Cities: December 2004 Archives

The Club for Growth's blog links to an op-ed that says government economic development programs don't work, but they do encourage businesses to spend lots of time and money trying to game the system:

Yet, the sad truth is: Government economic development programs rarely have lasting benefits -- for the simple reason that they run counter to good business practices.

The most glaring flaw in these programs is the fact that they increase a behavior known to economists as "rent-seeking," a euphemism for business efforts to secure government favors. Businesses pay lobbyists, lawyers and consultants large sums of money to help them obtain economic development funds. Unfortunately, this makes less money available for higher priorities, such as capital investment.

Besides, when a business succeeds in gaining government favor -- the $40 million Texas Enterprise Fund provided Sematech for an "Advanced Materials Research Center," for example -- the recipient firm gains an unfair advantage over other businesses, both direct competitors and those competing indirectly for capital and workers. ...

The Government Accountability Office in Washington has attempted to measure the impact of economic development programs using sophisticated econometric modeling. The agency (then called the General Accounting Office) reported nearly a decade ago, in 1996, that it was "unable to find any study" by any reputable organization "that established a strong causal linkage between a positive economic effect and an agency's economic development assistance." Yet, the spending continues.

What should government do to encourage economic development?

Unsatisfying as it may be to the many proponents of economic development programs, government can best promote economic growth and prosperity by sticking to the basics: protecting private property rights, enforcing the law, providing basic services, and keeping taxes and regulations to a minimum. It should then do one final thing: Get out of the way and let the economy work.

How boring! How will the politicians take credit for creating jobs if we stick to the basics?

Meanwhile, Tulsa Mayor Bill LaFortune is off to Tiberias, Israel, to tell them that their 38,000 residents can be as prosperous as Tulsa if they raise local taxes and build a 20,000 seat arena downtown.

Twenty-five "friend of the court" briefs have been filed on behalf of the homeowners in Kelo v. New London, the eminent domain abuse case before the U. S. Supreme Court. You can read all the briefs here on the Institute for Justice website. Here's a press release with excerpts of several briefs. The list of amici bears out my earlier comment that eminent domain abuse makes strange bedfellows. First on the list is Jane Jacobs, author of the landmark book The Death and Life of Great American Cities. Others include the American Farm Bureau Association, AARP, NAACP, Becket Fund for Religious Liberty, former Milwaukee Mayor John Norquist, and a number of free-market policy thinktanks and property rights groups.

The most surprising entry is a brief jointly issued by the National Association of Home Builders and the National Association of Realtors. Here's an excerpt:

While NAHB include property owners and development interests, its primary goal is to preserve opportunities for housing. Affordable housing projects have proven to be helpful to support the widely-recognized public purpose of redevelopment of a blighted area or slum. Additionally, many NAHB members participate in non-blight redevelopment projects at the local level.

However, NAHB recognizes that housing will almost never afford a community with the economic development benefits that a commercial application will. If economic development as a sole justification for public use is decided using a rational basis test with deference to local legislative bodies, then the door is left open for local governments to abuse their eminent domain powers and take developable land from NAHB members as they could from any other property owner. Therefore, NAHB must adhere in this case to its long-standing objective to protect private property rights from abuses by local government.

Translation: Sometimes we like condemnation, because it gives us a chance to build new houses where there used to be old houses. The problem is that a house will never bring in as much tax revenue as commercial property occupying the same footprint. That may tempt government to take land we want to develop for homes and develop it instead for more lucrative commercial uses.

I have only skimmed the brief, but it seems to oppose banning public condemnation for private use altogether, advocating instead for heightened review and application of a "clear and convincing" evidence standard for cases where public condemnation will put property into private hands. This brief and several others make the case that deferring to the legislature regarding the definition of public use effectively disables the protections of the public use clause of the 5th Amendment.

Hat tip to Eminent Domain Watch, which also reports that the Bush Administration is considering filling a brief in support of the City of New London.

Eminent domain abuse -- using the power of the state to take land from ordinary folks and make it available to the politically connected -- is an issue that brings together social and economic liberals and social and economic conservatives. Both ends of the economic spectrum see the injustice of it, and liberals hate to see the power of the state used for special favors for big corporations, while conservatives hate to see government wielding such raw power on anyone's behalf. It's part of a continuum of issues, involving government doing special favors for special people, rather than serving all of its citizens. These issues bring left and right together, and create the kind of bipartisan coalition that now enjoys a majority on Tulsa's City Council.

While I've blogged about condemnations of eminent domain abuse from libertarian and conservative sources, a reader sends along an article from Mother Jones, a thoroughly left-wing publication, involving an eminent domain abuse case that was new to me. The case is set in Norwood, Ohio, a suburb of Cincinnati. The article details how easy it is to get a neighborhood -- any neighborhood, no matter how nice -- designated "blighted." In this case, the developer paid the city to conduct an urban renewal study on the area he wanted -- a preliminary step to condemnation. The developer also set up the deal to ensure maximum peer pressure on the owners who did not wish to sell: If all owners sell willingly, everyone will be paid 35% above market value. If even one owner holds out, every property will go through condemnation. The article is well done, and they've also got an interview with an Institute for Justice attorney and a story about a reunion for a New Haven, Connecticut neighborhood lost to urban renewal in the '50s. Well worth reading.

(Reminds me of something I came across while browsing through the National Lampoon Newspaper Parody at the bookstore a couple of nights ago. I'll tell you about it later.)

This is just evil:

Dino Paspalakis was sure his business was secure. For 17 years, as co-owner of Joyland Amusement Center, a popular arcade in Daytona Beach, Florida, he's been pouring his money into upgrades, drawing a consistent clientele, and carrying on the family business. His father opened the arcade in the 1960s, after working every snack bar on the Daytona Beach boardwalk to make money to buy it, Paspalakis, 40, says.

But now he faces a threat. The city of Daytona Beach, using a legal doctrine called eminent domain, is trying to take the property and give it to developers to build high-rise condos and hotels. In February [2004], they told me they'll be seizing the land. Developers are pushing out [independent] shops, he says.

That's from the January 2005 issue of Entrepreneur magazine, in an article warning small business owners that they may face the same threat. Hat tip to Eminent Domain Watch for publishing the story online.