RALEIGH – On the same day that the North Carolina Institute for Constitutional Law filed its long-awaited lawsuit challenging the constitutionality of the state and local incentives given to Dell Computers last year, a U.S. Supreme Court ruling in a related case demonstrated the limits – and risks – of promoting economic freedom through legal action.
In a 5-4 decision, the court ruled that governments can use eminent domain – the power to take private property, albeit with compensation, even if the owner doesn’t want to sell it – to assemble parcels for economic development. The case, Kelo vs. City of New London, was widely expected by property-rights activists to establish firmly the distinction between a public use of land, such as the construction of a highway, and a private use such as a new plant or shopping center.
The expectation was wrong, terribly wrong. All four of the court’s "liberals" – and this is a prime case where the term hardly seems appropriate – agreed with the city of New London that it had the power to deprive people of their property and convey it to a business as long as the city expected to create jobs in the deal. Job creation is a public use, you see. Anthony Kennedy, pretending to champion federalism, signed onto this nonsense, apparently buying the argument that the federal judiciary has no jurisdiction to question whether the definition of "public use" adopted by lower levels of government is meaningful and reasonable.
Of course it does. The 14th Amendment prohibits states from depriving their citizens of their rights. With property takings, there is actually a provision of the federal constitution – the 5th Amendment – involved. By New London’s standard, I cannot imagine any seizure of private land that could ever be challenged as violating the federal constitution. Any land transfer has the potential to create at least one job (though the net result could still be an economic loss).
The Kelo decision is, in short, a disaster. The juxtaposition is interesting, too, because here in North Carolina we had something similar happen on the issue of economic incentives. Back in the mid-1990s, Bill Maready filed a lawsuit arguing in part that economic incentives violated the state constitution’s "public purpose" provision, which requires that the taxing power of government be used only for a public purpose. The NC Supreme Court eventually ruled that, once again, all a government need show is that it expects to create jobs in order to establish a public purpose.
Bob Orr wrote the dissent in Maready. Now, as head of the Institute for Constitutional Law, he is challenging the Dell incentives. His arguments are different, but the underlying issue is similar: is it constitutional to use government power to confer what is obviously a financial gain on a private party at the expense of others?
Here’s hoping that the courts get it right this time.
Hood is president of the John Locke Foundation.
p.s. At the Thursday press conference announcing ICL's lawsuit, a common concern was how North Carolina could compete with other states economically without recourse to targeted incentives. The answer is that the best incentives have always been low taxes, less regulation, and better public services -- policies that apply to all businesses, regardless of their size or political pull. The John Locke Foundation has published several papers discussing this issue in greater detail, including the citation of academic research clearly showing that it is these broad-based policies, not targeted incentives, that have positive effects on economic growth.
Incentives are about creating job announcements, not creating jobs. They are a short-term political tool. They are not a recipe for long-term economic development.