But let me start with clearing up a misunderstanding. Two consecutive comments read: "I would like everyone to know that I wrote a comment critical of Posner's view on AIDS treatment that was apparently censored from the blog." "My last comment was intercepted with a message that a feature had been enabled to allow Posner to approve posters. The comment has yet to appear." There is no censorship of our blog. There is a feature that enables us to disable comments, but we have never used it and do not plan to use it. Also, we don't read comments as they come in, but only en masse when we are ready to respond to them at the end of the week. So there is no screening.
On to substance: here is a thoughtful blog with which however I disagree. After quoting my statement that "Pending development of a vaccine (still not in sight), the only effective way of dealing with the African AIDS epidemic is adoption of safe sex. The AIDS drugs will retard that adoption by reducing the benefits," the comment states: "So then subsidize safe sex too! Pay for condoms and for non-catholic, realistic sex-ed. No rational human being who understands the disease and the possibilities for free prevention will decide to have unprotected sex in Africa just because new AIDS drugs will prolong certain death by 4 years. That is absurd. I agree that education and legal/political reform are the highest priorities, but you MUST treat the sick and the dying. What kind of respect for the rule of law will people develop when they are told that they can't have AIDS drugs for their sick child because the G8 is trying to teach Africans personal responsibility!"
True, no one who has a keen understanding of AIDS, the side effects of the antiretroviral drugs, etc., will deliberately engage in unprotected sex, unless perhaps he thinks the risk of infection very slight although not zero (at that margin, the availability of the drugs might sway choice). But as another comment points out, there is enormous misunderstanding of AIDS in Africa, and learning that a "cure" is available could have significant behavioral consequences. Another comment points out correctly that even if there is no misunderstanding about the limited efficacy of the drugs, just the fact that they increase longevity means that there will be more living people with AIDS, and they will infect others. As for the issue of denying health care to sick and dying people, no one is suggesting that. The question is whether the United States and other nations should subsidize the treatment of a particular illness in another group of nations. There is no moral duty to do this if, on balance, the effects of the subsidy on the people of the donee nations are likely to be negative.
I agree with the comments that point to constructive investments for foreign aid funds, such as birth control and education. The problem is getting the funds invested productively in such programs without the donee nation's simply reducing its own investment in them, thus in effect diverting the foreign aid funds to unauthorized uses. Will the donor nations employ enough auditors to detect such diversions, and if such diversions are detected will the donors actually withhold the aid? I am skeptical.
One comment usefully invokes the concept of "resource curse," observing that countries rich in natural resources seem not to benefit on balance from the wealth that the revenue from the export of such resources generates. A major reason is that a source of money that does not require an educated, hard-working population, the development of commercial values, a rational legal system, and other prerequisites to economic development reduces the pressure for developing the necessary framework for development. Foreign aid, as the comment points out, has the same characteristics. Money flows in without need to develop the proper legal, attitudinal, and institutional framework for sustained development, and thus enables national leaders to defer the often painful construction of such a framework. The analogy to the debilitating effects of welfare, and the benefits from Clinton's reform of the welfare system, is evident. Foreign aid is welfare writ large.
I enjoyed and benefited from many comments. The discussion helped to resolve a number of issues. Let me add to a few that were not resolved.
Remittances to India and China were not of great importance during their 40 years of slow growth. Nor did farmers in either country do well during this period, except for a few areas in India where the green revolution took hold. In China farmers suffered badly under Mao‚Äôs misguided policies. Indian farmers have participated less in the economic gains since 1991 than urban workers. However, many young persons born on Indian farms are now moving to urban areas to take advantage of the better opportunities there.
Neither China nor even India built up its education structure while they were growing very slowly. China almost ruined its education system during the cultural revolution since most universities and many secondary schools were closed. And despite the high quality of India‚Äôs IIT‚Äôs, the vast majority of Indians get very little education, and what they get is of low quality.
Opening the markets of the rich countries to the mainly agricultural goods from Africa is surely desirable. That is one of the proposals at Gleneagles that can be supported strongly. But opening markets alone will not stimulate rapid growth.
For good economic reasons, I agree with the person who said that low cost Aids drugs if widely available in Africa would tend to both increase infection rates and increase life expectancy. The puzzling aspect of the Aids epidemic in Africa is that the many persons who have not had access to the cheap new drugs have not taken more steps to reduce their likelihood of infection. Studies indicate, however, that more educated Africans adjusted their behavior more than the less educated. By contrast, prior to the development of the Aids drugs, vulnerable Americans did take many steps to reduce HIV infections, including greater use of condoms, less risky types of sex, and still other responses.
Someone gave examples of crises that did not stimulate beneficial economic reforms. I have only argued that serious crises are often necessary to generate such reforms, but I agree that crises are not sufficient.
Foreign investment in Africa will both stimulate economic growth and raise the earnings of many workers. With the right economic and political conditions, international companies will invest in Africa either in low skilled-labor-intensive industries or in mining. Multinationals pay higher wages than local labor, so as a result, they select better and more reliable workers.
Of course, valuable infrastructure can help in speeding up economic development, but just building roads, airports, etc. may do little good, as in the airport example I gave in my posting. India managed rapid growth since 1991 with bad roads and embarrassingly rundown airports. I do not believe, however, that large infrastructure projects is a good way to give aid since it is an invitation to theft and corruption. Instead, if aid is to be given, it should concentrate on small and very specific projects unlikely to be undertaken by African governments. There are not a lot of these that are feasible, but I gave some examples in my posting, and some of you gave other examples.
Accompanied by rock concerts in different countries and a push from activist rock stars like Bono and Bob Geldof, the world's richest democracies, called the G8 nations, met this past week in Gleneagles Scotland to decide how to help African nations. The publicity surrounding their meeting was reduced by the terrorist attacks in London, but they still managed to get considerable newspaper coverage. They committed to $25 billion in extra annual aid to Africa by the year 2010, sizeable debt relief for Africa, trade talks to eliminate agricultural support in the rich nations, and a promise to make low cost AIDS treatment widely available in Africa.
The G8 nations are rich enough to easily afford the increased aid committed to Africa. Perhaps for this reason, some of the activists denounced the aid as too small and miserly. But that these countries can certainly "afford" to spend more does not mean that much greater aid will help the millions of poor Africans. Indeed, it is doubtful whether more aid will speed up economic growth, given both Africa's experience with aid during the past half century, and the evidence from other poor nations that internal reforms that produce sizeable and persistent growth are the only really effective way to reduce a nation's poverty.
Despite receiving cumulative aid of more than $500 billion during the past several decades from rich countries and international organizations like the World Bank, Africa has had the slowest growth in per capita income of any continent. Slow growth is not the inevitable result of being poor since the per capita incomes of poor nations grew since 1960 about as fast, and perhaps a little faster, that the per capita incomes of rich countries. Obviously, the abundant aid to Africa in the past did not guarantee rapid growth, This aid may even have made growth harder by encouraging greater corruption, by reducing the need to consider drastic economic reforms toward freer economies, and by making it easier to waste resources on grandiose and unproductive projects, such as the Eldoret International Airport in Kenya that almost nobody uses.
India is a good example to consider in evaluating the respective roles of aid and self-generated reforms. India probably received more economic aid from international organizations than any other nation during the 40 years from its independence to the mid-1980's. Yet this large and complicated democracy experienced only a slow growth in per capita income during this period-sometimes referred to as the "Hindu" rate of growth, as if Hinduism was an inevitable drag on economic progress. However, a serious macro-economic crisis around 1990 forced India to change its ways, and brought in a reform-minded economist as finance minister, Dr. Manoman Singh. He introduced a series of simple but basic economic reforms during the early 1990's that included sharp lowering of very high tariffs and quotas, substantially reduced regulation of private domestic investments, a little encouragement to foreign direct investment, and the opening of more sectors to private enterprise. With no increase in foreign aid, and very likely a decrease, India's rate of economic growth sky-rocketed after these reforms to above 6 per cent per year, second highest only to China, and a pace of growth that would be the envy of African nations.
India and other examples of poor countries that managed to grow rapidly indicate that large scale and general foreign economic aid is not the solution to slow growth. Indeed, general aid might delay the reforms necessary for growth because it can take away the crisis mentality that appears crucial to galvanizing the political will necessary to implement radical economic reforms.
I am not denying that Africa has some special and serious problems that may make growth more difficult there, and perhaps provide room for aid for specific projects. Many African countries are located around the equator, and have climates that breed diseases that are highly debilitating and have not yet been conquered. Deadly tribal and ethnic civil wars have ravished many countries and certainly discouraged long-term investments. The AIDS epidemic has been particularly deadly there, with many millions infected, although it is puzzling why more precautions are not being taken by the African men and women at risk.
So it is easy to sympathize with the desire to provide aid to reduce some of this misery. As the Indian example (and Chinese example as well) indicates, sustained growth requires economic reforms toward freer markets in a political environment that is not clouded by civil wars and uncertain property and legal rights. However, aid might be helpful if directed toward better health and education-improving projects that would be neglected by African governments. Some examples include vaccination programs of the type favored by the Gates Foundation, the support of elementary schools in rural areas primarily devoted to the education of girls, and subsidizing research in G8 nations on diseases most common in Africa, such as malaria, sleeping sickness, and of course AIDS.
If these kinds of projects are politically feasible, they might more than repay the additional investment called for by the Gleneagles Meeting. But these and other projects promoted by aid from rich countries will not stimulate rapid economic growth and widespread reduction of poverty. Rapid growth can only come from major additional internal changes within Africa.
I do not favor foreign aid, debt relief (which is simply another form of such aid), or other financial transfers to poor countries, in Africa or anywhere else. Countries that are not corrupt do not require foreign aid, and foreign aid to corrupt countries entrenches corruption by increasing the gains to corruption. Foreign aid to Zimbabwe, for example, will simply prop up dictator Mugabe.
Foreign aid makes people in wealthy countries feel generous, but retards reform in those countries as well as in the donee countries. Obviously from a world welfare as well as African welfare standpoint Europe and the United States should not impose tariffs on agricultural imports in order to protect their rich farmers. Eliminating tariffs would do more for Africa than giving them an extra $25 billion a year to squander. (It would also increase the wealth of the countries that eliminated their tariffs.) Since there are 650 million people in Sub-Saharan Africa, the extra $25 billion will increase per capita annual income (assuming it isn't squirreled away by corrupt elites) by only $40. Not that such an increase is wholly trivial in relative terms‚ÄîNigeria, for example, has an annual per capita income of only about $300, and it is not the poorest country in Africa. But it is unlikely that the poorest people in these countries will benefit from the extra money; even if most of it isn't skimmed off by corrupt officials or squandered on dumb projects, it is likely to stave off fundamental political and economic reforms. (The G8 nations at Gleneagles also agreed to forgive some $50 in African debts to them, but that is a one-time event and its annualized value is therefore much less than $25 billion a year.)
Controls over how the money is spent will be difficult to implement. Earmarking donated money is especially difficult to enforce because the donee country can use the money to replace funds that it is already spending on the activity that the donation is earmarked for. So, for example, if money is earmarked for girls' education, the donee country can reduce the money that it appropriates out of its own funds for such education; such an evasion would be very difficult to prevent without intrusive monitoring of the country's finances that its leaders would resist vigorously and effectively in the name of anticolonialism.
The highest priority for‚Äîand it should be a condition for receiving any‚Äîforeign aid should be a nation's agreeing to the establishment under the auspices of the G8 nations an independent, professional, and competent judiciary and police, well paid and well supported with staff and with computer and other necessary equipment, to enforce contracts, property rights, and personal rights. Without such a framework for the protection of economic activity, the African nations are unlikely to progress. The cost of such a framework would be quite modest‚Äîfar less than $25 billion a year for the entire region.
Another priority is, as Becker notes, girls' education, probably the surest route to reducing population growth. But, although heartless, I do not agree that African nations should receive anti-AIDS drugs on a subsidized basis. Drugs that reduce the severity of an infectious disease can actually foster the spread of the disease by making the disease less costly to people who contract it. Pending development of a vaccine (still not in sight), the only effective way of dealing with the African AIDS epidemic is adoption of safe sex. The AIDS drugs will retard that adoption by reducing the benefits. Girls' education, quite apart from its other benefits, will combat the epidemic because the more secure women are economically, the less they will be inclined to yield to men's demands for risky sex.
These were stimulating comments.
Several pointed out correctly that tags on software files, indicating that the file is copyrighted, can probably be removed; and this suggests that only encryption, preventing copying, is likely to be effective in protecting the intellectual property rights of the owner of the copyright. But this in turn presents the spectre of overprotection of those rights. Copyright is limited in term and, more important (given the length of the term), is limited in other ways as well, such as by the right to make one copy for personal use and, in particular, the right of "fair use," which permits a significant degree of unauthorized copying. To the extent that encryption creates an impenetrable wall to copying, it eliminates these limitations on copyright. In addition, encryption efforts generate countervailing circumvention efforts, touching off an arms race that may create more costs than benefits.
When these points are combined with the undoubted fact that many millions of Americans simply do not see anything wrong with the copying of copyrighted music and film, so that legal restrictions on copying will not be reinforced by a strong moral norm, alternatives to lawsuits against direct and contributory infringers must be considered both by industry and lawmakers. Industry can reduce copying by reducing the price of the originals and by providing value added that is difficult to copy, such as attractive packaging. Congress could elide the problem by curtailing copyright protection for readily copiable work and substituting a tax on computers the proceeds of which would be distributed to the owners of copyrighted works.
Several commenters wondered about the limitations of contributory or indirect liability. What about companies that manufacture guns that they know to be particularly suitable for and used in criminal activity? There is no general answer; it all depends on how specialized a particular good is to illegal activity and how serious that illegal activity is. So the sale of burglar tools provides a good example; also the fencing of stolen goods. Most guns are sold for lawful uses, and since the desired characteristics of a gun (weight, accuracy, killing power, price, reliability, speed of action, and number of rounds) are generally independent of whether the gun is to be used legally or illegally, the analogy to burglar tools may fail; but this is not a subject about which I know enough to speak with assurance.
On the last day of its term (June 27), the Supreme Court decided the Grokster case, holding that the court of appeals had erred in affirming summary judgment for Grokster, a company that distributes free of charge software that enables computer owners to form "peer-to-peer" networks whereby a copy of a file in one computer can be transmitted to another computer. (There was another defendant as well, but I'll ignore that detail.) As explained in the Court‚Äôs majority opinion, "On the FastTrack network opened by the Grokster software, the user's request goes to a computer given an indexing capacity by the software and designated a supernode, or to some other computer with comparable power and capacity to collect temporary indexes of the files available on the computers of users connected to it. The supernode (or indexing computer) searches its own index and may communicate the search request to other supernodes. If the file is found, the supernode discloses its location to the computer requesting it, and the requesting user can download the file directly from the computer located. The copied file is placed in a designated sharing folder on the requesting user's computer, where it is available for other users to download in turn, along with any other file in that folder."
Grokster was sued by owners of music and film copyrights, who complained that Grokster was facilitating the infringement of their copyrights. Instead of buying a CD or DVD, the owner of Grokster software could search the network composed of other owners of the software for a computer file containing the copyrighted music or film and if he found it copy the file. This would be infringement, and the Supreme Court ruled that there was enough evidence of "contributory infringement" by Grokster to warrant a trial. The Court was unanimous, but there are several opinions, and they are long and labored. The basic principles are simple, however, and a single, much shorter opinion would have sufficed.
A contributory infringer is someone who facilitates infringement. By making the contributory infringer liable, the law reduces the cost of enforcing copyright, since it would be very costly for copyright owners to sue every person who is engaged in file sharing.
The general approach is not limited to copyright law. For example, someone who sells burglar tools to a burglar is guilty of aiding and abetting if the burglar uses the tools to commit a burglary. And someone who induces a breach of contract is liable to the victim of the breach, even though the victim could just have sued the other party to the contract for breach of contract.
But difficulties arise when a product has both lawful and unlawful uses. It would be ridiculous to hold sellers of butcher knives liable civilly or criminally if a purchaser used the knife to commit a murder, unless the seller knew that that was the intended use. And even when the seller knows that the use will be illegal, he may not be liable. A standard example is the dress shop that sells a dress to a woman whom the shop knows to be a prostitute planning to wear the dress in soliciting customers. The idea is that at least in the case of minor crimes, we don't want to put sellers at risk of civil or criminal liability for aiding and abetting because it would make them too careful about inquiring into the uses of their wares; the added transaction costs would exceed the benefits in reduced social costs of crime.
In the case of Grokster and other companies that offer file-sharing services (or, in Grokster's case, just software, for unlike earlier file-sharing facilitators, such as Napster, Grokster does not copy files onto its own servers or use its servers to facilitate file sharing--it merely provides the software that enables computer owners to establish a network among themselves for sharing), there are potential lawful uses. This possibility was enough to convince the lower courts that Grokster was not a contributory infringer. Not all musical recordings or films are copyrighted (the copyrights might have expired); and in addition some producers of copyrighted works, especially if the producers are new and trying to establish a reputation (a new rock and roll band, for example), may want their works distributed as rapidly and as far as possible even at the sacrifice of royalties. In effect, these producers are willing to grant royalty-free licenses to the users of Grokster software.
Nevertheless, the Court cited evidence indicating that most of the file sharing enabled by Grokster's software is, as Grokster well knew, infringing, just as most sales of burglar tools are to burglars, though some are to people who want to be able to break into their own house if they lock themselves out and others are to the police, or to the curious, or to would-be burglars who get cold feet before they commit their first burglary with the new tools. Contributory infringement would be an empty box if any lawful uses, however trivial in relation to the unlawful, enabled the contributory infringer to get off the hook on all uses of his product even though he knew that the vast majority were infringing.
But that is not the end of the analysis. Some infringements, paradoxically, may actually benefit a copyright holder yet he may refuse to grant a royalty-free license because he thinks he can extract a royalty and thus have his cake and eat it too. People will pay more for a CD if they think they can share it with others over a peer-to-peer network, because then the CD becomes a form of currency for arranging advantageous swaps and even "buying" new friends. Then too, if you travel a lot and bring your computer with you, with file sharing you don't have to drag your favorite CDs along; file sharing in such a situation merely gives you better access to a product that you paid for--and you will pay more, if you have that better access, just as you would pay more for a cellphone that you could use in any country in the world. In addition, through file sharing you might develop a taste for a particular band or composer whose recordings you wouldn't have bought without the free exposure to them; this is file sharing as advertising of copyrighted recordings that is free to the copyright owner.
But again, the mere possibility that infringement may confer benefits on copyright owners can't suffice to defeat a suit for contributory infringement any more than it could defeat a suit for direct infringement, as it is always possible to conjure up such possibilities. If the Grokster case is tried, the trial will provide an opportunity to compare the revenue loss to the copyright owners against the possible gains that I have listed. Unfortunately, subjecting providers of file-sharing software to the threat of trial places them at substantial risk, which may drive many of them from the market.
The final argument against imposing liability on Grokster and similar enterprises without bothering with a trial is a kind of "infant industry" argument. The software industry is dynamic and there is concern that imposing liability on software producers may retard innovation, since even if the only or major current use of some type of software is to facilitate copyright infringement, the software may turn out to have important lawful uses if only it isn't strangled in the cradle. This is hard to credit in the case of file-sharing services and software, however, since there is an immense lawful demand. File sharing of noncopyrighted materials is fundamental to the Internet, and for that matter to the intelligence system--the Intelligence Reform Act passed last fall ordains the creation of an "Information Sharing Environment" to facilitate the sharing of data across the many databases used by federal intelligence agencies. Also, any diminished innovation due to contributory-infringement liability must be traded off against the enhanced innovation that can be expected if intellectual-property rights are strongly protected by the law.
Grokster relied heavily on a case that the Supreme Court had decided many years ago involving Betamax, a predecessor to the VCR. At the time, the principal use of Betamax was to record television programs for later viewing. Insofar as the recording merely shifted the program to a more convenient viewing time, it clearly benefited the owners of the copyrights on the programs; but insofar as it enabled the viewer to erase the commercials, it hurt the copyright owners, whose remuneration depended on advertising revenues. The Supreme Court held that, given this dual-use situation, Sony, the manufacturer of the Betamax, was not a contributory infringer. The decision turned out to be fortunate for the film industry, because within a few years the sale and rental of home video recordings became a major channel of film distribution, which the studios had not anticipated. And so it is argued that file sharing of copyrighted music and film may also turn out to have unexpected benefits for the copyright owners themselves (beyond the modest benefits suggested earlier). But the logic of this argument is that there can never be liability for contributory infringement because the possibility can never be excluded that the product or service offered by the alleged contributory infringer, even if it is used exclusively by infringers, will turn out in the future to have substantial noninfringing uses.
There is a possible middle way that should be considered, and that is to provide a safe harbor to potential contributory infringers who take all reasonable (cost-justified) measures to prevent the use of their product or service by infringers. The measures might be joint with the copyright owners. For example, copyright owners who wanted to be able to sue for contributory infringement might be required, as a condition of being permitted to sue, to place a nonremovable electronic tag on their CDs that a computer would read, identifying the CD or a file downloaded from it as containing copyrighted material. Software producers would be excused from liability for contributory infringement if they designed their software to prevent the copying of a tagged file. This seems a preferable approach to using the judicial system to make a case by case assessment of whether to impose liability for contributory infringement on Grokster-like enterprises.
Grokster is a company that distributes software free of charge that enables copies of files on one computer to be transferred to another computer. Grokster was sued by MGM and other owners of copyrighted music and films with the claim that Grokster was facilitating the infringement of their copyrights. The Supreme Court decided unanimously that the evidence of contributory infringement by Grokster was sufficient to warrant a trial.
I do believe the case deserves a trial, and primarily for this reason I signed (without any compensation) an Amici Curiae brief submitted by several economists to the Supreme Court against Grokster. The arguments about infringement are set out in that brief and in Posner‚Äôs discussion. This software has few other uses so far other than to copy files from one computer to another, which often is a violation of copyright protection on the files copied. Although Grokster is not per se violating any copyright by producing this software, its software unquestionably facilitates these violations. It is also much more efficient to litigate against the contributory infringement of Grokster than to litigate against every college student and other individuals who are actually engaged in transferring files illegally.
The courts have held in the past that it is not contributory infringement if a company produces a product with sufficient sales for legitimate uses, even though it is sometimes used to violate either copyright or other laws. For example, it is legal to produce box-cutters, even though they have been used to commit terrorist acts. Posner gives other examples along similar lines.
But several things concern me about the issues raised by this and related court decisions. I basically do not trust the ability of judges, even those with the best of intentions and competence, to decide the economic future of an industry. Do we really want the courts determining when the fraction of the total value due to legal sales is high enough to exonerate manufacturers from contributory infringement? Neither the wisest courts nor wisest economists have enough knowledge to make that decision in a way that is likely to produce more benefits than harm. Does the fraction of legitimate value have to be higher than 50 per cent, 75 per cent, 10 per cent, or some other number? Courts should consider past trends in these percentages because new uses for say a software-legal or illegal- inevitably emerge over time as users become more familiar with its potential. Must courts have to speculate about future uses of software or other products, speculation likely to be dominated by dreams and hopes rather than firm knowledge?
Posner suggests requiring software producers to prevent the copying of CDs or other files with non-removable electronic tags placed on them by copyright owners. Unfortunately, this suggestion merely shifts the problem one stage backwards by providing incentives to other innovators to produce software that removes such tags!
My other concern is more strictly economic. The burglar using tools to prey open doors, safes, or windows, the good example Posner uses, is almost invariably producing harm through his activities. It is much less clear that the harm exceeds the benefits when someone buy files and then shares them with friends, and in many similar violations of intellectual property. A person might pay more for files that he expects to share with friends partly because to gain their goodwill, or partly because he can then share their files. Individuals may jointly pay for files if there is software that can be used to share them. In addition, free use of some files due to copying may encourage purchase of additional ones because the music or film copied whets the appetite for certain types of music, films, or other copyrighted material.
These points are not simply intellectual exercises, for at least some of the serious studies of the effects of copying and other apparent violations of intellectual property on sales do not show any strong negative effects, and sometimes even claim to find positive effects. Posner gives the example of Betamax, a losing competitor to the VCR. The movie industry opposed Betamax because they thought it would help destroy the sale of movies, but it failed to appreciate the eventual importance of videos to their overall market. There may also be conflicts among companies with copyrights, so that the majority might gain from a freer market and prefer to do nothing, while a few companies sue because the copying of their materials hurts them.
Experience and theory tells us that it is best to let markets rather than courts determine the evolution of industries-just remember the mess made of the telephone industry by Judge Greene. I increasingly believe that this principle applies also to alleged violations of intellectual property through contributory infringement. This form of legal remedy should be used but rarely.
Let me note just a few points:
1. "Holdout" doesn't mean "stubborn." A stubborn homeowner is simply someone who places a high idiosyncratic value on his home. A holdout is someone who may value his home at little more than the market value, but who sees an opportunity to obtain a much higher price by exploiting his strategic position vis-a-vis the developer. If the developer has sunk heavy costs in acquiring adjacent property, and would have to write off those costs if he can't acquire the remaining lot, then he will have to pay a high price to the owner of that lot.
2. The holdout issue is discussed at some length in several of the briefs in the Kelo case, so it's surprising that it didn't receive attention in the Court's opinions. It is unclear whether the plaintiffs were holdouts, and, as Becker mentions, even if they were there are ways of foiling holdouts without resorting to eminent domain. The simplest is to conceal the developer's project, as by using straw purchasers, so that the owners of the property that he is seeking to acquire don't know that someone is trying to put together an assemblage of contiguous lots. That is deception, but deception in a good cause, as it were, since it is countering the exploitation of a form of monopoly power.
3. I mentioned that in the absence of holding out, eminent domain operates as a form of arbitrary taxation (i.e., of idiosyncratic values). However, much taxation is arbitrary, and so the question presented by the use of eminent domain in situations not involving holding out is whether it is more arbitrary than the taxation that will be used in its stead. That is, if government land-acquisition costs are raised by limiting eminent domain, other taxes will have to be levied to pay for the higher costs.
Some good comments that deserve at least a brief reply. I am sorry I cannot do justice to all of them.
It is not satisfactory to define‚Äùpublic use‚Äù as some facility or activity available to everyone. For does that mean it is free? If so, that rules out government-owned toll roads. Government activities that charge a fee are not much different in this regard than private goods, such as privately owned stadiums, even when they receive government subsidies.
I do believe the right to own land is as fundamental as the right to own any other property, although the importance of land in an economy declines sharply with economic development. This is one of two major reasons why Henry George‚Äôs single tax is not attractive. The second reason is that such a tax discourages improvements in land since it is virtually impossible to get a ‚Äúpure‚Äù land tax. So a land tax affects incentives, just like taxes on other capital.
Some stressed the distinction between local government activities that net create jobs and other economic benefits from local governments that simply transfer jobs, etc from elsewhere. In a depressed community with heavy unemployment, some net benefit may be achievable. However, in the vast majority of cases, it is mainly a transfer either from other communities, or from other sectors in the same community. This is the source of the basic flaw in claims that government-financed stadiums, for example, will create jobs and other benefits. Virtually all the benefits are transfers from elsewhere in the community, although some are transfers from other communities, as when out of towners come to games or watch them on television.
I stressed that there may be ‚Äúhold up‚Äù problems where some property owners try to capture most of the surplus from a larger project. I also indicated that is mitigated, often crucially, by the fact that different potential sites can be used for a stadium, new road, power plant, etc. The many private projects that combine separately owned properties to build shopping centers, etc proves that hold outs can often be overcome without invoking eminent domain. The right to eminent domain simply eliminates the need to think creatively about how to do this.
Some of you questioned whether it is possible to determine the minimum price that people would accept for their properties. But the market does this all the time since that is what voluntary property transactions are all about. Hold out problems aside, no new problems are raised by assessing the values people attach to their properties. If the 87 year old woman who lived in her house since birth did not want to sell at the government‚Äôs price, why should the government have the right to force her to accept their offer, and perhaps make her miserable and destroy her happiness? They should have to do what private business must do all the time: either offer her a price that she accepts, or alter their plans to avoid the need to get her property.