Eminent Domain

Foxconn Debacle is Yet Another Example of the Dangers of Using Eminent Domain to Promote Economic Development

As in many previous cases, government officials promised huge economic gains from seizing property for transfer to private interests - but failed to deliver.

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Back in 2017, politicians promised enormous economic benefits from condemning numerous homes in Mt. Pleasant, Wisconsin, in order to build a new factory for Foxconn, a Taiwanese electronics firm. Then-Wisconsin Governor Scott Walker said it would create numerous jobs, and helped push through a massive state subsidy for the project. President Donald Trump, who had a hand in the deal, said the factory would be the "eighth wonder of the world." The property was indeed taken, as planned (in some cases due to "voluntary" sales under the threat of eminent domain if the owners refused). Unfortunately, the promised economic benefits haven't been realized. A recent Guardian article summarizes this sad state of affairs:

When Sean McFarlane recently returned to the site where his lifelong home was demolished, he found in its place a retention pond and hundreds of geese perched on a hill.

The quiet scene came as a shock. The Wisconsin village of Mount Pleasant had effectively forced him, his girlfriend and four children from their home in 2017 to make way for a proposed 20m sq ft hi-tech plant owned by the Taiwanese electronics giant Foxconn, a plant Donald Trump had said would soon be the "eighth wonder of the world".

To make way for this "wonder", village officials temporarily placed the McFarlanes in a dilapidated vacant house with no working toilets or heat, then allegedly failed to meet the promised relocation payment of $22,000.

Three years later, the factory for which the family went through hell hasn't been built. Sitting in his wheelchair on an empty sidewalk in November, McFarlane sighed in disbelief as he scanned the vast patchwork of mud, open fields, ponds and a few underutilized buildings comprising the 3,000-acre Foxconn site.

"They demolished my house for this? A bunch of geese that sit on a hill?" McFarlane, 37, asked. "It's upsetting. That's where my old house was, and now it's just nothing. You know? Nothing."

Instead, the project imploded in slow motion. Few jobs have materialized and Foxconn has not submitted new construction plans in over a year. The LCD screens that were supposed to be made there aren't being built in its "factory", which is 20 times smaller than proposed and now zoned as "storage". After Foxconn failed to meet its job creation targets, Wisconsin's governor, Tony Evers, last month pulled a deal that would have handed the company nearly $4.5bn in incentives for completing its plans.

Reason's Zach Weissmuller has more details on this debacle here.

The outcome of the Foxconn project is sad, but far from surprising. As discussed in detail in my book The Grasping Hand: Kelo v. City of New London and the Limits of Eminent Domain, there is a long history of takings for private development failing to produce their promised economic benefits. Indeed, often they destroy more economic value than they create—as appears to have happened in this case, as well.

The geese occupying the site of Sean McFarlane's former home are sadly reminiscent of the feral cats who have become the only users of the property condemned in the famous Supreme Court case of Kelo v. City of New London, which ruled (mistakenly in my view) that seizing property for private development is a permissible "public use" under the Takings Clause of the Fifth Amendment.

It is not at all surprising that Donald Trump backed the Foxconn project, as he has a long history of supporting the use of eminent domain for private gain (including his own). More disappointing was the backing of Scott Walker and other GOP politicians who in other contexts claim to be defenders of free markets and property rights. Then-House Speaker Paul Ryan—who previously supported federal efforts to constrain economic development takings—refused to intervene to help the victims of the Foxconn condemnations, even though Mt. Pleasant was in his district.

In the wake of Kelo, many states passed reform laws constraining the use of eminent domain for private projects, and there is a growing recognition that local and state governments should not be trying to condemn their way to prosperity. But much remains to be done to address the problem of eminent domain abuse. I am guardedly optimistic that the Supreme Court might eventually overrule or at least limit Kelo. In the meantime, hopefully more people will learn the lessons of such debacles, and we can avoid future Foxconns and Kelos.

NEXT: The New Roberts Court Releases Its First Opinions in Argued Cases

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  1. I fail to see how the example of Scott Walker’s adventure with Foxconn is a good example of any principle other than how corrupt and incompetent Scott Walker and his political cronies are.

    Dealing with large Chinese business interests is not a game for amateurs and pretenders.

    1. I don’t think Prof. Somin thinks that you can never do a good project using eminent domain. It’s closer to the notion that the farther you get away from public purposes and towards boosting the private sector (which is why he thinks Kelo was wrongly decided), the more of these bad situations you get into.

  2. “I fail to see…”

    Indeed, you do!

  3. But the home owners make out like bandits, and are just trying to hold the project hostage for even more.

    1. Generally speaking in dealing with anything done by Eminent Domain the pre-existing owners (homes or businesses) get screwed. On average, they probably get less than 50% of a real market value for the property.

      1. A couple of points

        1) the willing buyer and willing seller.

        2) one of the reasons the home owners get less than value is the FMV is based on existing use, instead of highest and best use. That old house is often not worth much in its present condition, but the land is quite valuable for commercial use, but the property is value as if the property will continued to be used in its present / lower value usage.

        1. Eminent Domain: By definition, the seller is not willing.

    2. Owners making out like bandits for selling their property? And is that not their right? Its a free market system and if some person wants another persons land bad enough they should pay.
      In both situations, the Mt Pleasant debacle and in New London the people suffering from eminent domain were largely poor or working class and the other private parties are multi-billion dollar corporations. In both cases the greater good was used. The poor folk living in blighted economically depressed areas have to move so that your lives can be better. And in both instances the corporations had different ideas entirely and failed to go through with the projects. So peoples property was taken from them and the ostensible public good never occurred.

  4. “nor shall private property be taken for public use, without just compensation.”

    The use of Stare decisis instead of first relying on the the text of the constitution is how “Public Use” morphs into government preferred use.

    Oddly, I am surprised by the number of progressives that think the conservative justices are the ones that voted against Kelo and in favor of new london in the case

    1. I have never understood why liberals/progressives support Kelo, a decision allowing multimillion dollar corporations to get local governments to seize homes owned by low-income individuals. Do they see conservatives being angry about Kelo and conclude they must do the opposite?

      1. Because progressives are fascists, indeed fascism and socialism are the same except for the insignificant difference between government owning and controlling the means of production.

        1. ::eyeroll::

          Nazi Germany and the USSR are actually different things.

          And Kelo is a third another thing. And I do think SMP0328 has a good observation. But it’s not a fascist decision.

          Your lumping things together and broad sweep of condemnation just makes you look like a fringey nutcase.

          1. And the USSR and the Warsaw Pact countries and Cuba and North Korea and China are all separate, but all are communist.

            Next time, buster, try to rebut the actual message. Snark in lieu of actual content simply shows how devoid of thought you are.

      2. ‘I have never understood why liberals/progressives support Kelo,”

        Primarily due to progressives belief in the positive virtrues of government .

  5. I mean, I’m generally opposed to eminent domain to transfer to private parties, and generally opposed to huge subsidies to lure in big businesses, and specifically VERY opposed to the Foxconn deal, but… I mean come on, COVID happened, it’s hardly meaningful to point at the stagnant development and say “Look! See? I told you so!”

    1. it’s hardly meaningful to point at the stagnant development and say “Look! See? I told you so!”

      That’s assuming the goal was to post something meaningful rather than, say, emotive.

    2. You think COVID derailed the project in the two years before it showed up here?

  6. Calling this a “debacle” is incorrect. Everything happened the way Foxconn, Trump and the Wisconsin Republicans wanted it to.

    Everybody got paid with the rubes’ money. That’s how a good con works.

  7. The question in my mind is how, without something like eminent domain, you ever buy the last piece of property that you need for your development for anything like a reasonable price. The owner of that one last piece knows they have you over a barrel.

    Maybe you make *all* of the purchases be conditional, so that you don’t have any money sunk until you have all of the commitments.

    I don’t know, but it’s not an easy question.

    1. It’s been done many times. Yes, options work.

    2. Willing buyer – willing seller

      1. All good in principle, but it starts to break down when the willingness of the seller morphs based on the identity and circumstances of the buyer. This is why large developers sometimes use straw buyers to pick up various individual tracts of land so the rest don’t get wind of the development plan and adjust their demands accordingly, as Jordan noted.

    3. “The owner of that one last piece knows they have you over a barrel.”

      The buyer/developer doesn’t get to define the asking price of that last piece as “not reasonable” just because they would rather not pay that much.

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