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Can State Expropriation of Minerals be Justified? Part II

March 9th, 2010 by Madeleine

In Can State Expropriation of Minerals be Justified? Part I, I set out a common law property rights argument drawing from the writings of jurists Blackstone and Locke as well as contemporary philosopher Ed Feser. I looked at what circumstances, if any, might justify the state taking of real property, looking specifically at minerals from the sub-soil of privately held property. In this post I identify and critique some of the purported justifications for the historic and current expropriation of property in New Zealand, using the examples of petroleum, gold and silver.

II.        Purported Justifications
One of the earliest attempts to justify an inroad into property rights in sub-soil was made in The Case of Mines. Three arguments offered by counsel for the queen are recorded which I have labelled excellence, necessity and currency:

Excellence: “because gold and silver were the most excellent products of the soil, they should, ipso facto, go to the Queen, who was the most excellent person in the realm.”[29]

Necessity: “That the King as head of the realm needed the money to keep up the army and enforce the laws.”[30]

Currency: “That gold was necessary or coin or commerce, and the Crown ought to have it to mint,”[31]

Whilst “none of the reasoning of the judges is given, just the bare decision”,[32] I will assume that the reasons offered by counsel were the reasons accepted by the court and address the merits of each in turn.

The excellence argument is clearly problematic as it is not a given that the monarch will always be the most excellent person in the realm (especially when one pauses to consider the character and conduct of some of England’s monarchs). Further, even assuming that a monarch is the most excellent person in the realm, it would not follow that this attribute confers an automatic right to the most excellent form of every conceivable thing regardless of whether those things were owned by other people. Further, the assumption that gold is the most excellent of metals suggests that ‘excellent’ is being used in an economic sense to denote gold as the most economically valuable of metals. However, if this assumption is correct then the most excellent person must be the richest, which would entail that anyone wealthier than the queen was entitled to take her gold (an argument that I am fairly confident counsel for the queen did not intend).

The other two arguments are more plausible. They both speak to the state’s need to be able to finance the discharge of its basic functions (i.e. defence, justice, minting the currency, etc) and, as such, are arguably extensions of the necessity justification. Given the then threat of Spanish invasion, the need to raise an army in times of war and the practical uses of gold and silver in the 16th century, these arguments may have had some merit. However, in contemporary New Zealand where the core functions of government are funded by taxation, where we keep a standing army and our currency is not minted from, or based on, gold and silver, the elements of necessity that ground the reasoning within The Case of Mines are not currently present.

As current precedent The Case of Mines can justifiably affirm the principle that in situations of necessity, such as defence or natural disaster, where the state needs a particular mineral and cannot realistically obtain it from within its own lands or by trade then it might be justified in expropriating it from private citizens for the duration of the necessity. Something like this justification was arguably present in the passage of the Petroleum Act 1937. Oil had become a mineral of strategic importance to defence as the British Royal Navy fleet had converted to oil in 1914. This proved to be critical in their sea victories during WWI. In 1919 existing regulations governing the extraction of oil were extended to private land. Driven largely by the British Navy’s need for oil, a post-war search for oil in the British Colonies began.

In 1927 a Petroleum Bill was drafted but abandoned. At the time, the petroleum industry was growing by itself; Shell and BP were both active in New Zealand, private agreements to extract petroleum were being struck and the national urgency in the wake of WWI was waning. However, as the 1930’s progressed, issues of national defence increasingly came back into focus;[33]

The growing strategic threat from Japan and Germany caused the New Zealand government to focus on the need to increase investment by international oil companies in the discovery and extraction of New Zealand’s oil reserves – and on the ability of those companies to deal with a single owner (the government) as being ‘in the national interest’.

The Petroleum Act 1937 nationalised all petroleum. The justifications cited were petroleum’s strategic importance in defence, the economy, transport and the preference of the oil companies to deal with a single party.[34] Whilst the appeal to national interests found broad support within society, the passage of the act was highly controversial.[35] It was disputed that the expropriation of private property was necessary to achieve the objectives and the lack of compensation was widely objected to, particularly so by Maori.

The Waitangi Tribunal reports that “Maori shared in the wider endorsement, and their challenge was not to the intent to nationalise the resource but to the failure to pay landowners compensation for their loss of property rights under the common law and the Treaty.”[36] The 1937 Act did not grant royalties to the landowners despite the provision to do this initially being left open;[37]

The approach of the government in 1937 and 1938 was based on the position that, where the ‘national interest’ justified action and where the owners of the confiscated rights could be presumed to share in the national benefits of the policy, no compensation for the loss of private property rights need be paid.

The government of the day appeared to hold that property rights could be justifiably overridden without compensation on the grounds of “national interests.” Traditionally these were a mixture of strategic national security issues and economic benefits to the country as whole.

A.        National Security Justifications
Now earlier I suggested that the necessity justification may apply to such appeals; however, the strategic necessity arising from factors such as the threat posed by Germany, Japan, Spain or the British Navy’s need for oil is no longer present (the British navy is these days increasingly nuclear propelled and the New Zealand Navy barely has a fleet). Yet despite the change in the strategic situation, legislation asserting ownership of petroleum, gold, silver, and uranium to the state remain — in fact, post-WWII legislation has affirmed their position as state property “whether or not the land has been alienated” and has reserved additional minerals to the collection.[38] (In the case of the continued state reservation of uranium this seems rather odd given that it appears incapable of attaining the standard for military necessity given New Zealand’s nuclear free policies.)

B.        Economic Justifications
Peter Ackroyd suggests that taking property to acquire economic benefit was a driving justification for many of New Zealand’s past legislative acts. He cites from Hansard, “The Colony, however, could not afford to dispense with the mining industry, and every effort should be made by the Legislature to assist in maintaining its position.” [39]

It is indisputable that a prosperous mining industry can contribute greatly to the progress of a society; however, whether the gain of this benefit, in and of itself, can justify the taking of another’s property seems rather dubious. Almost any taking of one person’s property by another will economically advantage the taker yet this does not typically justify taking (even if the taker invested the property in a way that ended up benefiting the takee). Every person has a right to retain their justly acquired property and to have the taking of it protected by law. Paternalistic justifications such as “it is economically good for you” are not normally grounds for overriding the rights of adults.

In the event that someone does take from another, it is normal practice under the principles of restorative justice that the taker be required to compensate the takee. Likewise, when a state takes property in the name of national or economic interest it was recognised at common law that compensation must be paid. Further it is common to find this requirement in other jurisdictions. A recent survey of the constitutional legislation within 30 OECD countries showed that 28 expressly acknowledge property rights and 24 required expropriations of property rights to be adequately justified and to not occur without compensation.[40]

In New Zealand the CMA provides compensation for the disturbance of the land caused by mining activities but not for the loss of the minerals. The situation is analogous to a judge ordering a burglar to fix the window broken during the burglary but permitting the burglar to keep the widescreen plasma TV he took from the house.

As cited earlier, a justification commonly offered for the state’s failure to pay compensation is that “the owners of the confiscated rights could be presumed to share in the national benefits of the policy.” Lewis Evans, Neil Quigley and Kevin Counsell identify a problem with this line of reasoning;[41]

This position will … only be justified if it can be shown that those affected by the confiscation of the private rights will receive benefits roughly equivalent in value to the share of the benefits that they would have otherwise received. In this case [the Petroleum Act], of course, no such analysis was done.

Even if the state did undertake this analysis of costs and benefits, the justification fails to note that compensation does not actually introduce any additional cost. The following example will bear this out. A person owns a piece of property, P. P is worth a certain value, V. If the state expropriates P and fails to compensate the owner then the owner loses V. However, if the state does compensate the owner then the state loses the value of V. Either way, someone is going to pay the cost of V. The question is who should bear this cost – the private owner or the government? Both the loss and the cost remain the same regardless of who bears it.[42]

Lewis, Evans & Quigley note that the absence of compensation increases the chance that the state will over-estimate the benefits of various takings and not accurately measure the costs.[43]

Uncompensated confiscation is not justified by actions that are deemed by politicians to be ‘in the public interest’. It is too easy for interest groups who benefit from government actions but bear none of those costs to create the appearance of a public benefit when none in fact exists. If there is a public interest, its value must be quantified against the loss to the private property rights that would be destroyed by the action. In the absence of this accounting, government will overuse its power of eminent domain and will engage in actions that impose net costs on society as a whole.

As shown above, compensating owners does not increase the cost to society but a policy permitting expropriation without compensation may.

III.       Conclusion
I have argued that there is a common law presumption in favour of property rights, which is based on a moral principle antecedent to state recognition. According to this principle, a state must justify any expropriation of property. While I granted that expropriation may be able to be justified on certain grounds, contemporary New Zealand does not currently meet such grounds. Expropriation on economic grounds is far more dubious and even if this ground could be justified, the absence of statutory provisions for compensation renders such takings unjust.

[29] James Parcell “A Thesis on the Prerogative Right of the Crown to Royal Metals” (Government Printer, Wellington, 1960) 13.
[30] Ibid 14.
[32] Ibid 11. Parcell suggests that the report was a forgery or had been embellished.
Lewis Evans, Neil Quigley & Kevin Counsell “Protection of Private Property Rights and Just Compensation: An Economic Analysis of the Most Fundamental Human Right Not Provided in New Zealand” (2009) New Zealand Institute for the Study of Competition and Regulation (at 21 January 2010) 23.
[34] Ibid 23-24.
[35] Hansard and the national archives record fierce debate; breaches of the Treaty of Waitangi were alleged and the Petroleum Haka became part of New Zealand history.
[36] Waitangi Tribunal The Petroleum Report – Wai 796 (2003) 29.
Lewis, Evans & Quigley, above n 33, 24.
[38] Key examples: Atomic Energy Act 1945; Coal Act 1948, 1949; Iron and Steel Industry Act 1959; Mining Act 1971, which were all brought under the CMA.
[39] Peter Ackroyd “Mining Legislation and the Reservation of Mineral Resources in New Zealand” [1988] NZLJ 41, 42.
Lewis, Evans & Quigley, above n 33, 43-48.
[41] Lewis, Evans & Quigley, above n 33, 24.
I am grateful to Matthew Flannagan for the development of this argument.
[43] Lewis, Evans & Quigley, above n 33, 41.

Can State Expropriation of Minerals be Justified? Part I
Property Rights: Blackstone, Locke and the Legislative Scheme Part I
Property Rights: Blackstone, Locke and the Legislative Scheme Part II

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6 responses so far ↓

  • This is a brilliant piece Madeleine and valuable to guys like me who care about property rights and keeping the state from violating the very things they are instituted to protect.
    It is a Libertarian gem!
    I think you have accidentally put the taker and takee around the wrong way in the paragraph on compensation that ends (40).
    According to the notion that it is ok for the state to forcibly appropriate property in the national interest as long as it makes just compensation The taker should compensate the takee (though this is a common law principle I don’t agree with it…I think its still theft and a violation, and an all too common excuse that the Public works act uses.)
    Enlightenment thinkers would disapprove of the idea of the state having the gold and mineral reserves because an important check on over-government and tyranny was that the people hold the purse strings and ration out funds to the state only sufficient for the duties the people dictate to the state and no more.
    As we see from the dates you give to the various legislations that these encroachments on property rights happened in a post-enlightenment age of socialism with its Sovereign state and anti private property ideas, so too the idea that we hold the purse strings has been completely undermined and reversed with the state now dictating to us how much of our money they will choose to take from us by force (Taxation).
    Enlightenment thinkers would be horrified by the state having such a vast independent resource and if we look at how Saddam Hussein used the oil wealth of Iraq to go to war and to suppress his own people we can see their fears are well grounded.
    Socialists may say such a fund and forceful appropriation is great because it could be used for welfare, for health, for education etc without the need of Taxation, yet enlightenment thinkers would be horrified at this too! They (and me too) say that none of these things are the proper duties of government and that this would simply encourage totalitarianism and grievously affect the self reliance of the people. Such politicalisation monopolizes, cripples, and corrupts some of the most important enterprises of our society.
    The Petroleum act instead of guaranteeing a good supply of oil for military purposes may have actually hoppled it ie it is quite plausible that if private property rights were respected and free enterprise allowed to act that a far greater and cheaper supply of oil would be available.

    Wars have historically lead to bigger government, less rights and liberties and rarely does this reverse after the supposed treat has disappeared. Because of WW2 Milton Freidman said the idea of centralization and the government being involved in industry jumped and never subsided. He says this was the greatest move towards over-government in western civilization.

    Finally I would like to congratulate you for recognizing that theft in the name of a public benefit is still theft…even if the victim is supposed to benefit from it. Socialism is founded upon such false Ideas that are supposed to justify the use of force and the violation of individual rights. They think the end justifies the means….Corrupt!!!!

    You have done a great thing here Madeleine. I will file this for future reference and go and check out your other common law property rights article (Part 2) which I have not had time to read.
    P.S I might try and get to Auckland tomorrow nite for Matts discussion.

  • Mine, mines, mining…

    Madeleine sets out some of the purported justifications for expropriation of property, using the examples of petroleum, gold and silver, which are then analysed, critiqued & dismissed….

  • This seems… very one sided, none the less an interesting read.

  • It probably seems one sided because it was an opinion, the style of writing required me to take a stand.

  • It’s definitely an opinion, alright. But it’s a damn good one. It’s not every day you come across an opinion on such a topic with so much justification

    -Some people don’t like Obama but if you asked them why they might just hesitate and come back with a quick “I don’t know. I just don’t.” These are definitely not my kinds of people, haha.

    Ultimately, I agree with you. Property owners are just that… Owners. They own. And to take their property/possessions without compensation is definitely not right. (And it almost sounds like that one thing… What do you call it? Oh, yeah. Theft.)

  • Yes I always take a stance in an opinion (though it was hard to resist the temptation to use terms like theft).