Power-violence

GOVERNMENT EXPROPRIATION BENEFITS ELITES AT THE EXPENSE OF POOR MINORITIES

Making government expropriation easier raises property values and economic growth, particularly benefiting government and the financial services sector but often at the expense of minorities and the poor. That is the main finding of research by Susan Yeh and Daniel Chen, presented at the Royal Economic Society’s 2013 annual conference.

The study looks at the effect of different approaches to property rights by comparing jurisdictions in the US. While the state laws are the same, under the common law system, judges are able to interpret laws and facts differently, allowing them to blur the definition of activities such as compulsory purchase. These courts decide the vast majority of cases that set new legal precedent for tens of millions of people.

The research finds that:

  • Making it easier for the government to seize land and property stimulates growth in construction, transport and government and increases property values and economic growth.
  • But minorities are more likely to be displaced, to live in public housing and to be unemployed.

The authors suggest that these effects may be due to increased bargaining power of local governments and the benefits of being able to take property without fear of litigation.

The researchers argue that the findings are relevant to the issue of whether taking private property rights is justified. Economists and philosophers have long debated whether a society that fails to protect property rights against government capture also fails to support the rule of law.

Recent riots in India and China have followed government takings of land on behalf of commercial developers, while in the former Soviet bloc legislation allowing governments to take land for the establishment of privately owned industrial parks is pending.

More…

Is state taking of private property rights justified? From John Locke to Jeremy Waldron, economists and philosophers have long inquired whether a society that fails to protect property rights against legislative restriction also fails to support the rule of law.

Deadly riots in India and China have followed government takings of land on behalf of commercial developers. And in the former Soviet bloc, legislation allowing governments to take land for the establishment of privately owned industrial parks is pending. Different legal systems refer to government takings as eminent domain, compulsory purchase, compulsory acquisition or expropriation.

Liberty issues aside, little is empirically known about the consequences of government takings, despite a large theoretical literature regarding their potential consequences. The impact of greater government rights and thus lesser rights for property owners could aid economic growth through public goods provision, blight removal and commercial development. Yet revenue-seeking governments may also collude with private developers at the expense of disadvantaged groups, such as the poor and racial minorities.

It is not possible randomly to have different laws to test the causal effects of expanding government power to expropriate property. Fortunately, in the common law system, if judges are assigned randomly, then there is something coming close to randomly varying law.

The researchers’ identification strategy rests on variation in legal precedent stemming from judges interpreting the facts and the law differently and in a manner correlated with their demographic characteristics. They use the US system of appellate courts with regional jurisdiction. These courts decide the vast majority of decisions that set new legal precedent and their decisions set legal precedent for tens of millions of people.

Using random assignment of US federal judges, it is possible to estimate causal effects of legal precedent that permit government takings. The research shows that making physical takings easier stimulates growth in construction, transportation and government and increases property values and economic growth, but minorities become more likely to be displaced, to live in public housing and to be unemployed. These effects appear attributable to increased bargaining power of local governments and subsequent unlitigated takings in the shadow of legal precedent.

Expropriation need not be total, but could be partial such as environmental regulation or flooding. In the US, this is called a regulatory taking and is also influenced by physical takings precedent. Making regulatory takings easier spurs property values and economic growth, benefiting mainly services, government and financial services, but it does not affect condemnations, minority displacement or ethnic inequality.

ENDS


Contact:

RES media consultant Romesh Vaitilingam:
+44 (0) 7768 661095
romesh@vaitilingam.com
@econromesh

Page Options