Expropriation

Expropriation is the taking over of privately owned property by the government. The government may engage in expropriation for purposes that are said to be beneficial to the general public. The Fifth Amendment to the United States’ Constitution provides that private property cannot be expropriated without paying the owner of the property adequate compensation. To explore this concept, consider the following expropriation definition.

Definition of Expropriation

Verb

1. The taking over of private property by the government, to use for the general public’s good.

Origin

1605-1615    Medieval Latin     expropriātus

Purpose of Expropriation

Expropriation is the seizing of private property by the government for the purpose of using that property for a purpose that was supposedly benefit the general public. An example of expropriation would be for the government to take over a private neighborhood as part of its plan to expand a railroad line. The railroad would cover more areas, which would make it easier for people to travel, but the tracks would have to pass through the neighborhood in question as part of its new route.

This development would benefit the general public that regularly rides the train, even if it puts a few families out of their homes. However, in accordance with the Constitution, those who are forced out of their homes must be provided with “just compensation” for their properties.

Understandably, the issue that raises the most controversy is not necessarily the compensation that property owners are paid for their properties, but the fact that people cannot reconcile the purpose of expropriation, and the fact that the government can swoop in and take their properties out from under them in the first place. Perhaps most upsetting is the fact that the government can do this without the property owner’s consent and, in fact, directly against the property owner’s wishes.

Expropriation is different from eminent domain, in that, with expropriation, private property can be taken over by private entities that have the government’s authorization. Eminent domain only allows the government to take over private property.

Expropriation Without Payment

In communist or socialist countries, it is commonly accepted that the government can seize property through expropriation, without paying the property owner. In fact, in some countries the government may not only expropriate a parcel of land, but also a business that exists in the country. It does not matter if the business is foreign or domestic.

Eminent Domain

Eminent domain is an example of expropriation that can only be carried out by governmental entities. This is different from expropriation, in which the government can grant private entities the authority to take over private property in the name of the government.

In the United States, most states use the term “eminent domain,” but some prefer to use “appropriation” (New York), or “expropriation” (Louisiana) instead. While the term “condemnation” may seem negative, it is actually used to describe the transferring of title or interest in the property. When this process is complete, then the government, (“condemnor”) is responsible for paying compensation to the now former owner of the property.

Just Compensation

The Constitution dictates that the government cannot just “swoop in” and take someone’s land, or even a part of it, without providing the owner of that land with “just” compensation. Just compensation means that the government must pay the landowner the fair market value of the property at the time that it is being taken. Normally, the way the process works is that the government will seize the property, then have the property appraised. Once the appraisal is complete, the government sends the owner of the property a notice indicating the total compensation the owner will receive for the property.

Severance Damages

When only a portion of a property is taken instead of the entire property, an amount of money for “severance damages” is added to the amount that is paid to the owner for the property upon the government’s seizure of it. Severance damages refers to the amount by which the value of the overall parcel of property decreases when only a portion of that property is used for governmental purposes.

In some cases, Congress is permitted to take private property directly without having permission from the courts, by passing a law that transfers the title of the property directly to the government. In these cases, the property owner must sue the United States in the U.S. Court of Federal Claims in order to be awarded compensation, including severance damages.

Congress can also delegate power over a parcel of property to private entities, such as to public utility companies and railroads, and they have even delegated power to certain individuals in the past. Typically, the Supreme Court defers to the states to determine how a parcel of property will be used when it is designated for “public use.”

Benefits of Expropriation

Expropriation may sound like a terrible practice at first, but there are some legitimate reasons as to why expropriation may be necessary. Expropriation is mainly exercised when certain things need to be constructed that truly do benefit the general population, such as the above mentioned railroads, highways, airports, and public utilities.

Another area that truly justifies expropriation is public health. When something exists that can negatively affect the public’s health, such as toxic environmental pollutants, the government is justified in relocating the people who live in that area. Similarly, it would make sense in this case for the government to take over the former owners’ property.

Expropriation Example in Oil Nationalization

An example of expropriation that took place between the United States and a foreign country happened in 1938 between the U.S. and Mexico. Mexican president Lázaro Cárdenas signed off an order that expropriated nearly all of the foreign oil companies that were operating on Mexican soil. This severely impacted the Mexican economy in a negative way when major oil companies chose to boycott any oil exports from Mexico.

When the United States government learned of President Cárdenas’ plan, it responded by creating a policy that supported the efforts of American companies that attempted to get paid for their expropriated properties. Simultaneously, the policy worked to support Mexico’s right to expropriate foreign assets, so long as Mexico provided the U.S. with prompt and appropriate compensation from their expropriation efforts.

President Cárdenas’ strategy dramatically decreased Mexico’s export business as a whole at first. However, as time went on, the economic benefits slowly became clearer. This especially became true when PEMEX, a new national oil company, joined forces with other countries in order to engage in oil nationalization. Oil nationalization refers to the process of confiscating both private property and oil operations companies for the purpose of making more money off of oil to give back to the governments of those countries that produce the oil.

Expropriation Example in the Truman Administration

An example of expropriation of businesses in the U.S. occurred in 1952, when 88 steel production facilities were expropriated by President Truman. It was one of the few attempts the U.S. has ever made to expropriate a business operation. The Supreme Court eventually struck this move down.

The whole thing started in 1950, as the U.S. entered the Korean War. President Harry Truman decided not to impose price controls like the federal government had done previously during World War I. Price controls are a means of maintaining a stable economy in the face of upheaval. As an alternative, Truman’s administration tried to avoid inflation by creating the Wage Stabilization Board. The idea of the Board was that it would keep prices down, while also avoiding labor disputes. However, in practice, the Board was unsuccessful.

The United Steel Workers of America (“USW”) rejected the Board’s proposed wage increases without being allowed to charge higher prices than the government was willing to permit. The USW threatened a nation-wide strike. The Truman administration felt that a strike, no matter how long it went on, would be severely crippling to the American economy as a whole. However, Truman’s attempts to satisfy the union, and the steel industry as a whole, were unsuccessful. He then chose to seize the steel production facilities instead, in order to keep their operations running under the government’s direction.

On April 8, 1952, Truman made a televised announcement that he had enacted the seizure, and the steel companies pounced immediately thereafter. The steel companies actually sent their attorneys to the home of United States District Judge Walter Bastian within a half-hour of Truman’s speech, in order to ask for a temporary restraining order. Judge Bastian agreed to hear arguments the following morning.

However, emergency hearings are heard before judges that are chosen at random, and so it was not Judge Bastian who heard the case the following day, but Judge Alexander Holtzoff – a judge who was appointed by none other than Truman himself. Unsurprisingly, Judge Holtzoff denied the steel workers’ motion.

The case was thereafter assigned to Judge David Andrew Pine. Judge Pine asked the Attorney General for the source of the President’s authority in making such a decision, and it is believed that the Attorney General’s answer may have harmed the government’s case more than the steel companies had. Specifically, he was unable to name any prior cases in which the President had held and enforced a similar power. Judge Pine ultimately barred the government from continuing to maintain its hold on the plants that it had seized. Within minutes of the announcement of this decision, the steelworkers went on strike, and the government immediately appealed.

When the case reached the Supreme Court, the Court ruled 6-3, affirming the District Court’s ruling in barring the President from seizing the steel plants. Justice Hugo Black wrote for the majority, holding that the President did not have the power to act unless he was expressly and clearly authorized to do so by either the Constitution or Congress.

Related Legal Terms and Issues

• Appraisal – The act of an expert determining the value of something, such as a parcel of property.
• Export – To send goods to another country for the purpose of selling them.
• Fair Market Value – A selling price that both the buyer and the seller can agree is fair on an item.