The New London Case

 

The Supreme Court has now ruled that local governments may seize people’s homes and businesses against their will and transfer them to private corporations if the stated purpose for the seizure is economic growth. In 1998, in order 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. What the court has ruled is that creating jobs and extending the tax base qualify as “public use” and therefore the taking of the homes for the benefit of Pfizer are permitted by the constitution.

There is no doubt that in a period in which jobs are the main concern of millions of Americans, job creation is a legitimate goal of governmental policy. But in spite of all appearances, the town of New London was not in fact creating jobs. Pfizer was already determined to open a new research facility; the only question was where. Thus, all the human sacrifice that New London offered did was determine which location will end up with the jobs that would have been created anyway. This clearly does not qualify as “public use” because for the purpose of the constitution the public consists of the whole population of the country, not just the residents New London. And it was on these grounds that the residents should have based their case. If they had, there might well have been a different outcome, as a similar case, which was brought before the Sixth Circuit Court of Appeals in Cincinnati, in 2004, indicates.

In that case the city of Toledo, Ohio wanted to offer Daimler-Benz tax subsidies to locate a new plant there instead of somewhere else. By now automakers have come to expect such giveaways. BMW received $68,000 per job to come to North Carolina and Mercedes Benz received more than $150,000 per job to bring to come to Alabama. But the court declared such giveaways unconstitutional because they interfere with interstate commerce since instead of creating new jobs they only take them from somewhere else.

The competition for jobs is just a prisoners’ dilemma game that corporations set and that jurisdictions, like suspected prisoners, have no choice but to play. Whereas competition between corporations benefits the public, competition between jurisdictions to attract corporations is ruinous to the public; it destroys its ability to place demands on corporations, be it to pay their fair share of taxes or to protect the environment or to provide good jobs with good benefits.

The courts could fix some of these problems, just as the Sixth Circuit already did, and just as the Supreme Court may still do in another case that involves a taking for a questionable “public use”. But the competition is not only between states but also between jurisdictions within states. Residents of New York City confronted this problem first hand when in the current budgetary crisis their Mayor has been reluctant to tax commuters into the city lest their jobs migrate to Westchester. For such a case the courts could offer no solution because the interstate commerce clause simply does not apply. In addition, not every giveaway involves the taking of property that occurred in New London. When the giveaway comes in the form of a tax abatement, for instance, the question whether it is for “public use” also does not apply.

The only real solution for the competition between jurisdictions is to get rid of its cause. And this cause is fiscal fragmentation. When each jurisdiction collects its own corporate taxes and is responsible for economic development policies for its own residents, competition between them is inevitable. This fragmentation may have been rational when jobs were more plentiful, corporations domestic, and foreign trade virtually non-existent. But this is not the situation today. In the international policy-making bodies of the global economy it is the Federal government that represents the American public. Economic development policies, including the taxation of corporations and giveaways, also belong exclusively at the Federal level. When local jurisdictions “have power” over international corporations, the only power they really have is the power to generate giveaways.

MOSHE ADLER teaches in the department of urban planning at Columbia. He can be reached at: ma820@columbia.edu

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Moshe Adler teaches economics at Columbia University and 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.

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