Tuesday, November 10, 2009

The Kelo Case Redux Once More: Pfizer Pulls Out and the "Carefully Formulated" Development Plan Collapses

Four years ago we posted (here, here and here) about the controversial US Supreme Court decision in the Kelo case. Most discussion of the case at the time focused on individual property rights vs the power of the government to promote economic development, but the case had an important health care angle.

Briefly, the case centered on the taking of private property, including a house owned by Susette Kelo, by a not-for-profit organization, the New London (Connecticut) Development Corporation (NLDC) given the power of eminent domain by the New London city government. While the ostensible rationale for the taking was economic development, the action appeared to have been at the behest of Pfizer Inc, the world's largest pharmaceutical company, which had built a research and development facility in the city, and wanted a suitably upscale and sanitized environment for its workers.

As we previously posted, the NLDC's leadership had multiple conflicts of interest that involved ties to Pfizer. One board member was a Pfizer vice-president. The board president was married to another Pfizer vice-president. Pfizer wanted the part of New London that included Kelo's house made more attractive to complement its new research facility. The husband of the NLDC president had said, "Pfizer wants a nice place to operate. We don't want to be surrounded by tenements."

Kelo's and other property owners' protest of the taking went all the way to the US Supreme Court. As we posted here, the Court decided against the property owners by a 5-4 vote. Justice John Paul Stevens wrote for the majority that the city's "determination that the area was sufficiently distressed to justify a program of economic rejuvenation is entitled to our deference. The city has carefully formulated an economic development plan that it believes will provide appreciable benefits to the community, including - but by no means limited to - jobs and increased revenues." This majority opinion is important, because the Fifth Amendment to the US Constitution provides "nor shall private property be taken for public use without just compensation." Many had interpreted this provision to mean that eminent domain could only be used to take property for public use, e.g., to build a road or a public school, but not for private purposes, like building upscale waterfront developments.

Two months ago, we posted on how the supposedly "carefully formulated" development plan had fallen apart.  The land on which the Kelo house stood had never been developed, and remained a weedy lot.
This week, the (New London) Day reported:
Eight years after opening its state-of-the-art global research-and-development headquarters in New London, Pfizer Inc. announced Monday it will close the nearly $300 million complex within the next two years and consolidate local operations into its Groton campus.
Why did Pfizer decide to close the facility?
Pfizer earlier this year said nearly 20,000 jobs would be cut as a result of its merger with the New Jersey-based Wyeth. The company said Monday that about 15 percent of its overall R&D work force would be cut as part of that downsizing.
The result apparently will be the complete dissolution of the "carefully formulated" development plan.
The announced closing of the New London site came as a blow to a city that had counted on Pfizer to help revive its fortunes.

The loss of Pfizer as a keystone business in New London could put in further jeopardy the Fort Trumbull development that started in conjunction with Pfizer's move into the city but has left little but flattened buildings and eminent-domain angst in its wake.

So, the unfortunate Kelo case has become a vivid demonstration how badly government does when it partners with businesses and tries to pick corporate winners and losers.  Unfortunately, it seems that much of what passes for US health care policy is such "corporate socialism."  As we said before, instead of trying to pick corporate winners and losers, government would do better to act like a combination of an honest policeman on the beat, deterring and punishing dishonest behavior, and in impartial referee, trying to make sure everyone is playing the game honestly. But no doubt government officials used to mingling with the corporate superclass would not be comfortable in the roles of honest cop or impartial referee.

See also comments on the Volokh Conspiracy blog.  Hat tip to the PharmaLot blog.

1 comment:

Anonymous said...

This is also noted on the Nov. 11, 2009 WSJ editorial page under the title of Pfizer and Kelo's Ghost Town:

"If there is a lesson from Connecticut's misfortune, it is economic development that relies on the strong arm of government will never be the kind to create sustainable growth."

A concept that appears to be missing from much of the current government stimulus as it relates not only to the financial, banking and insurance areas, but also medicine.

Steve Lucas