T C A Srinivasa-Raghavan: Nandigram - a possible solution?

OKONOMOS

A new paper from Harvard suggests that private developers should be allowed to use the power of eminent domain for acquiring land if the social benefit exceeds the private costs.

Wonders never cease. Who would have thought that one day, I might come to the assistance of the CPI(M). But here I am, holding out a lifeline in the form of a paper* by a Harvard lawyer who also knows economics. It might be just the thing to get the West Bengal government off the Nandigram hook.

Steven Shavell of the Harvard Law School has made a suggestion that the CPI(M) needs to grasp like a drowning man clutches a straw. Indeed, so does the Government of India. The suggestion is this:

"...when the number of landowners grows, it becomes more difficult to obtain a parcel through purchase, and that that might justify the use of eminent domain, would seem to apply to private developers of land as well. (italics added)"

The doctrine of eminent domain is a few hundred years old. It was first used when some English king needed saltpetre to make gunpowder and, when he couldn't find any, he simply grabbed hold of a private mine. The owner went to court which told him, well, to take a walk, reasoning that the sovereign could do pretty much as he pleased if it was in the public interest.

But the practice acquired its present name only in the 19th century. Basically, it entitles the sovereign to acquire private land (or property on it) for a public use, provided the public-ness of the use can be demonstrated beyond doubt.

It is in this context that Shavell's paper has to be viewed. What with everyone getting fussed over SEZs, chemical hubs and so on, India needs to seriously consider Shavell's suggestion "" even if only to reject it eventually "" that private developers of land should be allowed to acquire land using the power eminent domain.

The point is this: when there are many landowners, a few may refuse to sell and indeed do. This makes the entire parcel unusable. If it is the government that needs the land, it exercises a sovereign right and simply acquires it and pays the landowners some compensation, in whichever way it is determined.

But what if it is a private developer who needs the land and even though he is willing to pay for it and can demonstrate a social benefit such as increased off-land employment, can't get it? Shavell explores the idea that "it might be socially desirable to allow developers to borrow the power of eminent domain when they have to assemble large tracts of land held by many owners because they would confront a problem in acquiring the required sub-parcels through purchase."

He says that in the US, the law does allow railway companies utilities, and, "sometimes, private developers of substantial parcels" to use the eminent domain for getting the land. We are not the US, I know, but is the idea at least not worth discussing?

The key point to focus on, I think, is the trade-off between the social cost of not getting the land and the private cost of having to part with it. If you use this way of looking at the problem, it ceases to matter who is using the power of eminent domain, a private entity or the government. It is also worth pointing out here that traditionally in India, a great deal of land was never privately owned but only the rights on it were. Few know this.

The problem, of course, is that it is very hard to figure out the trade-off between social benefits and private costs because the former can never be fully explained to owners who are being dispossessed, especially when they have nothing else by way of income generating assets.

But this cannot be true of all places all over India. That is why Shavell's idea needs a thorough examination.

Eminent Domain Vs Government Purchase of Land Given Imperfect Information About Owners' Valuation NBER Working Paper No. 13564 October 2007