2012, common law, Condemnation, contract rights, Eminent Domain, Gulf Coast Project, Johns Marrs Ellis & Hodge, just compensation, Kelo, Keystone pipeline, Latin America, Magna Carta, oil and gas, Pipelines, property rights, Sir Edward Coke, Texas, TransCanada
Eminent domain has gotten a lot of press recently. A major catalyst was the U.S. Supreme Court’s 2005 decision in Kelo v. City of New London, which allowed a city to take private property from individual landowners so that it could be redeveloped for the pharmaceutical giant Pfizer and thereby increase tax revenues. The Court announced that taking land to allow private companies to redevelop it counted as a “public use” under the Constitution’s Takings Clause.
Public outcry was loud and sustained. Many states, including Texas, passed anti-Kelo legislation to prevent the use of eminent domain for “economic development.” Ironically, the land where Susette Kelo’s little pink house once stood was never redeveloped. Pfizer decided not to go forward with its $350-million research center, nixing the city’s plans for retail shops, condos, and hotels surrounding the facility.
More recently, TransCanada received approval for its Gulf Coast Project, a 485-mile pipeline running from Oklahoma to the Texas coast. TransCanada’s ultimate goal is to build a nearly 2700-mile, $2.3-billion pipeline connecting Canada’s tar sands to Texas’s refineries. The project poses serious environmental concerns, including damage to aquifers and deteriorating air quality from refining tar sands, which critics claim are dirtier than other crudes to refine. Landowners in Texas and elsewhere are up in arms about having a foreign company run toxic tar over their property. The pipeline’s supporters respond that the project promotes U.S. energy security, reasoning it’s better to consume crude oil from North American producers than higher-priced oil from countries that do not share American values.
In takings cases, the public and the media usually fixate on environmental issues and on whether the government or private taker has a “right to take” the land. No doubt, those issues are very important.
But another issue is critical: “just compensation” for the landowner whose property is taken. Today most people ignore this issue. Most of us probably assume that what counts as “just compensation” isn’t controversial, leaving it to our elected Texas Supreme Court to define “just compensation” and “market value” in ways that would surprise most Texans.
Rather than criticize how the supreme court applies the Takings Clause, today I’d like to share a couple of stories about the importance of property rights—and the luck and bravery it took to develop the process for landowners to get any compensation at all.
A Personal Story—and the Importance of Property Rights
Property rights are a big deal in my home. My wife is originally from Latin America. She has wonderful memories of her early childhood: picking mangos right off the tree as an after-school snack, talking with friends as everyone chewed on sugar cane, going to festivals in her small village, and playing with her nine brothers and sisters. (As for having 10 kids, her mom explains, with a wink, that no one in the town had TV during the 60s and 70s.) My wife’s family wasn’t among the super rich, but they had a productive farm and ranch lands that her father had worked his whole life to earn.
But in the 1980s, a civil war ravaged the country, and communist guerrillas confiscated the lands of her family, dramatically changing the trajectory of their lives. My wife and several members of her family members emigrated to the United States, becoming permanent residents and eventually American citizens. They were never able to return to their lands. Even after the war ended, government officials were too corrupt or too weak to help my father-in-law recover his property. Sadly judges and other officials in her native country, as in many places, continue to help shysters cheat people out of their land and inheritance in exchange for bribes and other favors. Her country remains poor, and gangs routinely kidnap people and steal their property, often with police cooperation.
These experiences help explain my wife’s immense love for the United States. She constantly reminds our boys and me of how lucky we are to live in a country with so many educational and cultural opportunities—and a wonderful tradition of respecting property rights and the rule of law. She encouraged me to attend law school and to study property rights in other countries.
My wife’s story shows the importance of property rights in the real world. When governments are too weak or corrupt to protect their citizens’ property, or when the state itself can take private property without paying for it, what incentives do people have to take care of their lands or work to create wealth? People need real guarantees that they will be able to enjoy the fruits of their labor with their family and friends. Otherwise, it’s the law of the jungle, where the strong prey on the weak. As Hobbes put it, such a life is “solitary, poor, nasty, brutish, and short.” And as William Bernstein notes in The Birth of Plenty, the right to property is the right that guarantees all others: “Individuals without property rights are susceptible to starvation, and it is much easier to bend the fearful and hungry to the will of the state.” If the state can arbitrarily threaten a person’s property, “that power will inevitably be used to intimidate those with divergent political and religious views.”
The Rule of Law: An Accident and a Hero
The Big Bang in property rights—including a landowner’s right to “just compensation” for takings—was something of an accident. Following a failed campaign to regain Normandy, King John of England stole property and raised rents on his subjects—but did so without following the proper proceedings, or what we now call “due process.” The barons rebelled, occupied London, and forced John in 1215 to sign the Magna Carta. For the first time, everyone was subject to the law, even the king—who could no longer deprive any free person of life, liberty, or property without due process. And when His Majesty took private property, he would have to pay for it.
Yet strong property rights did not flower overnight. It took brave judges willing to stand up to royalty. Sir Edward Coke was a pioneer in promoting an independent judiciary. In 1606, James I faced accusations that he’d broken promises to transfer property to a bishop. The king asked the judges to delay the verdict until he could personally discuss the case with them, which seems outrageous today but was common practice at the time. Coke refused and convinced his fellow judges to deny the king’s request. The king was not amused, so he summoned the judges to his chambers and demanded they reverse their ruling. While Coke’s fellow judges cowered, Coke calmly told the king that he was bound to honor his duty as a judge, and he refused to cave in to the king’s request. Coke was later removed from office and suffered the indignity of seeing many of his opinions erased from the law books, but his immense popularity as a defender of the common man saved his life. As Bernstein explains, “Now, for the first time in European history, a judge had faced down royal power.” Coke’s Institutes of the Laws of England, which articulated what is known as “the common law,” was especially influential in the American colonies.
The common-law tradition—which views the protection of property rights as the duty of an independent judiciary—was the foundation for the great wealth and freedoms enjoyed in many countries around the world. The common law focused on following legal precedents and maintaining its separation from the other branches of government. These features were critical to developing meaningful property rights. Property owners could point to the rights and guarantees applied in previous cases—and, just as important, the separation of powers meant that a person seeking to take away another’s property rights would have to convince not only the king or a powerful legislator but also the judiciary. In contrast, it was much easier to take away property rights in civil-law countries, where the decisions of a single branch (the legislature) were supreme. It is no surprise, then, that England and America were the first countries to create great wealth—the kind of material wealth never before seen in the history of the world. When government must pay “just” and “adequate” compensation for the property it takes, and when courts enforce property and contract rights, people are more willing to take care of the property they already own and to make investments to increase their holdings.
– by Christopher Johns, partner at Johns Marrs Ellis & Hodge, LLP (firstname.lastname@example.org)