Corporate Giveaway vs. Eminent Domain

Like many a locality in recent years, the town of New London, Connecticut, discovered that if it wants to attract manufacturers, it must entice them with giveaways. In 1998, to get Pfizer to come to New London, the town agreed to empty the neighborhood of Fort Trumbull of its poor and middle-income residents because the corporation coveted its location on the sea shore. Some one hundred and fifty residents have lost their houses, but seven families that refused to cooperate remain hold outs. They acknowledge that the constitution does permit private property to be taken for public purposes, but they argue that since their neighborhood is not blighted, evicting them cannot qualify as having a public purpose.

The Fort Trumbull residents are represented by the libertarian Institute for Justice, which has presented this as an issue of property rights. If the Supreme Court sides with Pfizer and New London, it argues, then any poor or middle income family could lose its home for no other reason but that a corporation wants it. The argument is leading the Court astray, however. It forces the Supreme Court to choose between the rights of people to live in their homes and the ability of government to pursue policy in the public interest, whereas the real issue is whether corporations should be allowed to play one jurisdiction against another in order to extract large giveaways.

In 2004 this question was examined by the Sixth Circuit Court of Appeals in Cincinnati, which ruled that the city of Toledo, Ohio, could not offer Daimler-Benz tax subsidies to locate there. The court banned giveaways because they interfere with interstate commerce. Had this ruling been upheld everywhere, the Fort Trumbull issue would never have arisen. If Pfizer wanted a particular property, in New London or anywhere else, it would have had to find willing sellers.

The competition between jurisdictions for jobs is the unanticipated result of the suburbanization that followed WWII. When millions of Americans started moving from large cities to much smaller suburban towns, the main concern was about the possible diminution of the public sphere. Small towns cannot support museums or parks, for instance. They are also too small for a public transportation system. But economists saw jurisdictional fragmentation as a blessing precisely because it unleashed competition between a multitude of jurisdictions; not for jobs, but for residents. Because local governments had to compete for residents, they argued, they would try harder. In addition to the ballot box, economist Charles Tiebout explained in 1956, people could now “vote with their feet.” Only that individuals were not the only ones shopping for lower taxes and more services. Corporations do exactly the same thing, and they’re the ones with the jobs. This is a classic case where less freedom is better than more. If local governments could not offer any deals to corporations, they would all be better off.

Of course, if all local subsidies to corporations were banned corporations could decide to move production to foreign countries. But the problem of foreign competition is best dealt with by the federal government, not by local governments who face not only the corporations, but also each other.

The town of New London was wrong to use eminent domain against the residents of Fort Trumbull. But not because achieving an increase in employment does not serve a public purpose. Where the public purpose is not served is in attracting jobs to one jurisdiction at the expense of another.

MOSHE ADLER teaches in the department of urban planning at Columbia. He can be reached at:

Moshe Adler teaches economics at the Harry Van Arsdale Center for Labor Studies at Empire State College. He is the author of Economics for the Rest of Us: Debunking the Science That Makes Life Dismal (The New Press, 2010),  which is available in paperback and as an e-book and in Chinese (2013) and Korean (2015) editions. Visit the Economics for the Rest of Us channel.