Property Rights Foundation of America®
from PRFA's Eleventh Annual National Conference on Private Property Rights

Small Business and Private Property Rights

Raymond J. Keating

Thank you very much. I am very pleased to be here, and, Carol, thank you for everything you are doing and thank you to everyone here. I appreciate it that all of you are here and that most of you are on the front lines. Some of you have been pushed on to the front lines as referred to today, and my sympathies are with you, obviously, and my whole support.

Let me start off with two things—the obligatory commercial and the obligatory joke, and then we will get into the issue. Commercial: as Carol mentioned, I'm the chief economist for the Small Business and Entrepreneurship Council. There are brochures outside and we are a membership group. We have about 70,000 members across the country. We work on a wide range of issues important to small businesses—taxes, regulations, and most certainly property rights. It's a big issue for us. So you can get information. You can go to our web site, sbecouncil.org. It's updated almost daily on all sorts of things that are of interest to entrepreneurs and small businesses.

That's the commercial, now the joke. Carol mentioned that I'm unique, let's put it that way, at Newsday. I am the free market, conservative columnist there. So let me tell you a little story about my oldest son. About seven years ago, he was on line in the grocery store with my wife, and they got to talking to somebody else behind them and somehow or other I got brought up in the conversation. The lady asked my son, "Well, what does your daddy do for a living?" My son took economist and columnist and he smushed them together, and he proudly said, "My daddy's a communist." So I have never forgiven him for that. And I keep reminding him.

But anyway there's a lot to cover in a topic as broad as small business and private property rights. It ranges from the federal government all the way down to the most local entity of government, as we've heard today. And many of you have lived this. I'm still going to forge on ahead and perhaps, at least, give you some examples to show that you're not alone in your misery.

An obvious topic is zoning. Local zoning regulations are often used as obstacles to small businesses. As I was preparing for this speech, I thought I'd try to get the most recent examples I could find. Those of us that live in New York think that these bad things only happen in blue states, like New York and California, but they happen in red states as well.

There was a story last week about an owner in Lawton, Oklahoma. Now, this person bought a home 16 years ago with the idea of transforming it into office space for a doctor or a lawyer. The address was on a residential street, but the house faced the main thoroughfare of the business district. So it was a fairly reasonable request to get a zoning change and to put in an office. Of course, this is 16 years later and the battle still goes on, and why? Because local residents don't want it, and the city council is doing their bidding.

San Antonio, Texas—a small business owner there wants the "okay" to run her tile import business. She owns a historic bungalow, and she wants to run her business from there. Now, let's understand what the deal is. She is using the rear part of the house, as it was explained in this piece, for administrative offices. There's no commerce, no showroom, no visible parking. She wants an amendment, and, of course, she was denied because of pressure, again, from local residents. And the City of San Antonio is very big on preserving historic buildings and this woman, who's involved in this, has been involved in that movement. And here she has her own building that she wants to preserve. They have said "no" and now that building will probably go away. So they will lose that historic building, but more importantly, of course, is the loss of the property rights of these individuals.

There are two issues beyond zoning that I want to touch on perhaps a little more in depth. We've heard about some of it today. In the first issue, the big difference seems to be between big businesses and small businesses, but I think more accurately, as Roger mentioned this morning, it's really between politically connected businesses and small businesses. And then the second issue that I'm going to touch on briefly, which I don't think we have talked about today, is a concern for businesses no matter how big they are. It is an issue that is often defined as a big business issue, but I'll show that it is a small business issue. It is a challenge for small businesses.

The first one is eminent domain. We all know the Kelo case brought it to the forefront of the nation's attention. Everybody here knows the details. It's already been talked about, so I will not go into that. But the bottom line is, when you read the decision that Justice Stevens wrote, the government can do pretty much whatever it wants with people's property in the name of economic development or in the name of pretty much anything else. As long as politicians portray it as a public need or a public good, then it's okay, and it's okay to take private property against an individual's wishes. And the Supreme Court, of course, once again gave a seal of approval to eminent domain abuses. So history and current day actions show that such abuses come down hardest on whom? Well I think we know who it is today. It's homeowners. It's small business owners. It's very often minorities.

Because I am a baseball fan, I am going to give you a couple of baseball examples today. I am writing a book for Cato on the mix of government, sports, and politics. I happen to live in New York but I'm a Cincinnati Reds fan and the Riverfront Stadium is an example of what happens. They decided that the Cincinnati Reds and the NFL Bengals needed a new field, a new baseball stadium, so what did they do? Unfortunately, at that time they went in and cleared out a whole section of the city with the support of the Chamber of Commerce. This happens very often. Who suffered as a result? It was largely minorities and small businesses.

We've heard that there have been two reactions to the Kelo case. One is the positive reaction. Roger talked about that—the public outrage, the backlash, the fact that forty—one states have passed some kind of law in response to this, some kind of limits. Of course, again, New York is not one of them. But there are shortcomings in a lot of those laws. There is a lot of work to be done, but the fact that forty-one states acted is really quite tremendous. It's really something. But let's remember that, so that is the positive side of it, if we want to put it that way. The fact that we're dealing with this at all is not a positive, certainly, but then you have to realize what is still going on. The Supreme Court did give a green light to all sorts of abuse and it continues today across the country.

Now, I mentioned Riverfront Stadium before; so I am going to stick with this baseball theme. As I have been researching this book it's one of the little fascinating things that has come up. If you notice in new stadiums and baseball stadiums, they have that retro feel, right? They're all going back to what the old time ballparks were like, those unique dimensions, but it's a manufactured kind of character, if you will, as opposed to how it actually happened originally, which was very organic. The original ballparks of the early twentieth century had this wonderful character, but it happened, it emerged, interestingly, out of private sector necessity and creativity, and the restraint of government power.

The most obvious point is that the ballparks that were built in the early twentieth century were privately funded. You were a private business owner, you went out and bought the land yourself, used your own money or you got investors, you built it, and government wasn't involved. Now today, of course, that's the exception. Today you go out and you twist arms. You don't even have to twist arms. Politicians are more than willing to take taxpayer money and give it to you for you to build your stadium.

What I want to focus on for a minute here is those unique dimensions. Where did they come from originally? Well, when teams went out and did this themselves, they had to make their stadiums fit a particular piece of land, often within urban streets, so they actually had to accommodate their neighbors. Think about that for a minute. So if you looked at Griffith Stadium which was in Washington, D.C., it had a center field wall that jutted into the field so you had a left field, right field, home, so you had a center field that [has an odd shape]. You look at it and think, what is the story there? Well, what is interesting is on the other side of that were five houses and a big tree. That's what they had to build around.

There's another one. Cleveland had League Park and it was a cozy field. The right field wall was only 290 feet from home plate. Why is that? That seems a little odd. You are going to have to build a really high wall there. Because the owner of a salon and two houses on the other side wouldn't sell their land.

You see the difference today? What would happen today? Well you know what would happen today. The team owners would go to the government and say take that land, take that with eminent domain, and hand it over to us, and that is exactly what goes on very often in these stadium deals. Small businesses and homeowners get screwed. There's no other way to put it.

That's the difference that a century makes. So it's not only that now they are taxpayer subsidized, but the eminent domain issue has crept into this in a big way. I am from Long Island, so, as we see it, Mayor Bloomberg has this grand plan. You know, the Mets and Yankees are getting new stadiums. By the way, if you read that they are privately funded, do not believe it. We can talk about that afterwards or another time, but Mayor Bloomberg has this great idea for what he wants to see all around this new stadium for the New York Mets. So what is going to happen? Well, about a hundred small businesses and one resident, one brave resident are fighting it, but they're in the sights of the city government and live with the threat of eminent domain right now. And of course, Bruce Ratner, who owns the New Jersey Nets, has a grand Brooklyn residential/office/retail project that includes a new arena for the Mets. And there again, small business owners and residents are being targeted with eminent domain.

As I was doing some research before I came here, I noticed something that caught my attention in the press of Atlantic City. Two Democrats running for local office were both talking about how average they were, about these eminent domain abuses. I thought "Wow," that caught my attention, and I was pleased to see this. They talked a little bit about it but, of course, they couldn't stay principled. We were talking about staying principled today. They couldn't bring themselves to oppose it and one guy mentioned, "Well, yeah, there are all sorts of problems here, but, you know, it's justified." For example, there is a $150 million Thunderbolt raceway coming into that area, and, of course, it is okay for that. It is okay to use eminent domain in that situation. And he says, this is his quote: "I can't say ban it all together for redevelopment purposes. It's where you draw the line." And, of course, I think most of us in this room would say, "Well, how about drawing the line at what the Constitution actually says and not at the race track or the stadium."

In Patchogue on Long Island, there's another example I wrote about in my Newsday column. I just have to bring this one up because of the quotes from the local mayor. I interviewed him, and it is one of these events where a business—a department store—went out of business. It's on the main corner in the middle of the Long Island town of Patchogue. It was Sweezey's Department that was there forever. They went out of business. Somebody else has the property now, and the owner has been trying to figure out what to do with it. I am not going to get into his personal business. It's his property. But, of course, the mayor doesn't feel that way, and it is a classic Kelo situation. He says this eminent domain is about the possibility of acquiring that building for the purposes of redeveloping it. It's Kelo. We've heard it again and this is what he is off doing. Let me just share with you a few of the quotes: They are scary. You have probably heard them before, but they are scary. He told me at one point, "From where I sit it affords us an opportunity. Do I believe you take property for the sake of somebody else making money. Absolutely not." Well that's simple. But I'm sure that the city lawmakers in New London said the exact same thing. I have no doubt that is what they said as well. But then he continued with me and he said, "It is about us saying as a municipality that we have a responsibility to move the village forward and if we have something that's in the way of us doing that, then we will take the steps we have to take to do it." And then he added a little bit later, "The village of Patchogue is much greater in what it is than the single piece of property. Those that sit around and believe that the rights of a single person, that single piece of property, have such a deleterious effect for the greater Patchogue community, I believe that it is my responsibility to move forward." Scary! Sounds like the Soviet Union, doesn't it? The good of the village outweighs the rights of the individual.

And, of course, somebody mentioned Columbia University. Well, they not only have terrorists speaking, but they're involved in a grand eminent domain scheme, as well. They want to expand in West Harlem, a seven billion dollar project, and they want to be able to use eminent domain, because, darn it, some property owners stand in their way. Of course, most of those property owners are small business owners. Hudson Moving and Storage is one of them. There are auto body shops, warehouses, and there are apartments. But the state can step in and use their eminent domain power in favor of Columbia University to make this happen. This one owner of the Hudson Moving and Storage put it pretty clearly and how do you have this, you know, this is America. He said, "I've no interest in Columbia's money. I want my building. I want to be left alone. I want to run my company, and I want to provide jobs for my employees. I want my business to grow. Just as Columbia has plans, we have plans." Pretty reasonable, right? But not in the world in terms of how eminent domain is used today.

And, of course, Fresno, California. California is always good for this type of stuff. Fresno Development Agency has a grand plan in which they have joined with a Cleveland-based developer, Forest City Enterprises, and, of course, eminent domain is coming into play there. Although from what I understand with this, if you go along with everything that the city tells you that you have to do to fit in with this development project, if you spend all sorts of money, then it is okay and you can stay. But if you are not with us, you're against us, and we will take your property from you.

So it is happening there as well. One more point I missed. There was a columnist in the Courier Post in New Jersey who brought up a development project there, and the story is that a hundred small business owners lost their property and guess what? This was two or three years ago. It is a vacant lot now, and the government hasn't done anything with it. So it's something to keep in mind there. And this columnist has made an interesting point and I'll quote this. He said, "A recent article by the Spanish News Agency EFE found that fifteen months after the Kelo decision more than 6,000 small properties have been subject to eminent domain for private development programs." Scary stuff.

The one other issue that I wanted to touch on is intellectual property. This is shifting gears a lot but not that much, because it is still certainly a property right that we have to worry about. It's critical for entrepreneurs and small businesses, and I think we really are a nation of entrepreneurial intellectual property these days. It is a tremendous competitive edge and, of course, patent and copyright protections are explicitly noted in the U.S. Constitution. There are all sorts of economic analyses that has been done about the importance of intellectual property industries and so on, and the costs of piracy when we look at the music industry and movies and software. It's been a tremendous loss in terms of economic growth and jobs. But everybody thinks it's big business, and I just want to throw out these numbers to finish up, to show that it is actually very much a small business issue.

Let's look at some key IP industries who face these enormous challenges, property right challenges—pharmaceutical and medicine manufacturing industry, right. Everybody thinks of big pharma, but it's interesting when you look at the data. 1,291 firms in this industry have fewer than 500 employees. 796 have less than 20 employees. By the way, the ones with more than 500 are just 152. So it is mostly smaller businesses.

Software publishers, out of the 6,603 in the country, 6,392 are small businesses. Motion picture and sound recording industries—I teach a class in innovation in entrepreneurship as part of an MBA program, and I asked the students about the illegal downloading. It is an interesting conversation, as you can imagine, but a lot of the students justified it saying it was big recording companies and big stars. Number one, even if it were, it still doesn't make stealing right, a little minor detail, but number two, there are a lot of small businesses. There are over 19,000 firms in the motion picture and sound recording industries, 18,900 had fewer than 500 employees. More than 17,500 had less than 20 employees. And then there are music stores. Out of the 3,200, 3,191 had fewer than 500 employees. The same thing for computer and software stores.

America really is about small businesses and even these industries where you think about the big guys all the time, well, guess what, most of the companies involved are small businesses and at SBE Council we are very, very concerned about protecting the property rights of those small businesses. Thank you very much.

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