Piracy on the California Coast

On November 7, 1972, the voters of the State of California passed by initiative the Coastal Zone Conservation Act, listed on the ballot as Proposition 20. The Act defined a Coastal Zone extending from Oregon to the Mexican border, as far out to sea as the outer limit of the State jurisdiction and as far inland as the highest elevation of the nearest coastal mountain range. Within this Coastal Zone, that land from the mean high tide inland 1,000 yards was designated as the "permit area." Under provisions of the Act any development, construction, or modifications of property in the "permit area" may henceforth proceed only after a permit has been obtained from one of six Regional Coastal Commissions. In addition, the Commissions were charged to develop a comprehensive land use plan for the larger Coastal Zone and to submit that plan to the California State Legislature for approval in 1976.

The attenuation of property rights under the Act is clear and dramatic and came with ample warning; a portion of the initiative reads, "The People of the State of California hereby find and declare that the California Coastal Zone is a distinct and valuable natural resource belonging to all the People." Notice that the people have preempted the miles-wide Coastal Zone, not merely the 1,000 yard permit area. Significantly, not one word in the language of the coastal initiative refers to compensation for the expropriation of private property rights. Here is an example of how the California Coastal Commissions are proceeding: a land-owner came before the Regional Coastal Commission on which I served and requested a permit to construct a condominium development on four acres on the California coast. The application was denied at a public hearing on the grounds that the erection of said buildings would obstruct the view of the water from the nearest State highway. The fact that a scenic drive already existed between the water's edge and the parcel was dismissed as irrelevant.

Inasmuch as any structure—not just the proposed condominiums—would obstruct the view from the nearest State highway, I inquired whether there was any permissible use of the land. The Commission's staff responded that the four acre parcel might be used for a golf course or a cattle ranch. Ever played a round of golf on a one hole course? Or heard of a viable cattle ranch with four head of cattle?

Other projects have been blocked following staff recommendations for denial on the grounds that "the project would remove any alternatives available to any agency in the area of planning." In other words, the right to use privately owned land belongs to the State, not the individual. The inescapable conclusion is that the owners of these parcels have been stripped of virtually all of their property rights without compensation. They retain only the title and the liability for taxes.

THEFT OF PROPERTY

The expropriation of private property rights in this manner, the State-wide election and public hearings notwithstanding, can only be regarded as rank theft. Proposition 20 violates the spirit and the letter of the 5th Amendment guarantee that private property shall not be taken for public use without just compensation. The equal protection clause of the 14th Amendment is also relevant. Traditionally, the majority cannot vote to abridge the constitutional rights of a minority. As stated by the U.S. Supreme Court in West Virginia State Board of Education v Barnette (319 U.S. 624, 638), "One's right to life, liberty, and property…and other fundamental rights may not be submitted to a vote; they depend on the outcome of no elections."

The Constitution was once regarded as both a guarantee of individual rights of action and a limitation on the acts of the State. The contemporary situation is almost the reverse: under its police powers, the State has arrogated to itself the right to do virtually anything it pleases while individuals may act only by permission. According to Proposition 20, "the applicant (individual land owner) shall have the burden of proof on all issues."

Even if a case could be made for State rather than individual resource allocation, I find no grounds for expropriating citizens' private property without just compensation. Why doesn't the State buy the land it wishes to use, modify, or preserve? The environmentalists' answer: "The cost of purchasing the land that Society wants to save is far greater than the amount Society can pay [i.e., wants to pay]." No doubt that is correct, but it is also prima facie evidence that Society gives higher ranking and priority to alternative uses of its public funds. In other words, the public wants the environmental preservation of private land, but only if it is free!

Setting the expropriation issue aside for the moment, will the collectivist decision-making introduced by the Coastal Zone Conservation Act produce a superior allocation of resources than would a decentralized market system based on individual ownership and private property rights? I shall argue that it will not. Further, I shall attempt to explain why, in spite of this logic, the voters of California ratified Proposition 20.

ALLOCATING SCARCE RESOURCES

The fabric of every society possesses an institutional framework within which the scarce resources of the society are allocated to various productive uses. These allocations may be made by central authority in a fascist or a communist state, or by individuals in a decentralized competitive system such as we like to believe we have in the United States. Under the latter arrangement, a bundle of individually owned property rights is attached to each input. These rights include the options to use the input (modify, change, develop, etc.) or to transfer the bundle of rights to another individual via voluntary exchange in a market. The competition among individuals in such a market ensures that a resource will be put in its highest valued use.

If individuals (or groups) are not willing to pay as much or more for final goods and services as was paid for the resources used to produce them, the resources have been improperly used. Because of the competition in this system, resources flow into their highest valued uses as determined by the public's purchase of final goods in the market.

In addition, the ability of individuals to capture the potential returns from various uses of the resources provides a tremendous incentive for growth and development—the potential for achieving the maximum output from the resources available and for achieving the appropriate mix of inputs and outputs.

It has been argued that the rise of private property rights in large measure explains the Industrial Revolution in the Western World. Prior to widespread private property rights, entrepreneurs had no incentive to engage in creative activity because the financial returns to their activities did not accrue to them. Once the right to own private property became widespread, these external benefits could be internalized and captured by innovative entrepreneurs. Hence, great productivity and creativity was unleashed.

The argument is quite simple: Would you invest your labor and capital in machinery, structures, and land in order to launch a business activity if you thought the returns from the investment activity would not accrue to you? If you thought the land, structure, and equipment would be expropriated when and if the activity became successful?

COMMITTEE DECISIONS

As opposed to this system of private property rights, consider the decision-making procedure established under the Coastal Zone Conservation Act. No market signals exist to direct resources into their highest valued use. Instead, decisions are made by a group of well-intentioned Coastline Commissioners whose motivation is to make the allocation "better" than that achieved under a market system.

But without markets to signal the public's valuation of goods and services, the allocation of resources becomes ad hoc. If a handful of environmentalists oppose a development because they believe construction would destroy the nesting grounds of the monarch butterfly, can the Commissioners infer that a majority of the general public values the butterflies more than it does a residential development? Even if the environmentalists assign a dollar value to preserving the butterflies, can this figure be taken seriously if it is never collected from them? Those who benefit from a project will naturally tend to overstate the value of the benefits as long as they do not have to validate their claim with their own money. Similarly, those who are hurt by a project will overstate their losses. The language of the Act is no help in establishing criteria for resource use; the Commissions are charged to plan for maximum desirable population densities as well as orderly, balanced utilization and preservation…of all living and nonliving coastal zone resources—empty phrases without operational meaning.

A Commission could attempt to ascertain the public's dollar valuation of alternative uses of the resources even though the techniques available for determining these valuations are imperfect. In my experience on a Regional Coastal Commission, the Commissioners were unwilling to even consider such an approach; every effort to discuss the development of decision-making models and the dissemination of criteria to the public; every effort to find a decision rule based on predictable law rather than uncertain whim was rejected with the argument that "We have no time to discuss philosophy, let's get on with our business."

EMPIRICAL DATA

How, in fact, has the Coastal Commission conducted its business? According to newspaper accounts, the Commission has approved some 90 percent of the permit applications and would thus appear to be merely another costly but otherwise harmless bureaucratic episode in the already lengthy "Captain-May-I" game would-be developers must play. That may be the image the press or the Commission wishes to project but the facts do not support the image.

In the first 14 months of operation the South Central Coastline Commission approved 95 percent of the applications it received for single family dwellings but approved only 60 percent of the single family units requested in those applications. Similarly, while 77 percent of the applications for multifamily units received approval, only 51 percent of the units involved in those applications were approved. The probability of approval is high for a request for a permit for one dwelling unit but it is low for a permit requesting several or many units. In addition, some (unknown) number of landowners, discouraged by the cost, delay, red tape, and unpredictability of the Commission, have simply not asked for development permits. The cumulative effect of Commission action is a significant reduction in the number of new units that otherwise would have been added to the housing stock.

A market system with private property rights has a check on the actions of individual members; the power of an individual to allocate resources to his own ends is limited by his wealth and ability to borrow. No such check exists on the greed of environmentalists under the system established by the Coastline Initiative. Once in possession of political power, a dedicated minority can allocate resources to their own ends without any check on their activities. Proposition 20 literally issued a blank check to the environmentalists so that their use of the coastline will be expanded until its value to them is zero at the margin. Professor Milton Friedman stated it well: "Concentrated power is not rendered harmless by the good intentions of those who create it." Nor of those who use it.

MARKET IMPERFECTIONS?

But are there not circumstances under which the efficiency of a market system breaks down? Certainly. If monopoly exists, some would make a case for government intervention. But no private monopoly existed in the ownership of the California coastline. Prior to the November 7 election, virtually half of the coastline was already in the hands of local, State and Federal government agencies. The remainder was distributed among many, many individual landholders in parcels of various sizes. Thus, the monopoly argument cannot be used as a justification for public rather than private allocation of coastal land. A fortiori, this excuse does not justify expropriation and the abrogation of private property rights.

Another reason given for interfering with the market system is when the commodity falls into the category described by economists as "public goods." National defense, police protection, mosquito control and fireworks displays are traditional examples of public goods. The problem is this: if a subgroup of society purchases the commodity, there is no feasible way to exclude the remaining nonpaying members of society from enjoying the benefits—the latter individuals are "free-riders." Hence, the argument goes, since most individuals will attempt to be free riders, not enough of the commodity will be produced.

This argument is not applicable in the case of California coastal resources. Exclusion is possible. Private owners can and do develop parks and recreation areas that are available to the general public on a fee basis. Interested citizens can form nonprofit clubs to preserve coastal areas. Examples of the latter form of organization are private tennis, country, and hunting clubs.

Finally, when all else fails the collectivist argues that externalities or neighborhood effects are grounds for collective rather than individual decentralized decision-making. An externality occurs when my action imposes on another costs or benefits that cannot easily be handled in the market—an involuntary transaction. I submit that the externalities involved with developing the California coastline are no more severe than is the externality involved when I paint my house yellow instead of the white my neighbor across the street would prefer. This essay may create external effects; some readers may feel worse off after having read it. At the extreme, externalities are involved in virtually every action ever taken by individuals in a society, but the costs of correcting these subjective externalities are frequently much greater than the potential benefits achieved by correction.

ENVIOUS MAJORITY

Why, in the light of these arguments, did the voters of California pass the Coastline Initiative? I submit that envy was a motivating factor. The proponents of the Initiative pandered to this base instinct by their argument: "If we fail to act now, the cream will be skimmed off by a relatively small group." Code words for: "If you can't or won't live on the coast, vote to make sure no one else will." If, as frequently alleged, individuals are grasping, greedy monsters in the market place, by what magic are they transformed into foresighted altruists in the privacy of the polling booth?

Until recently the basic economic philosophy in America has been to create goods and services and to prosper by trading the results of one's efforts to other individuals. In recent decades, we seem to be returning to the earlier mercantilist attitude of beggar thy neighbor. And there can be no doubt that government legislation has brought this about. On the one hand, because of taxation, licensing, and regulation, the costs of "creation and trade" have increased. On the other hand, also due to legislation, the costs of organizing in order to redistribute or transfer income and resources from other individuals to your special interest group has fallen considerably. The lobbies for the farmers, the aged, and the environment are cases in point.

It has become relatively inexpensive to further your own ends with someone else's means. Albert Jay Nock saw this thirty years ago: "It is easier to seize wealth than to produce it; and as long as the State makes the seizure of wealth a matter of legalized privilege, so long will the squabble for that privilege go on." For example, if you belong to a minority of individuals who enjoy hiking in a coastline wilderness, you will argue that unless society intervenes, future unborn generations will be deprived of their wilderness heritage (more precious, apparently, than individual freedom of choice); thus the wilderness preserves are financed by all of the taxpayers although only a small minority of the taxpayers currently benefit from such wilderness areas and surely only a small percentage of their descendants will. In addition, the wilderness buffs lobby to limit the number of the current generation of taxpayers who may visit the wilderness areas so as not to "spoil" them. And that effect is clearly a transfer of income from the taxpayers at large to a minority group that is energetic enough to organize and lobby for their own special projects.

A former professor of mine once said that no one ever got rich paying someone else's bills. The special interest groups use the corollary and organize their campaigns so that someone else will finance their hobbies. Naturally their arguments are never expressed in terms of potential benefits to them; rather, it is typically alleged that everyone will benefit, that the project is in the general public interest—"be public spirited, don't be selfish." But every time someone urges me to be public spirited, it ends up costing me money to support their pet project!

I submit that California voters passed the Coastline Initiative because the proposition was presented to them on the ballot as a "free-lunch." I believe most voters interpreted the proposition as follows: Do you support the creation of free coastal recreation areas at no expense to you? The temptation to support such a measure is very strong. Even if you are thoughtful enough to realize that someone in the ranks of your fellow citizens will ultimately have to pay for this undertaking, the expropriation is impersonal. By and large, those who will pay will not be friends or acquaintances of yours. For example, a prominent Republican matron who regularly attended Coastal Commission meetings to lobby against a proposed condominium project explained that "private property rights are not an issue in this case; these developers are from out of town."

PROGNOSIS: MORE FREE LUNCHES

I predict any ballot proposition that offers free goods and services at the expense of a minority would pass. Earlier last year, state Senator Robert J. Lagomarsino, (representing Santa Barbara and Ventura counties), mailed a survey questionnaire to each of the registered voters in his district. Approximately 20,000 responded. One question in that survey is germane: "Governor Reagan has proposed returning to the taxpayers the $850,000,000 state surplus which will become available this year. How do you feel the surplus should be handled?" Some 41.2 percent of the respondents favored returning the surplus by a rebate on state income taxes. 22.3 percent favored using the surplus to delay a state sales tax increase. 8.4 percent wanted to use the surplus to refund outstanding state bonds. 11.3 percent favored using the surplus for a one-time capital outlay on beaches, parks or other acquisitions. 10.2 percent favored combinations of the above proposals. Other suggestions garnered 6.6 percent.

To this extent this sample of the voters faithfully represents the opinions of the population of voters, it is clear that the vast majority of taxpayers would rather have their taxes refunded to them than spent on the expansion of parks along the California coast. Thus, the voters favor more parks, if they are free (the Coastline Initiative passed by a 63 percent to 37 percent margin in Santa Barbara and by a bare majority in Ventura) while they oppose them if they have to pay for them (the poll indicates 63.5 percent want their money back and only 11.3 percent wish to spend it on parks).

The lesson seems clear enough: free lunch legislation promising benefits without costs will be accepted by the voters. Special interest groups have learned how to package their social reform measures in psychologically appealing bundles. The attraction of something for nothing apparently dominates any consideration for private property rights. And the California Coastal Initiative is but a harbinger of further control and expropriation. The U.S. Senate has passed legislation establishing a national land use policy that can only grow to a nation-wide system of federal control and expropriation. If you would like to know how this federal legislation will work in practice, come to California and watch us rip off the coastline.

M. Bruce Johnson is a professor of Economics at the University of California, Santa Barbara. He served on a California Regional Coastline Commission from January to June, 1973.