Eminent Domain and the Decline of Detroit

Detroit’s sixty year decline, culminating in its recent bankruptcy, has many causes. But one that should not be ignored is the city’s extensive use of eminent domain to transfer property to politically influential private interests. For many years, Detroit aggressively used eminent domain to promote “economic development” and “urban renewal.” The most notorious example was the 1981 Poletown case, in which some 4000 people lost their homes, and numerous businesses were forced to move in order to make way for a General Motors factory. As I explained in this article, the Poletown takings – like many other similar condemnations – ended up destroying far more development than they ever created. In his prescient dissent in Poletown, Michigan Supreme Court Justice James Ryan warned that there was no real reason to expect that the project would produce the growth promised by GM and noted that Detroit and the court had “subordinated a constitutional right to private corporate interests.”

Eminent domain abuse certainly wasn’t the only cause of Detroit’s troubles. But the city’s record is a strong argument against oft-heard claims that the use of eminent domain to transfer property to private economic interests is the key to revitalizing economically troubled cities. In addition to the immediate destruction and dislocation caused by such takings, they also tend to deter investment by undermining confidence in the security of property rights. One of the main findings of recent scholarship in development economics is that secure property rights are an important factor in promoting long-term economic growth. As economists Daron Acemoglu and James Robinson put it in their much-praised recent book Why Nations Fail, “secure private property rights are central [to development], since only those with such rights will be willing to invest and increase productivity” (pg. 75). Detroit is an abject example of what happens when policymakers ignore this reality.

Over the last few, years, the Michigan Supreme Court overruled the Poletown decision and forbade economic development takings in County of Wayne v. Hathcock (2004). The state has also curbed eminent domain abuse by legislative reform and constitutional amendment. Unlike recent eminent domain reforms enacted in many other states, Michigan’s are fairly strong. Hopefully, more people will learn from Detroit’s example, and realize that the road to prosperity is paved with property rights, not economic development takings.

UPDATE: For readers who may be interested in my take on the state constitutional legal issues at stake in Poletown and Hathcock, here is the amicus brief I wrote on behalf of the Institute for Justice and the Mackinac Center for Public Policy in the latter case.

UPDATE #2: Economist David Henderson has more on the ways in which eminent domain abuse contributed to Detroit’s decline here. As he points out, “urban renewal” takings in the early 1960s helped precipitate or at least exacerbate the 1967 race riots that severely damaged the city’s economy and reputation.