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Big Box Takings:

Duncan Currie of the Weekly Standard has a useful article on the increasing use of eminent domain to acquire land for major "big box" chain stores, such as Costco and Wal Mart. He quotes a letter from Costco Senior Vice President Joel Benoliel defending the practice:

[I]n places like California, Redevelopment Districts with bonding authority and powers of condemnation have been the norm for many decades. Much of urban America has been built using this tool. We don't see any legal or moral wrong in this. The fact is, if we refrained from participating in these deals, our competitors for these sites like Target, Home Depot, K-Mart, Wal-Mart, BJ's, Sam's Club, and many others would take advantage of our reticence, and our shareholders would be the losers. In short, we are not violating laws or any rules of the free market economy. We would be doing exactly that if we refused to participate in these deals when they are offered, while other retailers continued to do so.

Benoliel is right to note that such takings are common practice in many parts of the country, and right also that unilateral restraint by Costco would achieve little, since the "deals" in question would probably just go to Costco's competitors. He is wrong, however, to imply that such takings are necessary to promote economic development, much less that they are necessary to "build" urban America. In reality, they very likely cause more economic harm than benefit, as I have argued in great detail here and here. In addition, they tend to victimize poor and lower-middle class interests for the benefit of politically powerful developers and corporations such as Costco and its rivals.

As a general rule, I'm a fan of big box stores, which give customers excellent value for money. But if they want more land, they should be required to purchase it from voluntary sellers, just like all other businesses should do. If the sellers don't want to sell at a price acceptable to the chain store, that's a strong sign that they value the land more than the store does, and that a forced transfer would therefore destroy more economic value than it creates.

The main objection to this reasoning is the assertion that large, beneficial development projects might be stymied by holdouts. I have rebutted that claim in some detail in this article (pp. 204-10), and see also this excellent Cornell Law Review article by Daniel Kelly. In any event, holdout problems are unlikely to be a significant issue for big box stores because few are large enough to require purchasing property from a large number of owners in order to assemble the needed land.

In most cases, big box takings represent are redistribution from politically weak property owners to the store's stockholders and employees. There is little if any gain to the community as a whole, and often an actual loss resulting from the loss of more valuable land uses.

deje:
Sounds a lot like the rationale for looting or drug dealing: "It wouldnt make a difference if I stopped, because someone else would do it instead." Not that its necessarily wrong, just saying..
7.26.2007 5:50pm
PatHMV (mail) (www):
There's at least some moral difference between accepting a deal that's offered and fomenting the deal to begin with. What I've seen in my neck of the woods is developers bringing the proposal to the government, not the other way around. Developers or the store decide they want to locate in a particular location, and then they get government to get it for them. Government doesn't say "we're going to expropriate this plot of land and then find a store for it."

Let's pass a law that requires those who exercise eminent domain for commercial pursuits and the CEOs and boards of directors of the companies that benefit from that exercise to sit down and meet with the property owners who will be evicted for, say, 4 hours... in the home that will be knocked down to pave the way for the new store. Just the CEO, board members, and the government body making the decision... no staff, no lawyers, so the decision makers must directly confront what they are doing, and justify it to the people most profoundly harmed by it.
7.26.2007 6:06pm
James Lindgren (mail):
Ilya,

I agree on both fronts:

(1) Big box stores are generally good things, and
(2) There is little reason for their use of eminent domain to obtain land.

It's not like trying to build an airport or an expressway, where assembling parcels raises more serious holdout problems. If someone holds out against a Costco offer to buy land, let Costco buy a different parcel.

Traditionally, big box stores bought undeveloped farm land or mostly abandoned industrial land, where assembling parcels was not a serious problem.

It was assumed that people would drive a bit farther to save money on purchases.

I see no reason why Big Box stores should need highly prized land or special tax breaks. They should be using whatever political clout they have to eliminate unnecessary zoning restrictions (which are considerable in most cities).

Jim Lindgren
7.26.2007 6:07pm
glangston (mail):
I've noticed the Redevelopment Agency leases in my area are quite reasonable. The new Hilton Waterfront Hotel on Coast Highway across from the City Beach pays around $250,000 per year ground lease. The newer Hyatt Resort and Spa is kicking in a big $75,000 on it's lease.This compares to my Aunt's triple net lease for a Circle K in Tustin CA that pays her around $100,000 per year. Of course these larger businesses generate sales tax revenue that is coveted by the city administrators. Even with these extra revenues the leases are a virtual giveaway compared to convential prices. C'est la vie...
7.26.2007 6:15pm
Seamus (mail):
I see that Costco's Senior VP is laboring under the illusion that "reticent" is a synonym for "reluctant."
7.26.2007 6:16pm
HSH:
Off topic to this post, but relevant to other recent posts:

I think that Benoliel's use of the word "reticence" is a mistake. But, this is not a rare mistake even among those who are educated well and who are, on the whole, proficient speakers of English and, I don't think anyone reading the quote would misunderstand his intended meaning. Am I being pedantic by saying that he chose the wrong word to express that meaning?

I wouldn't fault anyone for making that mistake (in my opinion), but if I were editing something and came upon it, I would ask that it be changed.
7.26.2007 6:22pm
Ilya Somin:
Ilya,

I agree on both fronts:

(1) Big box stores are generally good things, and
(2) There is little reason for their use of eminent domain to obtain land.


Thanks Jim!
7.26.2007 6:26pm
Mike S.:
Why is a lawyer who drafts patents thought to have experience while one who drafts patent laws is thought to have none?

Besides the law is hopelessly vague. Is an industrial artist who trademarked a logo someone who has"professional experience"? How about a new associate or intern who has helped research 1 patent? It would seem so. Is that a qualification to run PTO? No
7.26.2007 6:27pm
markm (mail):
HSH: You're not being pedantic. Malapropisms propagate, and that robs us all of the vocabulary needed to precisely express ourselves. E.g., I see "flaunt" used to mean "flout" several times a week. Therefore, I won't use either word, because I have no idea what my readers will think it means.
7.26.2007 8:06pm
Dave N (mail):
I think Jim Lindgren hit the nail on the head. Both of his observations are spot on--as is the rest of his post.
7.26.2007 11:20pm
Kevin Murphy:
Hmmm ... so, what happens if a city uses this power and then puts it up for auction? OK? What happens if it excludes unfavored competitors (Target, Sears, Home Depot OK, but none of your damn Wal-Mart)? Does a redevelopment agency have to avoid favoritism among competitors?
7.27.2007 4:15am
Kevin Murphy:
The only flaw in Jim's point #2 is that a small city may be attempting to "land" that big box store instead of another city down the road. Sales Tax farming. Like the Costco argument, the small city may saw that if they fail to cheat their own citizens out of their land, that other.... Oh, wait.... Never mind.
7.27.2007 4:21am
Randy R. (mail):
I prefer small box stores, and I generally believe that big box stores are bad. Why? Because they put out of business smaller stores that are often owned locally. A small store may be valued at a million dollars, not much, of course, but to the one person who owns it, it's his life. Then a big box comes in, and poof! That million dollars in value disappears.

One can say that the big box store creates more wealth than that small box store, but that's academic to the owner. And the general community hurts, too, since that local owner has been paying taxes for decades, and there is a wealth of knowledge that evaporates. Plus, he can't use the local bank anymore, and so there begins a downward trend in the local economy.

James:"Traditionally, big box stores bought undeveloped farm land."

If it's farm land, it isn't 'undeveloped.' If it's not being used, that has a value too. Not every piece of land in America must be blacktopped to be considered valuable. Trees and meadows have a value, too.
7.27.2007 6:38pm