Business Law Cafe
The US Supreme Court ruled in Kelo v. New London 04-108, that properties of private citizens may be taken by local governments for private economic development (Supreme Court upholds property seizure in New London, 2004). Specifically, the Court ruled that people’s properties, their homes and businesses are directly under the control of local governments whenever the interest of the state is at stake; in this case, the so-called economic growth of the state, as some economists would put it.
One of the dissenting justices, Sandra Day O’ Connor argued that because large corporations exerts considerable influence on the affairs of the state, they were able to call on their constitutional rights to acquire properties in the guise of the economic development of the state. Cities do not have the right to seize individual properties like land and homes, except for projects that have direct public utility. This is called the doctrine of Eminent Domain. But the issue here is not Eminent Domain per se, but the application of the doctrine of Eminent domain for private economic development.
Many law experts argued that the doctrine applied only to cases where local governments seize peoples’ properties to construct public works. Individual rights were compensated by increased public services, which in due time, will enhance those rights. Nevertheless, because monetary compensation is based on the market value of all properties seized, then the seizure can be declared a fair bargain. The properties claimed by the parties involved are of three types: 1) land, 2) homes, and 3) businesses. These properties originally belonged to some citizens of New London. But when the Court ruled that they can be taken by the state, the properties were put under public bidding.
The highest bidder (which is of course, a corporation) would acquire all the rights to these properties on the condition that they will establish a large business using the properties seized; for economic development of the place (larger number of businesses, higher income for the city – tax revenues). The citizens of New London argued that the properties they held for a very long span of time were guaranteed by the US Constitution; that “people have the right to own properties and the right to dispose such.” The individual rights enshrined in the Constitution were not derived rights, but fundamental ones.
Many noted that individual rights were the clear foundation of the US Constitution, if history is to be correctly viewed. Added to that, the doctrine of Eminent Domain does not apply in this case. The bidders (who were large corporations) argued that although the right to establish business, based from the doctrine of free trade, was a derived right, it became the foundation of an economic power like the United States. Simply put, the right to free trade enhanced individual rights, of which the former is derived. Added to that, the bidders argued that the purpose of the seizure was for the economic development of the city, to which they were also involved.
The resolution of the conflict can rooted in the interpretation of the doctrine of Eminent Domain. However, it should be noted that the doctrine of Eminent Domain is the application of the police power of the state to enhance its own development (increased public services). Thus, the direct development of the state is the issue at stake, not the development of large private firms. The doctrine must be public in scope and application, and as such in this case, the ownership of the properties in dispute belongs naturally to the citizens of New London.
The right to own and manage business is only a derived right, and hence, should not be used as a tool to ransack the individual rights to which it was based. Business practices should not in the first place promote development at the cost of another’s right. Development must be fair to all parties involved. It must be regulated and promoted, although safety nets must be instituted.
In clear business practice, two things were learned from this case: 1) profit motivation of businesses must be based on the realignment of clear goals that increase welfare surplus, or at least must be in conformity with existing statutes (for example the establishment of a network of property bargains and bailments of businesses in cooperation with the government may increase of approval of various stakeholders), and 2) business methods of property procurement must be consent-oriented (since the properties involved are protected by the law).
A corollary issue – the so-called Intellectual Property Rights is causing the prices of some goods to skyrocket. Because firms have full rights over the patented product, they can sell it at prices way above the market price. Welfare surplus will naturally decrease. Some governments were forced to ban patents to protect its citizens. However a full view of the situation is needed to understand the arguments of the parties involved. In this case, the owner of the patented product may argue that the product naturally belongs to the innovator since he has the right not to share it with other people. The government may also argue that such innovation is meant for public consumption and therefore must not be withhold by the innovator. This can be resolved by some form of negotiation which will benefit both parties (win-win decision).
Supreme Court upholds property seizure in New London. 2004. URL http://words.grubbykid.com/2005/06/23/supreme_court_upholds_property_seizure_in_new_london.html. Retrieved August 18
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