Tough to Take

Local governments used to be able to do pretty much whatever they wanted when it came to land-use regulation. Zoning and rezoning, slow-growth and no-growth ordinances, building permits conditional on giving local authorities free land—you name it, they tried it.

Property owners made deals or, if things got really desperate, sued to get the relevant ordinances overturned. They never stood a chance of collecting damages or compensation for the lost opportunities to develop their land.

Then last year the Supreme Court changed the balance of power. Thanks to two Court decisions, property owners can now claim a "taking"—and compensation from the government under the Fifth Amendment—in many cases when regulations infringe on their ability to use their land.

Now, property owners are taking those powerful precedents into court and winning:

• In August, New Jersey Superior Court Judge Marguerite T. Simon ruled that the Hackensack Meadowlands Development Commission had effectively confiscated 12.5 acres of private marshland by zoning out any development more substantial than an occasional billboard.

"Any doubt that I might have had as to the way to go in this case," said Simon, "was totally removed by Chief Justice Rehnquist in First English Evangelical Lutheran Church of Glendale v. County of Los Angeles" (one of last year's takings decisions). She ruled that the commission would have to buy the land to prevent development, and she ordered a panel of experts to determine fair compensation.

The commission, which is appealing, sees more at stake than a patch of marshland. "You can't have proper planning without proper zoning, so what is raising its head here is a question of the rights of all governing bodies to do some proper land-use planning," says commission spokesman Bob Grant.

• In North Carolina, Superior Court Judge Wiley F. Bowen has ordered the city of Durham to pay more than $150,000 in damages, plus attorney fees, to four citizens who want to build a motel on their property. Earlier in the trial, a jury ruled that the city had improperly downzoned the property to keep out the proposed Red Roof Inn. James Maxwell, attorney for the property owners, described the damages as a "penalty to the city of Durham for having confiscated this property for a three-year period of time."

• Developer G.K. Hunnewell is suing the Independence, N.J., Township Committee, which rezoned a large chunk of town after he had spent $1.6 million to buy 100 acres. He had planned to build 59 houses on the property but under the new zoning could build only 20. Hunnewell is asking $6.4 million to compensate for the time and money he lost because of the rezoning.

"The Supreme Court decisions were very instrumental in my mind," he told the New York Times. "The public hearings on the new ordinances were held the day before the story broke about the First English Church case in California, and it was bang-bang in my mind—this could apply to me."

Biotech Creates Environmentalist Strain

Spraying of corn crops with pesticides has been linked to the death of millions of birds and other animals. But biotechnology offers the prospect of an alternative, and that's produced an interesting split among environmentalists.

This spring, the Environmental Defense Fund, the National Audubon Society, and the National Wildlife Federation all lined up on the side of Crop Genetics International Corp. when it sought Environmental Protection Agency approval for a two-acre test of a genetically engineered corn plant that can protect itself against the corn borer caterpillar. Jeremy Rifkin, however, parted company with his environmentalist friends and stuck to his now-standard opposition to biotech developments no matter what their potential benefits.

Crop Genetics figures the use of pesticides on corn could be cut in half if its new strain—the first crop to incorporate a pesticidal bacteria—is successful. And it is working on genetic alterations that would defeat two other corn pests and completely eliminate chemical spraying of that crop.

With biotechnology's vast potential, environmentalists now have something to be for, not just against. Environmentalists who aren't Luddites, that is.

Who's the Fairest of Them All?

According to conventional wisdom, socialist and communist countries give up freedom for equality, while capitalist countries give up equality for freedom. Two professors, however, have come up with some wisdom of their own: that equality is determined not by a country's political system but by its level of economic development.

Writing in a recent issue of PS: Political Science and Politics, Thomas R. Dye of Florida State University and Harmon Zeigler of the University of Puget Sound and the University of Washington reviewed the work of many scholars who have studied income inequality across nations. Using standard measures, they then tested for correlations between the level of inequality and the nature of the political system, as well as per capita GNP and other possible factors.

Dye and Zeigler did find a statistically significant relationship with several other variables—inequality goes down, for example, as GNP is higher and political participation and personal freedom increase. But they turned up "virtually no relationship between capitalism or socialism and inequality (r = .07)."

Furthermore, capitalist countries are better at encouraging economic growth. So there's good reason to believe, conclude Dye and Zeigler, "that capitalism can bring about a more equitable distribution of income than socialism."

Social scientist Simon Kuznets came up with a rationale for this conclusion back in the '60s. He reasoned that in the early stages of a country's development, the wealthier people accumulate and save a disproportionately large share of the benefits of increased productivity. Over time, however, previously poor segments of the population take advantage of the new opportunities and acquire a bigger absolute and relative share of the new wealth.

While Dye and Zeigler found that inequality goes down as social welfare expenditures increase, they observe that these policies "are no greater in communist than in capitalist countries.…Among the developed nations, the authoritarian socialist governments of Eastern Europe do not provide for any more equitable distribution of income than their western counterparts."

Dye and Zeigler take political scientists to task for asserting without evidence that socialism is better than capitalism at distributing wealth equitably. But the authors give credit where credit is due: "socialist economies do sacrifice individual freedom and economic well-being. That much of the conventional academic wisdom is true."

Farm Thunder from Down Under

For every dollar an Australian farmer earns on his crop, he gets another 13 cents in government subsidies. For every dollar an American farmer earns, he gets 53 cents from the government.

Ian McLachlan, president of the National Farmers' Federation of Australia, says American farmers should follow the lead of their counterparts down under. If they gave up their subsidies, as Australian farmers did, they would be more competitive in the world market, McLachlan recently told a meeting of the American Farm Bureau Federation, the nation's largest organization of family farmers and ranchers.

A sheep rancher himself, McLachlan said that Australian farmers are better able to respond to market forces. For example, when the United States increased subsidies for wheat exports, Australians saw that prices were coming down and cut their wheat acreage by 21 percent, shifting to other crops. Without government programs to distort the agricultural market, Australians are not inclined to produce what no one wants.

In the United States, in contrast, farmers respond to new government programs passed to solve problems caused by old government programs. For example, to "cure" the problem of overproduction of subsidized crops, Congress in 1985 passed an "export enhancement program" guaranteeing farmers a profit on all exported foods.

"We are horrified by [that] program," McLachlan told a Los Angeles Times reporter. "It may be effective in moving surpluses at home, but it doesn't do anything for world prices but depress them even more." Australia, it's worth noting, exports 80 percent of its farm products, totaling about $18 billion last year, without such inducements from the government.

The "Committee of 13" Pacific nations, including Argentina and Canada, is determined to end farm subsidies and agricultural trade barriers internationally through the General Agreement on Tariffs and Trade (GATT). Although the Reagan administration has tepidly endorsed the idea, the European Community resists it. There, farmers receive an average 69 cents from the government for every $1 earned from crops. If the Europeans and Americans do not abandon protectionism, say members of the Committee of 13, they'll form a free-trade zone. Japan is already Australia's number-one agricultural trading partner.)

"The fact is that the best of you are probably better than the rest of us—individually. But collectively you are in grave danger because of your inflexibility," McLachlan told his American audience. "I've got members saying to me, 'For God's sake, don't tell those Americans to give up their protectionism because they'll start to get internationally competitive.'"

Petite Planes Pay Their Price

Weary travelers flying in and out of Boston's Logan Airport are in for some good news: thanks to a change in the way the airport charges planes for using its airfield, fewer flights should be delayed.

Starting July 1, Logan will stop charging based solely on a plane's weight—a landing-fee structure that gives smaller planes something of a free ride. It is the first airport to adopt such a cost-based pricing structure, but others are sure to follow.

In fact, the busy Kennedy, LaGuardia, and Newark airports may soon jump on the bandwagon. The Port Authority of New York and New Jersey, which runs the airports, has proposed raising peak-hour landing fees by 150 percent starting in September. The goal is to steer smaller planes into less crowded times—and to encourage commuter airlines to buy larger aircraft. At Logan, commercial jets account for 60 percent of takeoffs and landings but carry 95 percent of the passengers traveling through the airport. By contrast, general aviation flights (in the smallest planes) make up 10 percent of takeoffs and landings but carry a mere 0.5 percent of passengers. Both kinds of planes use valuable landing spots and create congestion, but the jets move passengers much more efficiently.

Under the old pricing scheme, landing cost $1.31 per 1,000 pounds, or $25, whichever was greater. Under the new structure, the airport's costs will be plugged into a formula that includes a weight-based variable (to take account of such factors as wear and tear on the runway) plus a flat fee (to account for such unvarying costs as help from the control tower). Under the new formula, using this year's costs, each plane would pay $88 plus 47 cents per 1,000 pounds. (Flights to and from some New England airports will be exempt from the new rates.)

As a result, large planes will see their costs fall while smaller planes pay higher fees. For example, a Boeing 727, the workhorse of most commercial airlines, would pay $160, compared to about $200 now. By contrast, a nine-passenger Cessna 402 would pay $91, compared to the current $25.

Not surprisingly, general aviation organizations have filed complaints with the Federal Aviation Administration in an attempt to block the Logan plan. The Aircraft Owners and Pilots Association claims in its complaint that "no circumstances presently exist at Logan that would justify discrimination against general aviation in preference for common carriers."

But Tom Champion, a spokesman for the Massachusetts Port Authority, says traffic at Logan should drop by as much as 5 percent, primarily from a decrease in general aviation flights. And a 5 percent reduction in traffic would lead to a 40 percent reduction in delays, he says, because that 5 percent is what overloads the airport. For passengers who fly coach, not Lear Jet or Cessna, that should save a lot of time.


Home sweet home? The Department of Labor is (again) recommending repeal of regulations that bar workers from manufacturing garments and jewelry in their homes. The proposal is (again) drawing opposition from unions.

Toying with the market. The new electronic toy—based children's TV shows have flopped in the marketplace, sending the industry back to the drawing board and confounding critics who feared the commercial seductiveness of "kidvid" (see "Toys Will Be Toys," REASON, July 1987).

Offensive law. The Supreme Court agreed to decide in an Indiana case whether state and federal authorities can use racketeering laws to shut down a bookstore and confiscate its contents if authorities can show probable cause that the store has sold at least two obscene products. The Court is expected to rule this fall in the case, which affects mainstream booksellers, drugstores, and convenience stores as well as stores specializing in sexually explicit materials.

Out of the Mouths of…

Aleksander Paszynski, a Polish businessman who wants to start a group of companies to offer products and services needed to build homes:

"We want to create a system for matching people with ideas, and with those who have capital. Our philosophy is the philosophy of the free market."


Tax-free Banking, Eh?
D.R. Blackmon

By repealing all taxes for customer transactions made outside the country, Canada has begun attracting financial institutions from abroad. The catch? Banks must operate within an approved International Banking Center (IBC) to avoid national taxes and an International Financial Center (IFC) to avoid provincial taxes. Before long, Vancouver is scheduled to join Montreal in offering both kinds of tax-haven banking.

Two IBCs were authorized last December. Montreal and Vancouver were designated as cities where banks could accept deposits from and make loans to foreign customers without either party paying any federal tax.

Provincial taxes are the next target. Quebec has already approved its IFC, which means that banks operating within the Montreal IBC/IFC will be free of all Canadian taxes. Also, Quebec has expanded the scope of services banks can offer in Montreal while still staying clear of provincial taxation. Virtually any operation, including asset management, securities transactions, and pension fund management, is approved.

And Canadian customers can get in on the action. Jean LaBonte, president of the International Financial Centers Organization of Montreal, says no provincial taxes apply "as long as there is one leg of the transaction that's offshore. You either buy stock on the New York exchange for a Quebec or Canadian resident—and that's considered an international transaction—or, say Salomon Brothers buys stock on the Montreal exchange for an American portfolio. Both operations are considered as the same thing."

At press time, LaBonte was getting ready to ease several foreign banks into Montreal's business life. He expected to issue operating certificates to three Swiss and two Japanese banks, as well as several Canadian brokers.

That may prompt the British Columbia legislature to move quickly on a set of bills that would turn the port of Vancouver into a combined IBC/IFC tax haven. According to Dale Parker, chairman and president of B.C. Bancorp, "Canada is increasingly being viewed in Asia as it already is in Europe—a favorable country for investment."

There are likely to be other benefits from the IBC/IFC legislation, as well. Domestic services for Canadians are likely to be cheaper because of greater competition between banks, and of course employment opportunities for Canadians will expand.

The big question is whether Canada will be seen as a more effective international player than the United States. Long before the IBC/IFC laws, Canada moved forcefully to deregulate banking. That topic is still, interminably, being kicked around in the United States. With the introduction of tax-free banking, Canada has raised the ante again.

Global Roundup
Still zealous. New Zealand's Labour government is continuing its free-market push ("New Zealand's New Zeal," REASON, March). The minister for state-owned enterprises wrote a letter to state corporations asking them to justify their existence in the public sector and to draw up plans for their own privatization.