii Housing Authority v. Midkiff involved a Hawaiian scheme whereby individual tenants would place money in the public treasury that the state government would then use to condemn (on the cheap of course) the landlord’s interest in the same property. It looks to be as clean an illustration of taking from A to give to B as one could imagine. But a unanimous eight-member Supreme Court (Justice Thurgood Marshall did not participate) meekly caved in with a dreadful decision by (a then-compliant) Justice O’Connor, which found that Hawaii had “conceivable“ indirect public benefit in using the eminent domain power to counteract a supposed “oligopoly” problem that confronted the worthy Hawaiian Islanders. (It was largely attributable to its restrictive zoning laws, but that is another story.) The decision rested on the same flabby rule of constitutional deference as Kelo, but it engendered no public outcry at all. Why? Because no sitting tenant was knocked out of his home, and the chief landlord was the powerful Bishop’s Estate. The populists didn’t care.

Department Store Taken

Much the same can be said of an earlier decision that proved more important in the Kelo decision. The 1954 decision in Berman v. Parker involved a comprehensive plan to clean up a blighted area in Washington, D.C., by removing all the structures in a large district. Berman’s department store was located in the region, but was itself not blighted. No matter, said Justice Douglas for a unanimous court. All sorts of aesthetic benefits (which he blithely assumed that the planners could create) counted as a sufficient public benefit, so that Berman had to take the dollars and shutter his store. But again, no real outrage. Ordinary people don’t identify with blighted neighborhoods or small department stores, and besides the real dangers of bad urban planning were less apparent then than they are now.

Nor did the public react in 1981, when the city of Detroit, with the blessing of the Michigan Supreme Court, took an entire unblighted old ethnic neighborhood, Poletown, so that General Motors could build a Cadillac factory. In many ways the level of disruption of ordinary life was far greater than it was in Kelo, so it is critical to ask why the lack of some national backlash like that which Kelo has spawned. Two points come to mind. First, Poletown was a local matter; the case did not reach the U.S. Supreme Court. And second, at the time, there was no organized property-rights movement and certainly no campaign against eminent domain abuse, as there is today. In an age of raised sensitivity, Kelo brought together intellectual conservatives who fear state power with progressives who think that state power should be used to bring communities together, not rip them apart.

The complacent tone of Justice Stevens’s opinion in Kelo gave no hint that he (or anyone else, for that matter) was aware of the looming public outcry. But the anguished cries of protest clearly stung him. In a rare moment of public unhappiness, Stevens stated at a Las Vegas bar association meeting that he did not like the outcome in the Kelo decision, and thought that the free market was the best way to redevelop land. But, nonetheless, he concluded that he had no choice but to apply the judicial precedents that required Kelo’s unhappy result. The Justice was half right. There’s no question but that his decisions were consistent with earlier dreadful decisions. But there was no way to say that the results were required by them either. Here are three quick grounds of distinction. Kelo was the first case that involved the condemnation of private homes; it was the only case where the so-called comprehensive master plan specified no use for the condemned property; and it involved neither blight nor oligopoly. Stevens could have protected the Kelo defendants, and, ironically, defused the widespread challenge to the use of eminent domain to further development or enlarge the tax base. So what’s next?

Constitutional Interpretation and Public Trust

At this point, however, the complexities start to build up. Is the removal of real (hard-core) blight—the sort we know when we see it—sufficient reason to take land? Or is it a reason to raze the building as a public nuisance, while leaving the land in private hands? These choices are a lot tougher than the issue raised in Kelo. The same is true of the earlier line of cases which said that certain takings for (gasp!) private uses were all right because of the great public benefit they created. No, these cases were not early trial runs of Kelo. Typically they involved scrublands that lay between a productive mine and the railroad tracks that had to be reached to ship the ore to market. The danger was that owner of the scrubland would hold out for a small fortune and block the use of the mine. In other nineteenth-century cases, mills could only be created by flooding private farmlands, so that the same holdout problem existed. Cautiously, early courts tended to allow these takings for just compensation when the high-holdout problem was conjoined with the low subjective value of the scrubland (or farmland) taken for what looks like a private use, with some real public benefit.

That balancing test does not sit well with the dogmatic frame of mind that takes hold when all people think of is what they can do to prevent outrages like Kelo. And this shows a hidden danger of really bad interpretation in easy cases as opposed to really tricky interpretation in harder cases. I see no reason why any court or legislature would want to overturn the results in the holdout cases, which have done useful work for 150 years or more.

Unfortunately, precipitate action often goes further than it ought. And that is just another cost of bad case law in Kelo and its forebears. No constitutional language is so crisp that it does not admit hard cases. The language of public use was introduced to signal that certain kinds of takings were just off limits. No three words in the English language are better adopted for that result. But three words are not a complete land-use code, and they cannot take into account all the factors that on reflection should decide when property is just off-limits to government action and when it can be taken with just compensation. Similar issues exist with every other word of the Takings Clause: what is private property, how is it taken (or destroyed or regulated), when is it permissible to do so?

Constitutional texts are sensible and vital starting points for complex analysis. It takes literally a volume to sort out all the difficulties that arise with any open-ended clause of our Constitution while remaining faithful to its central purposes. The great constitutional tragedy of Kelo is that the subtle element of trust between the justices and the public has been shattered by a decision so wrongheaded that people think that they have to take the law into their own hands. It will be a long time before that trust is restored no matter what the Court’s composition. Overruling Kelo would be a good way for the Supreme Court to begin.

There is little left of the conventional protections for individualism in the modern world. Whatever theoretical virtues there may be in democracy (and there aren’t many¹), in practice it has disintegrated into a struggle among self-regarding interest groups, mediated by government, over wealth that is exclusively created by private individuals. The Constitution has proved to be little more than a parchment protection against legislative predators. Federalism, which once offered the possibility of exit from more burdensome states, has ceased to be an escape route because the U.S. Supreme Court, in upholding virtually every act of centralization since Franklin Roosevelt, has turned the states into mere agents of Washington, D.C.

The law itself seems to offer little solace. The common law, which is a product of judges’ proceeding case by case, for example, in tort and contract, has ceased to be as predictable as it once was. Judges have now become creative: they don’t preserve an ongoing legal order; they shift it in politically fashionable directions.

Because of this change in the common law, I began to look for the security of a written legal code (or civil law) against the arrogance of lawyers with a social mission. I was the first to admit that neither the common law nor a written code had been able to resist the intrusion of statute into the order of general (end-independent) rules in the twentieth century. But surely a code system had a slightly better chance of preserving liberty? Historically, code writers had been less influenced by interest groups. After all, the codes were not originally the product of mass democracy. There is indeed a logical difference between a code and a statute, and this is another instance of F. A. Hayek’s famous distinction between “law” and “legislation.” Furthermore, a code system, in principle, does not suffer from the vagaries of judge-made law. In a difficult case, the judges go back to the code rather than use their own discretion; and is that not better than having a judiciary pretending that it is “discovering the law” when it is really advancing a social agenda? Hayek himself had respect for the nineteenth-century German code.

But I soon realized that something was going wrong with my thinking. I had not understood that the common law was, in principle, acceptable if politicians left it alone. There was a close historical connection between the common law and the market economy. Contract, which was entirely judge-made law, had been an essential servant of the private property, capitalist order, and tort, which protected individuals from possible harms, had emerged independently of statute.

Ironically, the problem in America came from the fact that it has always had a kind of code, the Constitution, superimposed on the spontaneous order of common law. This code, because it has been subject to creative interpretation, has licensed an attenuation of rights and property, which would not have occurred under pure common law. The latter had always recognized equality (it was an eighteenth-century court decision that disallowed slavery in England), so did we really need the Fourteenth Amendment, which, among other divisive things, brought us affirmative action?

Even now there is still a feature of the common law that works reasonably well precisely because it is more or less unaffected by the code (the Constitution). If we look at the common law we don’t find any ringing declaration of property, yet it has quietly protected one person’s possessions against damage by another. It was celebrated by Sir William Blackstone: “The . . . absolute right, inherent in every Englishman, is that of property: which consists in a free use, enjoyment and disposal of his acquisition, without any control or diminution, save only by the laws of the land.”² By that “control,” Blackstone meant the law that had emerged from judicial decision-making. The major depredations of property came later from statutes emanating from a sovereign parliament, which he acknowledged with regret. Of course, he lived in advance of mass democracy.

Still, the Blackstone approach lives on, and, as we shall see, common-law solutions to, say, externality problems (such as pollution) are quite effective. We shall compare its approach with the Napoleonic Code (1804), Article 544, which declares sonorously of property “the right to use and dispose of a thing in the most absolute way.” But since judges have little say in its interpretation, the Code has to be altered every time some contingency occurs. Private property, despite the Gallic flourishing, turns out to dependent on myriad rules and regulations, all of which lead to increased centralization and the dominance of public law. The French early recognized the problem of externalities but instead of seeing the problem as soluble by judges’ determining appropriate property rights, they “transferred to administrative agencies all collective interests threatened by industrial development.”³

Law of Nuisance

In contrast, the English common law developed the law of nuisance. This was not the product of some rationalistic planner but the outcome of myriad private cases, where one person brought an action against another who had damaged his property. By not referring to a code, the judges can be pragmatic in their solution to a problem. Most important, they talk of “reasonableness” when adjudicating whether a nuisance had been committed, and their evaluation of its seriousness often encompasses the economist’s notion of utility.

What was crucially important was the invention of the common-law remedy of injunctive relief. In any legal dispute a litigant could go to court with an action, say, a tort under the law of nuisance, and secure an injunction (backed by the crime of contempt of court) compelling his opponent either to desist from or to perform an action. Once granted, an injunction allows the possibility of negotiation between the parties to reach an agreement that satisfies both. Thus if two parties have a dispute about whether one has the right to cause an obnoxious smell on his own property that also adversely affected others, the court would in effect decide the property rights and issue an injunction. The loser can then buy out that right through a contractual agreement. Both parties are better off.

The injunction is essentially forward-looking or utilitarian; it looks to future well-being. Actions for damages, however, are essentially backward looking; they are concerned with correcting past wrongs.

Code law, because of its concern with physically separate property, seems to have a greater affinity with the freedom philosophy. If someone’s property rights have been clearly undermined, actions for damages are appropriate. But only recently have code systems developed techniques to deal with the problems where rights are in dispute (such as in environmental issues), the very thing the injunction has always handled. Although codes have remedies for dealing with externalities, or incompatible uses, they still tend to rely on the finality of damages, or the coercion of public law with no possibility of negotiation. There is now, belatedly, a law of nuisance in France, and it is conceded by defenders of legal codes that the common-law method protects property better than the grandiose declarations of a code.⁴

The common law is pragmatic and can produce a variety of solutions. But they are not always satisfactory. In the precedent-breaking New York case Boomer v. Atlantic Cement Co. (1970), although the plaintiffs were victims of a nuisance (cement manufacture is unpleasant), they were denied an injunction, which would have closed the plant and eliminated hundreds of jobs. Instead, the victims were awarded damages. This overturned the traditional interpretation of nuisance, which would have called for cessation of the offending activity. Perhaps the worst aspect of the case was the award of permanent damages, since once they were paid the aberrant company was relieved of any duty. If temporary damages had been awarded, the plaintiffs could have kept coming back for more and this would have given the perpetrator an incentive to fix the problem.

A further example of the pragmatism of the common law is the defense of “coming to the nuisance.” If a person has been causing a nuisance for a long time and nobody has complained, a newcomer to the area would probably lose any action he brought against the creator of the nuisance. Again, there are clear advantages to this, for many businesses would not survive a rigorous application of the law of nuisance. The doctrine is sometimes called “first come, first served,” and it could be said that the original person had established the “right” to engage in the activity. Of course, there are dangers in this because the courts might be effectively granting a monopoly to the “offender.” What if someone wanted to develop a residential area, which depends for its viability on the absence of noxious smells? “Coming to the nuisance” is not always an effective doctrine.

Unlike a code system, where the judge is reduced to the mechanical interpretation of the law, under common-law the judge is looking for policy-based solutions. But this flexibility and pragmatism must not be misinterpreted: it is not a license for the judge to make the law reflect personal whims and ideological fancies. There are restraints, such as the overriding obligation to preserve a predictable order, established expectations, and conventional legal rights. Ironically, the greatest threat to legitimate expectations and rights has occurred in that part of American law which most resembles a code—the Constitution. Here the record of property-rights protection is at best mixed and at worst bitterly disappointing.

Some Progress

Undoubtedly property owners have achieved some legal protection against government “takings” through important decisions in the past ten years. For most of the twentieth century the judiciary had been supine before voracious legislatures that gobbled up property on behalf of the “public good.” Rightly or wrongly, government in the United States has always had the power to take private property, but always subject to the Fifth Amendment proviso that the power should be exercised only for “public use” and with “just compensation.” All Western legal systems theoretically permit takings, implying that the property owner should not bear the full costs of a “public project.”

In America the judiciary had been reasonably assiduous in abiding by the Fifth Amendment when the physical seizure of property occurs. But in blatant violation of the Constitution, the government never paid compensation for regulatory takings, that is, the prohibition through regulation on certain uses of one’s land. (This is still the case in European code law.) Yet an owner surely suffers a loss if certain activities are forbidden just as if his land had been grabbed.

For example, there is a very tenuous case for zoning law, upheld in the 1920s, that specifies what can be built and where. Presumably, the argument here is that attractive residential areas would decline if industrial development were to be allowed to continue unabated. But Houston has no zoning laws, and nobody seriously suggests that its ambience has suffered as a result. Indeed, it has always been the case that in a free, rule-governed society, private owners, worried about the preservation of their fine surroundings, have been able to protect these through restrictive covenants. Threats to rural beauty have come from unrestrained public development rather than private.

After decades of protest and formidable argument against regulatory takings, progress was made in the 1990s. In the famous Lucas v. South Carolina Coastal Council case(1992), David Lucas had bought two beachfront properties on a barrier island for $1 million dollars in the hope of building two houses there. But his plans were frustrated by the Council, which denied the permits under authority of beachfront-management legislation passed two years after Lucas bought the properties. This wiped out the value of Lucas’s investment. He claimed this constituted a “taking” and warranted compensation. After failing to win in the state Supreme Court, Lucas went to the U.S. Supreme Court, which ruled that compensation is due under some circumstances and sent the case back to the state for determination. Eventually, the state paid Lucas $1.5 million for the properties, and later sold them to another developer.

Although the principle that investment-backed expectations should be protected was conceded, the Court’s decision was narrowly drawn around the fact that Lucas had suffered virtually a total loss of use. While later cases did establish the principle that partial takings should also be compensated,⁵ that position can hardly be regarded as secure, given the ease with which precedent can be overturned.

The New Threat to Liberty and Property

But while this progress was being made an even more insidious threat to property rights was emerging: the power of eminent domain began to be used not for “public use,” but to maximize private interests. Considering the clarity of the Fifth Amendment’s takings clause, it surely cannot be used on behalf of private persons, can it?

Well, it can, according to the courts, the guardians of our liberty and property. For more than 20 years legislatures have got into the habit of handing private homes and stores over to big private developers. Sometimes they declare the condemned area as “blight.” But not always. The classic case was Poletown Neighborhood Council v. City of Detroit (1981). In this Michigan case the city, citing the need for jobs, condemned a thriving ethnic neighborhood on behalf of General Motors, which had threatened to leave the area unless it got the 450 acres, at a bargain price, for a Cadillac plant. The residents and business owners fought the takings in court—and lost.

All sorts of arcane arguments can be tricked out of the chicanery that is modern welfare economics. Maybe there was a holdout problem (the last person could have demanded an enormous price), or the holdings were contiguous and had to be developed in one package—and, no doubt, General Motors would bring vast employment to the area. But these are specious arguments: the market would have produced a solution satisfactory to everyone involved. Nothing can hide the fact that the whole exercise was an involuntary transfer. That it resulted from a decision by elected representatives is no justification. Aren’t law and property supposed to protect us from the rapacity of democratic institutions?

Notes

1. See Norman Barry, “What’s So Good about Democracy?” Ideas on Liberty, May 2003.
2. William Blackstone, Commentaries on the Laws of England (London: Sweet, 1844 [1768]), p. 134.
3. Quoted in Ugo Mattei, Basic Principles of Property Law (Westport, Conn.: Greenwood Press, 2000), p. 17.
4. Ibid., pp. 155–56.
5. See Bernard Siegan, Property and Freedom (New Brunswick, N.J.: Transaction Publishers, 1997), chapter 5.

That sort of outrage would never happen in America, for heaven’s sake. This is the land of the free and home of the brave. A place where every man’s home is his castle and where the government can’t just take property for the heck of it, thanks to a sophisticated system of property rights. At least that’s what my sister-in-law and the vast majority of Americans think.

Unfortunately, the truth is far different. The experience of that Polish homeowner isn’t much different from what happens every day in southern California. And don’t think it’s only on the left coast property rights are treated shabbily. Eminent-domain abuses are rampant in every state in America.

In the city of Cypress, a well-kept middle-class community in the north Orange County suburbs of Los Angeles, a large non-denominational church made the tragic mistake of operating with the assumption that this is still a free country. The Cottonwood Christian Center negotiated the purchase of an 18-acre property in a commercial center with zoning that specifically allows the construction of a church.

The church bought the land and developed plans for an attractive architect-designed community center–a first-rate project that would be a considerable improvement over an empty parking lot next to a sprawling racetrack. Trouble started when the church submitted plans to the city to gain the necessary approvals.

City officials had an epiphany. This was the last large tract of vacant land in the city, they realized. If a church builds a facility there it won’t pay much in the way of property or sales taxes. So city officials have found every reason to deny the church a permit to proceed with the project, and began shopping the land around to tax-generating companies.

The latest in this long and deceitful process: The City Council, at the urging of the city manager, voted to take the property under eminent domain (while still claiming it is willing to “negotiate” a settlement) and plans to hand it over to developers, most likely at deep discount prices, to build a Costco retail center. The national discount chain is notorious for strong-arming cities into using eminent domain on its behalf.

“It is hubris for the city of Cypress to decide a church isn’t the best use of land owned by the church,” Assemblyman Ken Maddox said. “In the Soviet Union, Stalin seized churches and turned them into museums. Cypress seizes a church and wants to turn it into a Costco. At least Stalin looked for something with artistic merit.”

Maddox is one of only a handful of elected officials willing to speak out against a process that has become so commonplace that many officials can’t understand why the Cottonwood issue is even controversial. It’s not just a possible “taking” that’s at issue, but an entire taxpayer-funded smear campaign by a city against a property owner. Cypress has launched a public-relations crusade against the church for defending a concept of property rights that city officials view as arcane.

Taxpayer money is spent to pay for a push poll designed to show the true benefits of kicking the church off its land. A pricey city-sponsored public effort is bashing the church and implying that religious fanatics are selfishly trying to build something that will deprive the city of needed revenue to pay for parks, schools, senior centers, after-school programs, and more.

It always creeps me out when life resembles an Ayn Rand novel, but that’s exactly what’s happening here. Craven officials are allied with looting companies to defame and then rob a group of people who are trying to live their own lives their own way on their own property.

Fiscal Crisis Invoked

Sophisticated supporters of the city make an argument that’s used repeatedly on behalf of the many cities that operate this way. Tax-limiting Proposition 13, the California ballot initiative that capped property tax increases unless approved by a two-thirds vote, limited city revenues, they say. Furthermore, the state of California has repeatedly dipped into funds belonging to cities to pay for state priorities. Given this fiscal “crisis,” cities have no other choice but to turn to sales taxes as a way to pay for needed services. So cities must use eminent domain to assure that every piece of developable land has its tax potential maximized.

Actually, the local budget “crisis” isn’t that different from the national one–it’s a question of too much spending rather than too little revenue. In California cities, cops routinely make six-figure salaries, bureaucracies are huge and expanding, city halls are gilded palaces, union featherbedding is rampant, and officials spend money on open-space acquisition and other costly amenities with frightening abandon.

Municipal-finance experts in California correctly refer to the “fiscalization of land use.” Governments have immense power over what gets built where, and they use it to approve only those projects that bring in the most tax revenue. This has exacerbated the housing problem in southern California, because cities view housing as a drain on their resources and therefore force homebuilders to make all sorts of concessions before getting approvals. But coveted retail complexes–1 percent of the sales tax goes into city discretionary budgets–are lured with ridiculous subsidies and promises of using eminent domain on their behalf.

This is accomplished through California’s 1950s-era redevelopment law. Other states have similar laws called different things. In California, the good-government “liberals” wanted to come up with a way to help cities clean up blighted neighborhoods. Every city can start a redevelopment agency, which is technically separate, but operates as a city department. In almost every case, the city council is the agency’s governing body.

Simply put, agencies can declare areas blighted, based on the broadest possible standards. Once an area is blighted, and the city goes through an official hearing process, every increase in property value–called tax increment–goes directly into the agency’s budget. Debt can be floated without a public vote. Tax dollars are used to subsidize developers, pay for consultants, and acquire land. Agencies gain eminent-domain powers to take property from one private owner and give it to another.

The details are complicated but the concept is simple. Government officials are granted central-planning and confiscatory powers that would make a Soviet commissar jealous. It’s such a handy development tool that few cities can resist using it. So the bulk of major development projects, especially in the more densely populated areas where land isn’t sitting fallow, are driven by city officials who serve as land-clearing agencies for big developers. The process is rarely about blight removal and mainly about finding ways to turn areas that produce little tax revenue (that is, your church or older neighborhood) into sales-tax bonanzas (that is, strip malls). No wonder southern California is an endless sea of Wal-Marts, Costcos, and Home Depots.

It’s just too difficult to assemble 15-acre tracts without using eminent domain, according to a development specialist who handles land acquisition for Costco. In other words, companies are unwilling to play by the rules of the free market, where buyers must cajole willing sellers to part with their properties. It’s so much easier to have government thugs just take the land and hand it to you on a platter, with taxpayers picking up much of the tab.

Just Compensation?

Wait a minute, critics often say. It may not be nice to use eminent domain for private purposes, but in America the courts still insist that property owners get paid just compensation. (Of course, under the U.S. Constitution takings can be only for “public use.”)

Yes, property owners are reimbursed. Those who play ball with the city often get amounts that approach gifts of public funds. Those who try to defend their businesses, however, often get subjected to vicious hardball tactics. It’s not unusual for victims of eminent domain to spend years in court trying to get just compensation. And what about people who plain old don’t want to sell their property? They like their neighborhood or have built up a good reputation with their business. Why should they have to move? Besides, cities refuse to pay for the value of businesses’ goodwill, paying instead only the assessed value of the accumulated property and business equipment.

Not far from Cypress is Garden Grove, a working-class, immigrant-heavy city filled with small businesses and older, decently maintained tract neighborhoods. Yet city officials don’t like its down-market reputation and are trying to capitalize on its location close to Disneyland. So officials are using redevelopment to remake much of the entire city. Until public outrage forced the city to back down, officials were looking to drive 1,000 families out of their homes, possibly to make room for a theme park. By their own admission, city officials are marching along the major commercial boulevards and driving small companies out of business, with the hopes of luring new hotels that draw overflow tourists from the Anaheim resort area.

This is horrible on any number of levels. The city is amassing a large public debt to pay for projects of questionable long-term value. Many of the proposed projects have become embarrassing busts, such as a major hotel that nearly went bankrupt until the city poured in additional millions to prop it up.

The process also has exacerbated blight, given that property owners are less apt to fix up their homes and businesses when they know that they are being targeted for extinction. Most disturbing, though, is the way the city puts the screws to victims of eminent domain when it comes time to pay fair market value.

One couple, Joseph and Yae Hong, operated a successful car-rental business along Garden Grove Boulevard. The company had a ten-year lease on the property and brought in about $2 million a year, but the city offered them $16,000 for the entire operation after condemning it. The Hongs were forced out of business and ran up tens of thousands of dollars in debt to fight for a better deal. A court eventually awarded the Hongs nearly $1 million but only after a long period of pure misery. And they were forced to move to a less desirable location.

In 1997 Garden Grove took a Romanian couple’s small business and offered $640,000 for a property the couple had purchased in 1990 for $778,000 and zero for the business itself, which the couple had purchased for $100,000. These are two typical examples of what goes on. In one attempted use of eminent domain in Anaheim, the company doing the appraisal had a financial interest in the final project. Wouldn’t that be great if you could appraise a property that you wanted to buy?

I could go on and on with examples. I’ve seen blight designations for modern shopping centers, newer housing developments, and even for vacant land. Blight is whatever a city says is blight, even though California and federal courts have finally added a few needed limits after cities went way over the line in justifying blight designations. (For example, the rural enclave of Mammoth Lakes declared land blighted because of excessive urbanization).

Essentially, cities can take any property anywhere within their city limits and give it to other private owners for virtually any reason. It’s terrible in many other places. One Illinois agency offers one-stop shopping for businesses that want to take someone else’s property. Just fill out a form designating the property you want and the agency will see what it can do.

It’s all in the name of the common good, of course. Cities need tax revenue and churches don’t pay any. Small car-rental businesses aren’t nearly as attractive as fancy new discount centers. Neighborhoods with 1960s tract houses don’t impress the tourists as much as a new theme park.

Now what was that again about America being a beacon of freedom and property rights? Surely things can’t be this bad in Poland.

Crime is a worrisome issue and rightly so. Solutions to crime problems are always of interest to policymakers, law enforcers, and potential victims. One solution to the crime problem has been the “broken window” policy that has been used in New York City. The term “broken window” comes from a 1982 essay written by professors James Q. Wilson and George L. Kelling.

The basic premise of this policy is, as Wilson explains, “Small disorders lead to larger and larger ones, and perhaps even to crime.” Wilson and Kelling posit the breaking of a window in a building. Kids walking past the building assume that no one cares about the windows since the broken one is left unfixed. So they throw rocks and break a few other windows. Now it appears that no one cares about what happens on this street, and soon other buildings are damaged. And then: “Only the young, the criminal, or the foolhardy have any business on an unprotected avenue, and so more and more citizens will abandon the street to those they assume prowl it.”¹

In their original article Wilson and Kelling argue: “serious street crime flourishes in areas in which disorderly behavior goes unchecked. The unchecked panhandler is, in effect, the first broken window. Muggers and robbers, whether opportunistic or professional, believe they reduce their chances of being caught or even identified if they operate on streets where potential victims are already intimidated by prevailing conditions. If the neighborhood cannot keep a bothersome panhandler from annoying passersby, the thief may reason, it is even less likely to call the police to identify a potential mugger or to interfere if that mugging actually takes place.”²

The broken-window illustration may be a bit strained, but certainly many of the issues that Wilson and Kelling raise are not. They note that if homeless people are allowed to congregate and live in public parks, crime quickly follows. A concentration of adult shops in one small area, like Times Square or Boston’s “Combat Zone” has the same effect. If five or six adult shops are operating in a two-block area, they may well attract street prostitutes. Along with the prostitutes come pimps and often drug dealers. Many of the prostitutes use drugs, and the dealers are only too happy to be where their customers work. But the dealers also attract other users who may be quite willing to commit an armed robbery or two to finance their drug use. Of course as these groups of people are attracted to the area, other groups are discouraged from living or shopping there. Grocery stores may close down. Families may move out. The streets become a haven for the most marginalized segments of society. And this type of blight can easily spread to surrounding areas as well. All in all it’s not a pretty picture.

Now who is responsible for all this? Who brought on this explosion of crime since the 1960s? Kelling, in his book Fixing Broken Windows, written with Catherine Coles of Harvard’s Kennedy School of Government, says the culprits are libertarians. His visceral dislike of libertarians is evident throughout his book. Crime is a problem of social disorder, and social disorder is caused when libertarians successfully push for individual rights and liberty.

Libertarians would be shocked to learn that their ideology is the reigning concept of criminal justice in America, let alone responsible for all sorts of ills. Kelling and Coles write: “[F]irst, a broad societal ideology holds certain individual rights as absolute and virtually divorced from responsibility and obligation. This ideology gave rise to the idea that all forms of nonviolent deviance should be tolerated in the interest of liberty—a belief that order maintenance confronts directly. Second, the reigning criminal justice strategy is consistent with this libertarian ideology.”³

Again they make their position clear: “The increase in urban disorder that has occurred in the past thirty years, in many senses, is rooted in these very changes: the emphasis on individual rights tied to the culture of individualism helped spur an increase in deviant behavior on city streets.”⁴ Elsewhere they speak of “radical libertarians who would perpetuate urban chaos in the name of ‘liberty interests’ and exaggerated fear of police abuses.”⁵ So not only does libertarianism lead to crime but it leads to “urban chaos” as well!

Rights and the Common Good

It should come as no surprise that Kelling, Coles, and Wilson all argue that individual rights have to be compromised in the name of the social good. They see this as a “tension between ‘rights’ proponents, who argue that curbing disorderly conduct, often described by them as ‘speech’ or expressive behavior, violates their fundamental liberties, and ‘communitarians’ or ‘universalists,’ who contend that the rights of individuals must at times give way to communal values and structures so that basic order can be maintained in a larger community.”⁶

Anti-libertarian John Gray takes this to even further extremes. Gray referred to the “ongoing implosion of the United States” in his book Endgames.⁷ In Enlightenment’s Wake he predicted “the likelihood in the United States is of a slow slide into ungovernability.”⁸ Kelling, Wilson, and Coles see libertarianism as leading to crime and urban chaos. Gray argues it is leading to the destruction of Western civilization, but the process is the same: “The libertarian condemnation of the state and celebration of the free market is a recipe for social breakdown and political instability.”⁹ “Communities,” Gray writes, “need shelter from the gale of market competition, else they will be scattered to the winds.”¹⁰

According to the “broken window” theory, libertarianism, by promoting individual rights and “liberty interests,” is causing the decay of urban society. Cumulatively, Gray writes, this is leading to the destruction of Western society. When New York City cracked down on what had been considered minor acts of disorder, a major drop in crime followed. For these theorists this proves that subjugating individual rights and liberty is the way for society to achieve stability and peace. And if this were true, it would be a telling indictment of the evils of libertarianism. But is this true?

Theory Confirmed?

Kelling and Coles present varied examples that they believe confirm their theory. Looking at them individually is informative. One example they use, in several chapters, is the effect of the “homeless” on the general climate of San Francisco. They write: “For example, in San Francisco, city workers attempting to carry out cleaning and maintenance activities in public parks, plazas, and streets were physically threatened by people living in encampments there, and faced significant health risks from having to pick up debris consisting of needles, human waste, and garbage. In addition, these encampments became centers for drug use, crack cocaine dealing, and theft that spilled over into surrounding neighborhoods. Individuals intoxicated by alcohol or drugs lounged and slept in doorways of businesses or even homes, and intimidated residents, customers and pedestrians.”

This description, if anything, is too restrained. Kelling and Coles are absolutely right. As an ex-San Franciscan myself I witnessed exactly this type of decay. And on a visit to the city a couple of years ago it was clear that this problem had escalated.

But how is libertarianism responsible for this problem? Presumably giving these people the right to camp out on the mall next to City Hall is a “liberty interest.” Yet while liberty is a fundamental principle of libertarian thinking, it is not the only principle. Issues of rights and property also apply. And libertarians have long pointed out that when property is communally owned, conflicts automatically arise. Where are the “homeless” building their encampments? According to Kelling and Coles, this is taking place “in public parks, plazas, and streets”—on public, not private, property.

San Francisco offers a striking lesson about property rights. The famed cable car has a line that runs from Powell and Market Streets to Fisherman’s Wharf. At the beginning of the line the streets are dirty. Drugged-out or alcoholic derelicts harass those waiting in line for the cable cars. Street preachers walk through the crowd screaming their message of hell fire and brimstone at tourists who don’t appreciate the gesture. The entire experience is not one that people relish. But after disembarking the tourist finds Pier 39, which juts out into San Francisco Bay. The pier itself is larger than the area around Powell and Market. It is a couple of blocks long and filled with dozens and dozens of shops and restaurants. It has small plazas where entertainers perform. It is clean. It is safe. And there are no derelicts or unwanted evangelists harassing customers.

Why this difference? Pier 39 is run privately.

Rights Rooted in Property

Rights are exercised in a physical world. Man is not an ethereal creature floating in some abstract universe. When rights are exercised they are exercised on property and often require the use of property. A man who drinks himself into a stupor in his living room uses liquor that he paid for and passes out on a floor he owns. The same action in a park or on a public street takes place on property that is supposedly “commonly” owned. The conflict created by his actions exists only because the property is held socialistically instead of privately. Disney World doesn’t have problems with drug use on the streets or drunken panhandlers harassing people waiting for one of the rides. It doesn’t have the problem because it owns the property on which such actions would take place and has every right to stop such actions. Communal ownership creates conflicts that private property helps avert.

Court rulings that allow public drunkenness, panhandling, or a variety of other “disorderly” conduct do so because they apply to public, not private property. Libertarians have often been condemned for their fervent belief that privatization of “public” resources would solve a myriad of problems. Yet in this case they are also blamed for the results of policies that go completely contrary to their recommendations.

Anyone who has lived in San Francisco for any period knows that the city is a magnet for the so-called homeless. Many of these people are alcoholics or drug addicts. Most are single men, not mothers with children, as socialists like to pretend. So what draws these derelicts to the city? The city government is quite generous with the public purse. A “homeless” man in San Francisco will not only qualify for Social Security benefits and for state benefits, but also the city’s own dole. To qualify for this extra money, one only needs to live in the city for 24 hours.

Radical socialist groups in the city, which hate libertarians with a passion, have pushed through policies that forbid rousting these people from public property. No park, no plaza, no street is safe. Once a critical level of disorderly individuals congregates, the area suffers in every way. How are libertarians responsible? What “liberty interest” is there in having access to other people’s money? How are advocates of private property responsible for the problems associated with public property?

Subway Panhandlers

Kelling and Coles also point to the problems of panhandlers on the New York subway system. But once again, the subways in New York are government property. While originally privately built, the subway companies were forced out of business by government price regulations. The city then proclaimed a “market” failure and took control. By the ’60s panhandling, public drunkenness, and the like became a problem.

Other examples of social disorder that Kelling and Coles refer to include prostitution and adult bookshops. Libertarian Lysander Spooner drew the distinction between crimes and vices in the middle of the nineteenth century. Since then libertarians have argued for the legality of “anything that’s peaceful.” Yet prostitutes hanging around outside an apartment complex bring down the neighborhood in many ways. Doesn’t this violate someone’s rights?

Kelling and Coles tell of the prostitution problem in San Francisco’s Tenderloin neighborhood: “Most persons opposed to prostitution in San Francisco’s Tenderloin area, for example, are not prudish vigilantes concerned about commercial sex as a matter of principle. They simply object to the promiscuous behavior of prostitutes and johns, who publicly commit sex acts in parked cars, discard prophylactics and needles on sidewalks, door stoops, and in public parks, unmindful of the play of children, and who disregard public requests for some circumspection in their behavior.”¹¹

Yet the prostitutes are using public property—sidewalks, street corners, and parks—to promote their trade. The situation isn’t optimal for them. It exposes them to the elements and to criminals and other dangers. But since prostitution is illegal, it is difficult to operate out of one location. A brothel operating openly would be closed down immediately in most major cities. The illegality of the business forces prostitutes to use public property. But when a government regulation forces individuals to use public property, who gets the blame? Why, free-market, private-property libertarians of course.

A few miles from my home in Johannesburg there was an infamous brothel named The Ranch. It operated in one of the most up-market suburbs in the city. It was widely advertised and widely known. The general reluctance of South African police to enforce any law had led to the de facto decriminalization of prostitution. Yet streetwalkers were a relative rarity. Instead, dozens of brothels, like The Ranch, appeared around the city. When The Ranch’s owner publicly complained about police corruption, he was immediately targeted. Using asset-forfeiture laws copied from the United States, the police confiscated the massive mansion from which the brothel operated, along with the owner’s home, bank accounts, cars, and more.

Surprisingly, hundreds of people gathered outside The Ranch to protest this persecution. Many were workers from the brothel, upset that they were now unemployed. But many were housewives and other neighbors who lived on the same street. Almost without exception, these people said The Ranch had been a good neighbor. One woman, who lived on the street, said she never even realized that the brothel was there. All the deficits that Kelling and Coles lament seemed absent, because while prostitution was de facto legal, the women and their clients preferred the safety of the house. When liberty interests were allowed to operate within the confines of private property, the notorious and noxious results of prostitution were absent.

The same appears to be true with adult sex shops. I walked through Times Square in New York City when it was the center of the porn trade there. It was a pretty sordid place. I’ve been in Boston’s “Combat Zone” and seen exactly the same results. Kelling and Coles seem to believe that this is simply the inevitable result of adult material and that banning it is the solution. But once again these noxious consequences are completely absent around adult shops in Johannesburg. Why?

Many local governments in the United States wanted to regulate pornography out of existence. But the Supreme Court ruled that the First Amendment would not allow this type of blatant censorship. The local politicians then tried to regulate it indirectly. A favorite method was zoning. Often one specified area of the city was designated an unofficial “red light” district. In other cases the laws were so restrictive that only a few small areas would qualify for these businesses. The result was that shops were forced to concentrate in a tiny area of the city, with all the noxious effects that Kelling and Coles describe.

In South Africa the Constitutional Court ruled the old apartheid censorship laws invalid. Without any regulatory system in place dozens of mom-and-pop porn shops opened, scattered throughout the country and all across the major cities. Since there are no special zoning restrictions, they are not concentrated in one neighborhood. The locations vary: up-market areas, near shopping centers, on the periphery of residential areas, and in working-class neighborhoods. In my day-to-day driving around the city I must pass around 20 of these shops. Prostitutes do not operate outside them since the customer level at any one shop is insufficient to provide them a lucrative return. That only comes about when several shops are forced onto the same street. There are also no pimps or drug dealers.

In a sense Wilson, Kelling, and Coles are correct. Given collective ownership of parks, plazas, streets, and sidewalks, various “deviants” will stake their own claims to these areas. To prevent social decay their “liberty interests” will have to be restricted. But liberty need not be sacrificed to order. As the masthead of Benjamin Tucker’s publication Liberty stated (paraphrasing Proudhon): “Liberty: not the daughter but the mother of order.” Certainly liberty unrestrained by property rights will lead to conflicts, but that is not libertarianism. A free market without property rights is a contradiction in terms. All the problems of social order that the “broken window” policy is meant to fix are direct results of the lack of private property. This being the case, the blame lies not with libertarians but with those who restrict private property, individual rights, and liberty.

Notes

1. James Q. Wilson, “Foreword” in George Kelling and Catherine Coles, Fixing Broken Windows (New York: The Free Press, 1996), p. xv.
2. James Q. Wilson and George L. Kelling, “The Police and Neighborhood Safety,” The Atlantic, March 1982, p. 34.
3. Kelling and Coles, p. 6.
4. Ibid., p. 42.
5. Ibid., p. 148.
6. Ibid., pp. 49–50.
7. John Gray, Endgames: Questions in Late Modern Political Thought (Cambridge, England: Polity Press, 1997), p.112.
8. John Gray, Enlightenment’s Wake: Politics and Culture at the Close of the Modern Age(London: Routledge, 1995), p. 24.
9. Gray, Endgames, p. 133.
10. Gray, Enlightenment’s Wake, p. 112.
11. Kelling and Coles, p. 4.