Private Property, Community Development, and Eminent Domain

Robin Paul Malloy

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317075660
• Edition: 1
• Topic: Law
• Subtopic: Jurisprudence
• Index: Law

The contributors in this volume address the fundamental relationship between the state and its citizens, and among the people themselves. Discussion centers on a recent decision by the United States Supreme Court in the case of Kelo v. City of New London. This case involved the use of eminent domain power to acquire private property for purposes of transferring it by the State to another private party that would make "better" economic use of the land. This type of state action has been identified as an "economic development taking". In the Kelo case, the Court held that the action was legal within provisions of the US Constitution but the opinion was contentious among some of the Justices and has been met with significant negative outcry from the public. The Kelo case and the public debate arising in its aftermath give cause to assess the legal landscape related to the ability of government to fairly balance the tension between private property and the public interest. The tension and the need to successfully strike a balance are not unique to any one country or any one political system. From the United States to the United Kingdom, to the People's Republic of China, property and its legal regulation are of prime importance to matters of economic development and civic institution building. The Kelo decision, therefore, explores a rich set of legal principles with broad applicability.

Chapter 1

Private Property, Community Development, and Eminent Domain

Robin Paul Malloy and James Charles Smith

Introduction

On March 16, 2007 the Chinese government, by way of the National People’s Congress, announced passage of a new national property law designed to protect private property.1 The new Property Law becomes effective October 1, 2007.2 It defines different categories of property,3 defines the meaning of a property right,4 and protects private property from illegal State seizure.5 This has been hailed as a great step forward for the market economy in China. While China has made great economic progress in recent years and has facilitated a great amount of real estate activity, private property rights have been the subject of ongoing debate. The new Property Law helps to clarify rights as between private parties, collectives, the State, and creditors. While the law provides a new reference point for negotiating the complexity of interests within a market economy, it remains to be seen how effectively the law will be enforced.

The passage of the new Property Law in China is noteworthy not only for its potential benefit to the Chinese people and the Chinese economy but also because it represents an important indicator in the ongoing recognition of the global importance of private property law for economic development and the building of institutions of citizenship.

A concern for private property has been at the core of many debates regarding the reduction of poverty in developing countries,6 and in terms of the political and economic reorganization of states after such events as the collapse of the Soviet Union. Likewise, property law has been critical in the negotiating of regime change as witnessed in such situations as those involving the turn over by the British of Hong Kong to China, and with the transformation of political and economic order with regime change in such places as Zimbabwe (Rhodesia) and South Africa.

From a market perspective, property is fundamental legal infrastructure for trade and exchange. Property defines the interests that people own and control so that we, as market actors, know what is available for trade and whom to pay.7 The rules of property address more than issues of ownership and control. The rules of property also clarify the quality and the quantity of the interest held and capable of exchange.8 For instance, the quantity of a parcel of real property might be measured at 1.5 acres and described by a standardized survey process using metes and bounds. The quality of the property might also be identifiable in terms of a recognized estate interest (a life estate vs. a fee simple), and in terms of its environmental characteristics and condition. The ability to describe, qualify, quantify, and fix ownership is crucial to a market economy, and particularly so when a market extends beyond a very local reach to include potential participants who lack personal familiarity with each other.

Property rules also reduce transaction costs (reducing waste and making transactions more efficient),9 and they can correct for problems associated with the tragedy of the commons,10 wherein a lack of private property rights results in overuse and misuse of valuable resources.

Property law connects people to civil society.11 Formal ownership of property connects individuals to the broader community by putting them and their property on public records, it requires them to have a known and knowable address, makes them visible to government officials by placing them on the property tax roles, and provides them with collateral for credit, thus making them visible and valuable to all manner of creditors, sales people, and merchandisers.12 To have formal legal property is to take on an identity and a place within a given community, for property is a system of organizing social hierarchy within and across communities. Property structures relationships such as landlord-tenant, owner-trespasser, debtor-creditor, and arranges a hierarchy of interests in terms of legal position and in terms of market relationships.13 In both legal and economic terms it is frequently better to be an owner rather than a renter. Owners, for instance, generally have higher priority legal rights and also enjoy better credit terms than renters in the marketplace.

Without a coherent and reasonably well developed system of property, market exchange, beyond a very local community, would be costly, difficult, and perhaps barely existent. In saying this, we do not ignore the idea of informal property systems and exchange networks that emerge privately through custom, kinship groups, and by personal arrangement and enforcement. There is a literature addressing these kinds of market functions. But pragmatically, extensive, global, and positive market networks require a degree of transparency, stability, predictability, and access which cannot be efficiently and effectively attained by purely informal means. Property law systems establish rules and standards that favor stability of interests, predictability of outcome, and transparency of information. All of this advances economic exchange and civic institution building.

Issues arise, however, when circumstances change. In all cases of property there is tension between competing claimants to property, and with respect to the appropriate balance between public and private authority over property. When circumstances change legal systems need to be responsive and dynamic. This may be difficult however, when property rules are generally fostered to enhance stability, predictability, and a sense of permanence in the hierarchy of social organization. With the advent of new technology, changes in demographics, shifts in preferences, reorganization of political power, and the obsolescence of prior land uses, adjustments need to be made. Private reordering can be accomplished by private contract. Public reordering may be done by consent or by coercive force.

In this book we look at the issues that arise when private property rights come into conflict with public (community) interest. Whether stated as such, or not, such tensions involve changed circumstances. Technology, demographics, political structure, or preferences change, and tensions arise with respect to the perceived needs of change and the established organization of society through property. New uses are sought for properties, and questions arise with respect to the public’s ability to change prior established uses and rights through the exercise of state power. This exercise of state power is typically referred to as a “takings power” or as a right of eminent domain.

In this chapter we address this tension between private property and the community. We proceed in several steps. First, we briefly address some concerns regarding the regulation of property that expresses itself in the law of various countries.14 This includes an explanation of some of the key concepts used in land regulation generally, and relevant to eminent domain.15 Second we put this general information into context with reference to the recent Kelo decision by the U.S. Supreme Court.16 The Kelo case has attracted global attention by triggering reconsiderations of fundamental questions of private property and the proper exercise of the power of eminent domain.

General Concepts in Land Use Control and Development Law

In general there are two primary background principles involved in land use and its regulation. The first relates to traditional common law concepts of nuisance, and the second to the political and constitutional balance struck between the rights of the community and the rights of individuals to own and control private property.17 We will explore these ideas with reference to the tension between private interest (self-interest) and public interest.18

In many ways land use law embodies the classic market tension between private and public interest. To understand this we need to think in terms of Adam Smith’s classic metaphor of the invisible hand. Smith argued that, in general, people pursuing their own self interest will end up promoting the public interest even though the advancing of the public interest is no part of their original plan.19 It is as if they are lead by an invisible hand that simultaneously promotes both private and public benefit. This has been referred to as the equivalence or invariance theory to understanding law in a market context and it suggests that laws promoting the pursuit of self-interest likewise advance the public interest because the market mechanism calibrates an equivalence between the two. In such an environment, private ordering of property rights is all that is needed since by definition successful private ordering would be equivalent to successful public planning. In fact, private ordering under the equivalence theory makes public gain available without having to incur administrative costs and without needing to identify a complex calculus for adjusting individual preferences across a broad exchange network. Problems arise, however, the instant that we recognize situations of variance between private (self) interest and the public interest.20 Such variance occurs in a number of situations. Common and well explained instances of this occur in settings where decision making is governed by the dynamics of the so called prisoner’s dilemma,21 when property rights are not clearly identified as in the Tragedy of the Commons, and when there are transactions costs that hinder the ability of individuals to make rational, efficient, and optimal choices. In many cases, certain land uses and individual preferences are suboptimal because of externalities that are not internalized into the individual’s decision-making process. Likewise, problems arise when individuals experience difficulty in processing complex information related to such things as long-term risk to the environment and public health due to certain types of land use.22 For all of these reasons it is frequently the case that one can observe variance between self-interested land use preferences and the interests and preferences of the community. An important goal of public regulation of land, therefore, is to mediate these tensions between public and private interests and to navigate the delicate process of correcting for variances that might otherwise lead to negative impacts on the public health, welfare, and safety.

In seeking to achieve this balance between public and private interest a number of factors come into play concerning the basic characteristics of ownership, and the limiting principles governing the exercise of state power through the process of eminent domain.

Characteristics of Property Ownership

To best understand a discussion of state limitations on individual property rights one needs to appreciate the basic characteristics of property ownership. There are philosophical debates on the meaning and purp...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of Contributors
• Series Editor’s Preface
• 1 Private Property, Community Development, and Eminent Domain
• 2 Hysteria versus History: Public Use in the Public Eye
• 3 Kelo, the Castle, and Natural Property Rights
• 4 Nothing “Errant” About It: The Berman and Midkiff Conference Notes and How the Supreme Court Got to Kelo with Its Eyes Wide Open
• 5 Controls over the Use and Abuse of Eminent Domain in England: A Comparative View
• 6 Federalism and Localism in Kelo and San Remo
• 7 Just Compensation in an Ownership Society
• 8 Kelo v. City of New London and the Prospects for Development after a Natural Disaster
• Appendix (U.S. Supreme Court Opinion in Kelo)
• Table of Cases
• Bibliography
• Index