Competitive Enterprise Institute | 1899 L ST NW Floor 12, Washington, DC 20036 | Phone: 202-331-1010 | Fax: 202-331-0640
Eminent domain jumped to the fore of America’s political consciousness on June 23, 2005, when the U.S. Supreme Court upheld the City of New London, Connecticut’s decision to condemn several parcels of privately held property using eminent domain. At issue in Kelo v. City of New London was a comprehensive redevelopment plan designed to support a new research facility of pharmaceutical giant Pfizer.
Homeowners of the affected parcels attempted to save their homes from the wrecking ball. But in a 5-4 decision, the Court held that the Fifth Amendment’s Takings Clause—“nor shall private property be taken for public use, without just compensation”—sanctioned local governments’ condemnations of private property solely for the purposes of economic redevelopment. Most of the Kelo petitioners’ homes were soon demolished.
Since the Kelo decision, the debate over eminent domain has only grown more heated. Proponents of eminent domain claim that its use for economic redevelopment is a valuable tool for local policy makers and that a blanket ban on using eminent domain to foster economic growth would tie the hands of government officials in their ongoing battle against blight.
Opponents argue that economic redevelopment does not constitute “public use,” which the Constitution requires governments to show in order to justify takings. They argue that increased takings weaken private property rights due in part to the lack of a bright-line standard on what specifically constitutes “public use.” They also note that eminent domain takings are inherently politicized, so local governments may be biased in favor of larger, politically connected property owners and interests, at the expense of small business owners, entrepreneurs, and homeowners—particularly those at the lower end of the income scale. Moreover, use of eminent domain circumvents market processes that could better promote economic development.
This paper examines the economic relationship between eminent domain and entrepreneurship. It discusses the economics of eminent domain and property law; analyzes the relationship between eminent domain, entrepreneurship, and public-financed redevelopment; and warns local policy makers of the negative effects that eminent domain abuse has upon entrepreneurs, especially lower-income ones.