The Bedrock of a Free & Prosperous Society
The institution of the right to private property is perhaps the single most important condition for a society in which freedom and prosperity is to flourish. This notion of private property can seem fairly straightforward, especially for people living in a free-market society such as the United States. As noted in the book Unleashing Capitalism:
One reason for its familiarity to us is that private property is a bedrock principle of market capitalism. Think of a growing economy as an award-winning Broadway show. Private property is like the stage crew, constantly working behind the scenes to make sure the show runs smoothly. Private property, while perhaps underappreciated, is vital to ensuring that the economy will grow and prosperity will rise over time.
Yet in our modern political age, the importance of private property rights has faded to the background and has at times been termed little more than a “philosophical exercise that has no practical implications.” Nothing could be further from the truth. Across the nation, and particularly in California, property rights are becoming ever more vulnerable to infringement by government control in several forms: excessive taxation, regulation, and the process of takings (i.e. eminent domain). This undermines property rights and thereby suffocates economic growth prolonging our economic woes.
The protection of private property is vital component necessary for the economic growth and prosperity that will play a key role in lifting California out of her perpetual economic malaise.
The Cornerstone of American Exceptionalism
“Property,” John Adams wrote, “is surely a right of mankind as real as liberty.”
America’s founding was shaped by the radical declaration that our right to private property was and is inherent and inalienable. This novel and revolutionary idea, embodied in our Founding documents, challenged the historical practice of man’s rights being determined, limited, and granted by the state. This reorientation of the grantor of rights – from our Creator rather than from those in authority – dramatically redefined who was sovereign while simultaneously placing chains on the powers of government. The state would now be the protector – rather than the arbiter – of man’s inherent and inalienable rights to life, liberty, and the fruits of his labors1.
The right to hold private property is a well-documented principle of the Founding Fathers. William Blackstone, whose Commentaries on the Laws of England shaped much of the Declaration of Independence and the Constitution, wrote that “the law of the land… postpone[s] even public necessity to the sacred and inviolable rights of private property.”
Thomas Jefferson stated: “all power is inherent in the people… they are entitled to freedom of person, freedom of religion, freedom of property, and freedom of press.” Thomas Paine, in Rights of Man, cites property, along with liberty, security, and resistance of oppression, as chief among inherent individual rights.
Such reasoning led to drafting the Fifth Amendment in the Bill of Rights, where it states, “No person shall be…deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.” The need to protect private property rights, once so obvious to Jefferson and Adams, is now becoming lost in a tangle of intrusive government takings.
Governmental forces (excessive taxation, regulation, and strong eminent domain powers) make property rights less secure, increasing owner uncertainty. Greater uncertainty decreases the willingness to undertake capital investment and accumulation thereby reducing the productivity of labor and depressing wages. Greater uncertainty also curtails transactions transferring property to new owners who discover more valuable uses. Ultimately, economic growth stagnates. When government undermines private property rights, the economy suffers and this thwarts prosperity for the future2.
The Millstone of Eminent Domain
The clearest example of government infringement on private property rights is the use of eminent domain. Eminent domain is the power governments have to confiscate private property as long as it is for a legitimate “public use”. Whereas eminent domain was initially intended to ensure that public services (ie roads and highways) were available to the public, local and state governments often use eminent domain for any project that is considered economically beneficial. Public use, as a practical matter, has morphed into a more ambiguous “public benefit.”
The most jarring example of this morphed “public benefit” was the city of New London’s abuse of eminent domain and the Supreme Court’s ruling upholding the action in Kelo v. City of New London (2005). In Kelo, the Supreme Court held that held that the Constitution allows governments to seize private property and transfer it from one private land owner to another in the name of economic development. In other words, after the Kelo decision, governments can use their eminent domain power to take homes for potentially more profitable, higher-tax uses, powerful evidence, as Justice Clarence Thomas suggests, that something is seriously awry with the Supreme Court’s vision of the Constitution.
Justice Sandra Day O’Connor framed the problem very simply in her blistering dissenting opinion: “Under the banner of economic development, all private property is now vulnerable to being taken and transferred to another private owner, so long as it might be upgraded i.e., given to an owner who will use it in a way that the legislature deems more beneficial to the public in the process.” This decision went well beyond what the founders intended when they wrote the just compensation for public use clause.
While some political observers note that the power of eminent domain is rarely used in the Golden State, the Institute for Justice – a leading legal advocate against eminent domain abuse – has documented nearly 200 projects across the state that have threatened or used eminent domain for private gain. Within each of those projects, dozens, hundreds, if not thousands of homes, businesses, churches and farms have been impacted.
National polling confirms that the public is overwhelmingly opposed to the use of eminent domain for economic redevelopment. Some 87 percent responded that government shouldn’t have such power. Some 88 percent responded that property rights are just as important as freedom of speech and religion.
Today, government imposition of regulatory regimes that significantly diminish the value and enjoyment of private property may present an even more common threat than abuse of eminent domain. Property owners are increasingly subjected to regulatory “takings” – where the use of their land is drastically restricted and, consequently, the overall value of the land diminishes.
The problem begins, therefore, with the growth of government regulations at the federal, state, and local levels of governance that deny owners the legitimate use of their property. A prime example can be seen in the advancement of the environmentalist movement. Just as the inflation of the 1970s moved people into higher tax brackets, so the environmentalism of the 1990s has given government new rationales for controlling the use of property. While there is little doubt that cleaner air or less traffic congestion are a positive end goal, when they are accomplished through heavy handed regulations, we may be sure that our liberties are also being restricted. Production and prosperity also tend to decline, and in the case of those people who bought land anticipating that they would be able to develop it – but now find that they have paid a high price to keep it idle – there is also manifest injustice3.
Leonard Gilroy of the Reason Foundation describes the infringement of property rights through land use regulation as follows:
…contemporary land use regulation often uses public policy to mandate the private provision of amenities that benefit the community-at-large. As the regulatory scheme influencing local land use has grown more prescriptive and restrictive, there has been an increasing curtailment of private property rights. Landowners in many communities nationwide have been restricted in their ability to use their land in the ways that they had intended when they purchased their property, dramatically reducing their property’s value and imposing an economic hardship on them.
If investors don’t know what they own, or can’t be sure of defending their property rights, then they either won’t invest or alternatively they will demand higher rates of return when they do. This idea applies to both tangible and intellectual rights. The net impact tends to be dual — lower levels of investment and higher interest rates, neither of which is conducive to faster economic growth.
Stimulating the Economy
Well-defined and enforced private property rights are the cornerstone of a free-market economy. The positive economic effects of private property are widespread and well documented. Secure property rights promote specialization and exchange, provide incentives for conservation and preservation of resources, and promote technological innovation, entrepreneurship, capital accumulation, and investment. In essence, secure property rights underlie economic growth.
This relationship is confirmed in The Heritage Foundation’s Index of Economic Freedom. As demonstrated in the chart to the right, property rights and economic prosperity go hand in hand.
On average, GDP per capita is over 10 times higher in nations with the strongest property rights than in those with the weakest property rights.
One of the government’s primary roles is to ensure that people can own and make decisions regarding how they will use their property and ideas – which in turn spurs entrepreneurial growth. As such the same correlation between strong property rights and economic growth must pertain to state and local governments.
In a free market economy, one of the strongest incentives that drive entrepreneurs is the desire to please customers and thereby earn a profit. To flourish, entrepreneurs need an economic environment that encourages private property and free markets.
In a system where the government or some central planner owns the nation’s resources and decides how they are allocated, entrepreneurs do not profit from their successes; thus, there is a much smaller incentive for them to be creative. In a free market economy, entrepreneurs can use their property and ideas in ways they think are best, and they can benefit directly from their successes in the form of higher profits or salaries.
Simply put, private property is necessary for economic growth and prosperity.
Today Californians are besieged on all sides by government infringement on their right to own property and use it to its fullest extent. As government and bureaucracy continue to grow, federal state and local governments alike are wielding far-reaching environmentally based land use restrictions, “growth controls,” unreasonable zoning hurdles, facility permitting regimes, and, now, potentially, crippling carbon dioxide emission limits. Throw in the threat of eminent domain and tax policies which diminishe productivity and undermines the security of ownership, and it is easy to see why California’s economy continues to struggle.
One of the most important steps that lawmakers can take is to serve as strong advocates of property rights, and ensure that new laws do not further erode those rights.
By focusing on the importance of private property rights and providing greater protection of those rights, federal, state and municipal leaders will witness the economic growth they have long pursued through other means.
For more information on this report or other Local Government and Housing issues , contact Ryan Eisberg, Senate Republican Office of Policy at 916/651-1796.