An old (2005) Mises blog post, followed by an excerpt from a book, and a draft international law article I wrote years ago. The first post refers to my 1997 book Protecting Foreign Investment Under International Law: Legal Aspects of Political Risk, and also refers to my then-forthcoming book, International Investment, Political Risk, and Dispute Resolution: A Practitioner’s Guide. I did not end up putting much discussion of the “illusoriness” of the nondiscrimination and public purpose requirements. I ended up putting into a draft law review article, which is appended below, but which I have never (yet?) finished.
APRIL 4, 2005 by STEPHAN KINSELLA
As a mini-primer–the Fifth Amendment to the U.S. Constitution requires that private property can’t be taken unless it is taken “for a public use” and “just compensation” is provided. Now this originally applied only the federal government (see discussion of Barron v. Baltimore here), but has been incorporated into the 14th Amendment so that it now limits the states as well (see this case, and this one; also here; more info re the 14th Amendment here).
So takings have to be for a “public purpose,” and the question is whether this requirement prevents states from condemning private land to give it to private developers. The Kelo case, as I understand it, is about whether “public use” in the 5th Amendment has any real Constitutional meaning. If it does, then shopping malls and luxury apartments become much more difficult to build.
It’s interesting to me how a sound economic (Austrian) and political (anarcho-capitalist) framework can help one cut through the muzzy arguments advanced by both “sides”.The problem is both the proponents, and opponents, of such “non-public use” takings seem to accept the basic idea that there is an objective way to classify something as being a “public use”. In my view, this standard is inherently vague and non-objective. Who knows, maybe transfering land from a little old lady to Donald Trump is a “public purpose,” as much as roads or the military. I doubt it’s possible to articulart a coherent, clear, just standard that the state could respect even if it wanted to. Since it’s not objective, in the end, it’s got to be whatever the state decrees.
Anarchists and Austrians ought to be able to see the problem here. Most people who think the state is justified have to accept the idea of a genuine public realm. In fact the economic concept of “public goods” is one main reason people support the state–they think there has to be a state otherwise certain necessary public goods would not be supplied. So if you believe this, you have to believe there is some definable, objectively bounded “public” purposes of the state. However, the idea of public goods is unscientific and uneconomic, as explained, e.g., by Austrian anarchocapitalist Hans-Hermann Hoppe, in Fallacies of the Public Goods Theory and the Production of Security. As Hoppe points out, there is no objective way to distinguish “public” goods. Likewise, if the state says it can expropriate things for a public purpose only, that falsely implies the state is limited–it implies that the standard of “publicness” is objective. But it is in fact not; it is just whatever the state decrees. Therefore under the guise of limiting itself, it really gives itself more power.
A similar point is true of many things about the state, such as the “rule of law”–for example, I tend to agree with libertarian law professor John Hasnas‘s view, in The Myth of the Rule of Law, that (my summary):
Despite common belief to the contrary, there is no such thing as “a government of laws and not people” (the so-called “rule of law”). Such a myth serves to maintain the public’s support for society’s power structure. The maintenance of liberty requires not only the abandonment of the ideal of the rule of law but also the [abandonment of the] commitment to a monopolistic legal system. The preservation of a truly free society requires liberating the law from state control to allow for the development of a market for law.)
Likewise, the state deludes people into thinking its expropriating power is limited, when it really is not. This allows it to get away with more than if its actions were recognized as naked criminality. Once you accept it’s okay for the state to take your property so long as it’s for a “public purpose,” then all it takes is some crafty government lawyer to come up with an argument why taking your land to give to Donald Trump indeed serves some public purpose. And of course, it does, as much as any other kind of eminent domain does.
Nonetheless, even though these standards are ambiguous and subject to manipulation by the state, it is to be hoped that some rationale is invented to limit the state’s resort to condemnation. Of note is the recent Michigan Supreme Court case, County of Wayen v. Hathcock [also, Overcoming Poletown: County of Wayne v. Hathcock, Economic Development Takings, and the Future of Public Use, by Ilya Somin; and the Institute for Justice's discussion of this case], which makes it more difficult (in Michigan) to expopriate land for a private purupose. There, the Court stated:
We are presented again with a clash of two bedrock principles of our legal tradition: the sacrosanct right of individuals to dominion over their private property, on the one hand and, on the other, the state’s authority to condemn private property for the commonweal. In this case, Wayne County would use the power of eminent domain to condemn defendants’ real properties for the construction of a 1,300-acre business and technology park. … Defendants argue that this exercise of the power of eminent domain is [not] permitted under article 10 of the 1963 Michigan Constitution, which requires that any condemnation of private property advance a “public use.” … We conclude that … these condemnations do not pass constitutional muster under art. 10, Â§ 2 of our 1963 constitution. Section 2 permits the exercise of the power of eminent domain only for a “public use.” In this case, Wayne County intends to transfer the condemned properties to private parties in a manner wholly inconsistent with the common understanding of “public use” at the time our Constitution was ratified.
A final note–I have written on this topic in the international context, where international law is said to have similar standards for a host state to lawfully expropriate an investor’s property–the expropriation must be: (a) for a public purpose, (b) nondiscriminatory, and (c) accompanied by prompt and adequate compensation. There has been a great deal of debate about what adequate compensation means, but the obvious answer is that it has to be “full” compensation, however measured. If you take someone’s property, you should compensate them for its full value.
But if this is so, one can see that the “public purpose” requirement is basically superfluous and nonsensical: after all, whether the host state takes property for a public purpose or not, it still owes the investor full compensation. What’s the difference? The only way to distinguish between a lawful “public purpose” expropriation, and an unlawful one, would be for there to be different consequences–primarily, different damages. But this would require undercompensation in “legal” expropriations, which makes no sense. Alternatively, full compensation could be awarded in normal expropriations, with extra punitive damages added if the taking is discriminatory or not for a public purpose. But the problem with this approach is that punitive damages are especially troubling and unlikley in the international context where even full compensation has met with lots of resistance. (Background for this can be found in chapter 3 of my 1997 book Protecting Foreign Investment Under International Law: Legal Aspects of Political Risk, pp. 58-59 and 77-85; the section “The Requirements of Nondiscrimination and Public Purpose: Concepts of Limited Significance,” at pages 85-87, presents this argument which, so far as I know, is unique to my co-author and me. We planned at one point to turn that section into the thesis of a full blown article, but never got around to it. This argument will be expanded in International Investment, Political Risk, and Dispute Resolution: A Practitioner’s Guide, due out later this year.)
In the municipal (i.e., national law) context, however, the courts can actually enjoin the expropriation, if it is “unlawful”, so the public purpose requirement makes more sense–even if the standard is still inherently non-objective and arbitrary.
An excerpt from International Investment, Political Risk, and Dispute Resolution: A Practitioner’s Guide, ch. 5.B.c:
c. Compensation for Illegal and Legal Expropriation
Some commentators suggest that the standard of compensation for expropriation depends upon whether the act is legal or illegal. Professor Bowett notes that:
There would seem to be little value in making the distinction between a lawful and an unlawful taking unless consequences flowed from it: and it would be extraordinary if the distinction was of no consequence.179
Bowett maintains that there may in fact be three different standards of compensation, for (1) an unlawful taking, (2) a lawful ad hoc taking, and (3) a lawful, general act of nationalization.180 Even if, as some commentators argue,181 full compensation need not be paid in cases of large-scale nationalization carried out for the purpose of reform, Bowett’s view appears to have been rejected by most tribunals.182
Professor Brownlie notes:
The practical distinctions between expropriation unlawful sub modo, i.e. only if no provision is made for compensation, and expropriation unlawful per se, would seem to be these: the former involves a duty to pay compensation only for direct losses, i.e. the value of the property, the latter involves liability for consequential loss (lucrum cessans); the former confers a title which is recognized in foreign courts (and international tribunals), the latter produces no valid title.183
Here, Brownlie implies that a lawful expropriation requires compensation only for direct losses. However, to the extent such payment constitutes less than “full” compensation, such an assertion would appear unjustified.184
It has also been argued that where an expropriation is illegal (e.g., a taking that is discriminatory or not carried out for a public purpose), the host State is in the first instance obligated to make restitution in kind, if possible. Section 901 of the Restatement provides, for example:
[u]nder international law, a state that has violated a legal obligation to another state is required to terminate the violation and, ordinarily, to make reparations, including in appropriate circumstances restitution or compensation for loss or injury.185
Even if a host State carries the obligation to make restitution, however, a court or arbitral ruling to this effect is practically unenforceable.186
184 More widely accepted is Professor Brownlie’s assertion that a per se unlawful expropriation does not shift valid title, as might be recognized in national courts and international tribunals. See Chapter 10, Section E (discussing invalidation of title and exceptions to foreign sovereign immunity).
186 See Chapter 10, Section F (nations do not have the right to use force against host States in response to unlawful expropriations).
Here is ch. 3.B.3 from my 1997 book Protecting Foreign Investment Under International Law: Legal Aspects of Political Risk (with footnotes starting from 1 since this is from the word file that went to the publisher):
3. The Requirements of Nondiscrimination and Public Purpose: Concepts of Limited Significance
As explained above, it is widely accepted that it is “against” international law for a host state to expropriate a foreign investor’s property if the expropriation is a discriminatory one, is for a non-public purpose, or is made without sufficient compensation. Worded differently, there is said to be a requirement under international law that such international expropriations be (1) nondiscriminatory, (2) for a public purpose, and (3) accompanied by full compensation. Action directed against persons of a particular nationality or race is an example of discriminatory action. Action which lacks a normal public purpose—such as the purely private purpose of a government official or dictator—is sometimes also referred to as “arbitrary.” Under this view of international law, some expropriations are legal, while some are illegal. However, there are some theoretical arguments for the proposition that this distinction is of doubtful validity and limited significance. One such argument is briefly outlined below.
Are nondiscrimination and public purposes properly referred to as “requirements” of a “legal” expropriation under international law? Does it make sense to refer to an expropriation that violates these requirements as “illegal”—even if full compensation is paid? What are the consequences for breaching these requirements that do not flow from an otherwise-legal expropriation, that differentiate such an “illegal” taking from a legal one?
It is perfectly reasonable to focus on the consequences that flow from state actions in deciding whether a given classification or distinction is sensible. As John Locke pointed out long ago,
For the law of Nature would, as all other laws that concern men in this world, be in vain if there were nobody that in the state of Nature had a power to execute that law, and thereby preserve the innocent and restrain offenders . . . .
Similarly, it is a common legal observation that a right without a remedy is hollow—i.e., not a real right at all. Thus, a purportedly unlawful act that has consequences no different in kind or in principle from those of a lawful act should not be termed an unlawful act, for the distinction is misleading and misdescriptive.
Professor Bowett, who accepts the traditional distinction between “unlawful” and “lawful” takings, acknowledges that
There would seem to be little value in making the distinction between a lawful and an unlawful taking unless consequences flowed from it: and it would be extraordinary if the distinction was of no consequence.
Bowett maintains that the distinction does affect the remedies available following an expropriation, and thus the distinction is sensible, from his point of view. If, however, there are no such consequences, then there is no meaningful, significant distinction between takings lawful or unlawful. If this is the case, then nondiscrimination and public purpose are empty phrases, and should not be recognized as requirements by international lawyers.
There are indeed practical consequences flowing from classifying an expropriation as illegal, such as invalidation of title and exceptions to foreign sovereign immunity. One would think that the most significant consequence that could flow from classifying a taking as legal or illegal, however, would be a difference in the amount of damages. Another significant consequence would be if an unlawful expropriation was considered to justify an armed or other forceful response against the host state by the investor’s home state.
But as we have pointed out, full compensation must accompany any taking, whether legal or illegal, and nations no longer have the right to use force against host states in response to so-called “illegal” takings. Thus, the distinction between lawful and unlawful takings is today of limited significance. Further, even if legal and illegal takings called for kind standards of compensation, the difference would seem to be one of degree rather than one of kind since there would seem to be little justification for characterizing differently two expropriations, both of which merely obligate the host state to pay a certain sum of money.
For these reasons, then, the requirements of nondiscrimination and public purpose would seem to be of at least limited significance, and perhaps of doubtful legitimacy.
 Brownlie, supra note 22, at 548.
 JOHN LOCKE, THE SECOND TREATISE ON CIVIL GOVERNMENT ¶7 (Prometheus Books ed., 1986) (1690).
 See, e.g., Higgins, supra note 12, at 16 n42, 53, 99.
 Bowett, supra note 162, at 59.
 Id. at 63. Bowett maintains that there may be three standards of compensation, (1) for an unlawful taking, (2) for a lawful ad hoc taking, and (3) for a lawful, general act of nationalization. Id. at 73. See also Brownlie, supra note 22, at 538-39, stating that:
“The practical distinctions between expropriation unlawful sub modo, i.e. only if no provision is made for compensation, and expropriation unlawful per se, would seem to be these: the former involves a duty to pay compensation only for direct losses, i.e. the value of the property, the latter involves liability for consequential loss ( lucrum cessans); the former confers a title which is recognized in foreign courts (and international tribunals), the latter produces no valid title.” [Footnotes omitted.]
 The reader is cautioned that the views set forth in this regard are speculative and theoretical, rather than a more black-letter description of existing law and legal practices.
Now here is the unfinished, draft article on the latter point:
Expropriation, Inalienability, and International Law: The Illusory Requirements of Nondiscrimination and Public Purpose
I. INTRODUCTION……………………………………………………………………………………………………… 1
II. EXPROPRIATION, COMPENSATION, AND FORCE………………………………………………. 2
A. Expropriation under Current International Law Theory……………………………………….. 2
B. Compensation…………………………………………………………………………………………………. 2
C. Restitution……………………………………………………………………………………………………… 2
1. Restitution and International Tribunals…………………………………………………….. 3
2. Force by States……………………………………………………………………………………… 4
3. Practice………………………………………………………………………………………………… 4
4. Permanent Sovereignty over Natural Resources…………………………………………. 5
5. Bilateral Investment Treaties…………………………………………………………………… 5
6. Economic Boycotts……………………………………………………………………………….. 5
7. Enforcement of Foreign and Arbitral Judgments in Other States’ Courts………. 5
III. THE NONREQUIREMENTS OF NONDISCRIMINATION AND PUBLIC PURPOSE.. 6
A. Requirements Without Consequences………………………………………………………………… 6
B. Force……………………………………………………………………………………………………………… 8
1. National Expropriations…………………………………………………………………………. 8
2. Restitution in Kind, Specific Performance, and Force…………………………………. 9
3. Consequences……………………………………………………………………………………….. 9
C. Full Compensation…………………………………………………………………………………………. 12
D. Further Problems with Nondiscrimination and Public Purpose……………………………. 17
1. Nondiscrimination……………………………………………………………………………….. 18
2. Public Purpose…………………………………………………………………………………….. 18
IV. INALIENABILITY AND REALITIES OF POLITICAL RISK…………………………………… 20
V. CONCLUSION……………………………………………………………………………………………………….. 25
For the law of Nature would, as all other laws that concern men in this world, be in vain if there were nobody that in the state of Nature had a power to execute that law, and thereby preserve the innocent and restrain offenders . . .
It is an unfortunate fact of reality that crimes can occur, despite laws and sermons against them. Murder is illegal and is clearly wrongCyet still it occurs, because laws are not always obeyed or perfectly enforced, and because morals are not always followed, and rights are not always respected. Despite many norms being perfectly self-evident, some individuals nevertheless flout them anyway.
Perfect respect for norms is not attainable in the international sphere, either, where states, not individuals, are the relevant actors. States can perpetrate murderous crimes like initiating wars with peaceful countries or committing genocide. States can also commit acts of theft. A host state, for example, will often expropriate a foreign investor’s property located within the state’s territorial jurisdiction. This happens even where the host state solemnly promises ahead of time not to do this.
There is little that the international community can do about expropriation, when it occurs, other than to preach and demand some sort of restitution or remedy. Despite this impotence, it is widely accepted that it is “against” international law for a host state to expropriate a foreign investor’s property if the expropriation is a discriminatory one, is for a non-public purpose, or is made without sufficient compensation. Worded differently, there is said to be a requirement under international law that such international expropriations be (1) nondiscriminatory, (2) for a public purpose, and (3) accompanied by compensation.4 Action directed against persons of a particular nationality or race is an example of discriminatory action. Action which lacks a normal public purpose is sometimes also referred to as “arbitrary.” Brownlie, at 548.
This characterization of international law is fundamentally flawed, because there are no consequences under international law for a state that breaches the first two of these alleged requirements. Public purpose and nondiscrimination, we maintain, are not requirements at all, and thus should not be fictitiously treated as such. As we will show, the sole international law requirement that applies to expropriations is that the host state compensate the investor for the value of the investment taken. Consequently, contrary to popular theories, it is not proper to classify a discriminatory or non-public purpose taking as illegal or unlawful under international law.
2) EXPROPRIATION, COMPENSATION, AND FORCE
terminology: from Brownlie regarding nationalization, confiscation, and expropriation. In this article we will use the general term taking or expropriation to refer to the taking of property by force by a state.5
a) Expropriation under Current International Law Theory
In this section summarize the currently-accepted view regarding the responsibility of states for expropriations. Just basically summarize the fairly uncontroversial standards that are accepted nowadays: nondiscriminatory; public purpose; prompt, adequate, and effective compensation. Cite Higgins’ book, Shaw and Brownlie treatises, and a few other articles.
Leave undecided for now the standard for compensation: mention that there is debate over the standard, ranging from partial (“appropriate”–word instead in G.A. res’ns?) to full (“adequate”?; prior word used?). But some compensation needed, this is fairly accepted. Debate also on whether or how much the amount varies based on whether taking is “illegal” or “legal.” Other remedies like restitution discussed in next section.
c) Restitution (All the rest of this Part II will go in beginning of Part III.B.2 after Paul finishes this).
In this section discuss when force is permissible under international law. Go into U.N. resolutions, Higgins’s book has a chapter on this; and also look at arbitral decisions all, except Texaco, holding that restitution is not a remedy; reinforce conclusion with modern movement for permanent sovereignty over natural resources. Comment on concept of “inalienability” (and cross-ref to Part IV) and tie in to theory of legislative sovereignty, the inalienability of the will etc.
i) Restitution and International Tribunals
Use of Force. Restitution, Texaco (?), Force would not be legitimate etc. This is clear.
Under the “great oil arbitrations,” as Professor Higgins has aptly described them,6 several important decisions were issued concerning expropriations of foreign investments. Although it is often repeated that the three requirements exist under international law, it is nevertheless true that none of the courts, except the anomalous Texaco decision, attempted to award anything more than monetary damages for the nationalizations. Even Texaco, although it called for restitution, or specific performance of the contract, realized its own futility and awarded monetary damages because a decision calling for specific performance is clearly unenforceable. (See p. 170 of International Petroleum Transactions, reprinting very good article by Norton: “[I]n a Partial Award in the AIFC case, Arbitrators Virally and Brower held that the international law of expropriation authorizes restitutio in integrum in cases of unlawful expropriation”.)
Further, Texaco’s reasoning is unsound. Based on Chorzow Factory, which Higgins explains is invalid reasoning … Some of the other arbitrations imply that if the stabilization clause is explicit enough, restitution could be awarded. But this is dicta; is unsound because the clauses were explicit; and is not supported by international law anyway, as the remainder of this article makes clear. For none of these tribunals pretend to be able to or competent to issue enforceable restitution awards, and even if they did it would be wholly ignored as violate of international law (since force may not be used against other nations for such purposes; see Part II.C.2, below).
Under disputes heard by the Iran-U.S. Claims Tribunal,
[t]heoretically a broad range of remedies is available to claimants whose property interests have been expropriated. These include restitution or specific performance, substitution of the value of the property taken, award of punitive damages, or other measures that may arguable indemnify the claimant for the wrong done, or the property lost. . . . As a practical matter, however, virtually all of the Tribunal’s decisions focus solely on the return to the claimant of the value of the property interest lost. Restitution or specific performance has not been discussed or seriously contemplated in any of the Tribunal’s awards. The reasons for this are evident: The Tribunal does not have adequate enforcement mechanisms for such restitution, but does have available to it the Security Account established in the Algiers Accord out of which monetary awards can be satisfied.7
The tribunal in Amco Asia Corp. v. Indonesia,8 displayed a typical hesitancy to award the remedy of restitution. Regarding the claim that the Indonesian Government had unlawfully revoked an alien corporation’s investment license, the tribunal stated:
It is obvious that this Tribunal cannot substitute itself for the Indonesian Government, in order to cancel the revocation and restore the license: such actions are not even claimed, and it is more than doubtful that this kind of restitutio in integrum could be ordered against a sovereign state.9
ii) Force by States
Because of each state’s sovereignty over its own territory under international law, the alleged internationally “illegal” action of a discriminatory expropriation would never justify another nation physically invading the host state to remedy or prevent the expropriation.10
The use of force is allowed in international law only in certain cases. The UN Charter is specific, and binds all members of the UN, besides expressing customary law in this field. Force may legitimately be used for self-defense only, and narrow other areas, and under UN authorization in certain cases. The UN may authorize force only to stop aggression or a substantial threat to the peace etc. Thus it is clear and uncontroversial under international law that, even if a tribunal, a là Texaco, were to award specific performance, it could not be legitimately enforced by any other state. To actually enter into the territory of another nation to force compliance with the award, is a very clearly against international law.
Unlike Old Days?…
iii) Practice (probably part of last section)
Further, states would never be willing to actually declare war on another state merely to enforce a specific performance or even a damages award. They might do it if survival depended upon it, but then the arbitral award is a mere excuse, and thus is irrelevant. Further, such action would be seen as illegitimate and would not establish the right to so enforce international law any more than a murderer “proves” that murder is not wrong by murdering someone.
iv) Permanent Sovereignty over Natural Resources (maybe part of last section)
This has only been made stronger in recent decades by the growing movement for permanent sovereignty over international law. Although some more recent provisions are more controversial and cannot be said to represent international law, the law at least as stated in G.A. Resolution 1803 is widely accepted as stating customary international law.
Although these resolutions are focussed on the “unique” case of natural resources, the uniqueness of natural resources does not need to be relied upon merely to protect the territorial sovereignty of the host state. But whether property lying within a host state’s territorial boundaries is “unique” like natural resources, or any other sort of property, the state has sovereignty that may not be physically invaded to prevent the state from nationalizing this property.
v) Bilateral Investment Treaties
A BIT cannot affect the fundamental conclusions of this paper, because it would never, and probably could never, allow for one state to actually invade or even blockade the host state to enforce certain standards for expropriations. Theoretically, a BIT, or even a multilateral treaty, might provide a higher damages standard for “unlawful” takings. However, BITs to date do no more than restate international law principles such as full compensation (argued herein to be a part of international law anyway). They do provide a “requirement” for nondiscrimination and public purpose, but, since absolutely no consequences attach to these conditions other than that the BIT may be considered breached, the analysis herein holds.
vi) Economic Boycotts
An economic boycott is permitted under international law, since it involves no force against other nations. The concept of “economic coercion” is illegitimate anyway. Thus, the fact that an economic boycott could be organized against a host state for a discriminatory expropriation in no way demonstrates the “enforceability” of such an international law “requirement.” For a state could boycott a host state for any expropriation at all, even for one accompanied by prompt, effective compensation, nondiscriminatory, and for a public purpose. Indeed, a state could boycott another for no reasons whatsoever. Such economic sanctions require no justification at all. Thus the allegedly “unlawful” actions of another state do not serve to “justify” a boycott; thus the purported “unlawful” status of the action is not thereby bolstered.
vii) Enforcement of Foreign and Arbitral Judgments in Other States’ Courts
Note that even this award of damages can only be enforced when the host state has property situated within other states’ jurisdictions, and where other states are also willing to enforce such awards. E.g., the U.S. Act of State doctrine, Hickenlooper amendment, Sabbatino case, Cuban sugar, Hot Oil cases, etc.
FSIA: 28 U.S.C. ” 1602-1611. See Claggett at ‘ 12.05[b], pp. 12-19 to 12-21. “Under the FSIA, a suit based on a foreign expropriation will generally fail unless the expropriated property or its proceeds have been brought to the United States or unless ownership of the property has been transferred by the expropriating government to an agency or controlled entity that is doing business in the United States.” Claggett, 12-19. A determined expropriator can prevent this. Some BITs etc. contain waivers of sovereign immunity.
Act-of-state doctrine: a court in the U.S. will not pass on the validity or lawfulness of an expropriation by a foreign State of the property in that State’s territory. Claggett, 12-20. Citing e.g. Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964). But if an expropriation violates a treaty or the compensation offered is inadequate under the treaty, a-o-s no applies and domestic court may grant relief.
But damage awards can be enforced in other states, under certain conditions. Is not seen as violation of international law, or sovereignty of the host state. Indeed one of the bedrock principles of international law is territorial jurisdiction, so this reinforces the right of one state to exercise jurisdiction over property within its power.
3) THE NONREQUIREMENTS OF NONDISCRIMINATION AND PUBLIC PURPOSE
a) Requirements Without Consequences
When we say that there is a “requirement” under international law to act in accord with certain standards, we mean that international law is breached or violated if this requirement is not met. Thus, when a state fails to compensate an investor for at least some of the value of an expropriated investment, or when a discriminatory expropriation takes place, it is stated that the “requirements” of international law are not complied with, and that the expropriations are illegal or unlawful under international law. By contrast, a nondiscriminatory taking for a public purpose that is accompanied by compensation is said to be legal under international law, because it is in accord with the related “requirements.”
It makes no sense to refer to a standard as a “requirement,” however, if there are no consequences, even in principle, for actions contrary to the requirement. An action should not be referred to as unlawful or illegal under international law, if such actions do not change the legal status of the offending state under international law.
In particular, we will argue that the alleged requirements of nondiscrimination and public purpose are not actually requirements at all, because whether a taking is nondiscriminatory or not, or for a public purpose or not, the liabilities and responsibilities of the offending state under international law are basically the same. That is, “illegal” and legal expropriations do not give rise to fundamentally different consequences that justify such a distinction. First, remedies for illegal and legal takings do not differ in kind (even if they do differ in amount), because both an illegal and legal taking result in an award of damages to the investor, and nothing more.11 Second, because full value is the only supportable standard for an award of damages, whether the taking is classified as unlawful or lawful, remedies for illegal and legal takings should not even differ in amount.12 Thus, there are simply no significant consequences that arise from classifying a taking as illegal as opposed to legal.
It is perfectly reasonable to focus on the consequences that flow from state actions in deciding whether a given classification or distinction is sensible. It is a common legal observation, for example, that a right without a remedy is hollow13Ci.e., not a real right at all. Similarly, a purportedly unlawful act that has consequences no different in kind or in principle from those of a lawful act should not be termed an unlawful act, for the distinction is misleading and misdescriptive.
Even Professor Bowett, who accepts the traditional distinction between “unlawful” and “lawful” takings, acknowledges that
There would seem to be little value in making the distinction between a lawful and an unlawful taking unless consequences flowed from it: and it would be extraordinary if the distinction was of no consequence.14
Bowett maintains that the distinction does affect the remedies available following an expropriation, and thus the distinction is sensible, from his point of view.15 If, however, as we argue below, there are no such consequences, even in principle, then there is no meaningful distinction between takings lawful or unlawful. If this is the case, then nondiscrimination and public purpose are empty phrases, and should not be recognized as requirements by international lawyers.
In this section, we argue that remedies for illegal and legal takings do not differ in kind because both an illegal and legal taking result in an award of damages to the investor, and nothing more. Even if so-called “illegal” takings give rise to an obligation to pay a higher monetary damages award than would accompany a “legal” taking,16 no state may be forced by another state to undo, or forego, an “illegal” taking. No state suffers consequences different in kind than they could legitimately experience as a result of a legal taking.
Before discussing these issues, we first explore why some conceptual distinctions may be valid in a national context, and historically in international law, although invalid under modern international law.
i) National Expropriations
In a national context, it may make perfect sense to classify some takings as legal, and others as illegal. In the United States, for example, individuals are constitutionally entitled to be secure in their private property rights, at least to some extent. For this reason, limits are placed on the right of government to expropriate private property. The famous (but much-neglected) fifth amendment to the U.S. Constitution provides that, “nor shall private property be taken for public use, without just compensation.” Thus, if the government desires to build a public road over the land on which someone’s house sits, the homeowner must be compensated for the value of his property, so that the public as a whole bears the cost of the road, which is just because it is the public that the road is intended to benefit.17
However, besides requiring compensation, the fifth amendment requires that the taking must also be for a public purpose. This public purpose requirement implicitly recognizes that a property owner who is compensated is nevertheless not always made whole. First, valuation methods are always crude. If nothing else, the property owner may simply subjectively value the property far more than the market does.18 Second, the property is taken forcibly from the owner against his objections, even though he is compensated. Thus, “compensated” takings sometimes undercompensate property owners; and never redress the indignity of coercion suffered by the property owner. For this reason, even compensated takings are at best a necessary evil, and resort to such takings should be avoided where possible. Hence extra requirements such as “public purpose” accompany the exercise of eminent domain. Other constitutional requirements place further limits on the exercise of any state power, including the power of eminent domain, such as due process and certain nondiscrimination requirements.19
These requirements have a valid meaning in a national context, because, for example, a taking that is not for a public purpose can be prohibited.20 Thus, a property owner whose property is threatened with a taking that is not for a public purpose or that is discriminatory may institute a lawsuit in a the proper court to obtain an injunction to prohibit the taking, or even to recover improperly taken property.21
Therefore, in a national context it is desirable to add extra requirements to limit the government’s power to take individuals’ property, because resort to forcible expropriation of property, whether compensated or not, should be minimized, if not prohibited completely. Further, because mechanisms can exist to prevent takings that are not in accord with these requirements, it is proper to regard some takings as unlawful, and to regard these requirements as genuine legal requirements related to expropriations. By the same token, however, such distinctions are invalid under international law, as argued in Part III.B.3, infra.
ii) Restitution in Kind, Specific Performance, and Force
In contrast to national contexts, where specific performance is available to literally force the government to comply with requirements such as nondiscrimination and public purpose, noncompliance with these requirements in the international arena has no such consequences.
(PAUL PART II.C ETC. GOES HERE. ESTABLISHES THAT FORCE CAN’T BE USED AT ALL. DISCUSSES HISTORY OF FORCE TOO.)
As explained in the preceding section, states simply cannot, do not, and will not use force against other states to enforce their nationals’ property rights. What is more, states also may not use force in this manner. Under principles of international law that are widely accepted today, states have no right, even in principle, to use force against other states for this purpose. This is in contrast to national contexts, where government entities can be prevented from committing unlawful takings, and to prior stages of international law, where force could permissibly be used in response to an unlawful expropriation.
Whether states have such a right is significant in determining whether violations of the nondiscrimination and public purpose requirements have consequences. If it were true that states did not in practice use such force, but nevertheless had a right under international law to use such force in response to an “illegal” expropriation, it is possible that a legitimate distinction between unlawful and lawful takings would exist: the former gives rise to a right of other nations to use force against the expropriating nation, while the latter does not.
As an example in a national context, murder may properly be made illegal, and in practice always is made illegal. Thus, because murder is an illegal, rights-violative action, states may legitimately use force against potential murderers to prevent murders from occurring. However, even where some murders nevertheless occur (because police are not perfectly efficient), the state maintains, and has, a right, at least in principle, to prevent and punish murders, when the state is physically able to do so. Even if the state fails to prevent a given murderCe.g., because due process rights or other limitations preclude overaggressive crime-prevention techniques, or because it simply hires fewer police than it otherwise might haveCthis does not mean that the state had no right to stop the murder, and it does not mean that the murder was not still illegal. On the other hand, where the state does not prohibit a given action, like freedom of speech, and where it is also established that the state simply has no right, even in principle, to censor the free exercise of speech,22 it would be meaningless to classify any exercise of speech as unlawful.
Similarly, if under international law states had the right to invade host states that discriminatorily expropriated the property of foreign investors, whether or not this right was or could be exercised, it may still be proper to classify a discriminatory taking as illegal. The taking would be illegal because it would give rise to a right, at least in principle, of other nations to physically retaliate or otherwise use force against the expropriating state. The example of war is illustrative of this point. In the international sphere, aggression (e.g. the initiation of war) is clearly illegal, and the attacked state as well as other states are considered to have a right to use force against the aggressor nation in self defense.23 Sometimes the aggressor nation unfortunately wins the war, but the action is still considered illegal. This is a sensible classification, however, because other states may still validly assert that they had a right to retaliate, even if they were not able to, or even if they chose not to exercise the right. In this case, the illegal act of aggression always has consequences at least in principle, if not always in practice.
If, however, it is established or accepted that, under international law, a state has no right whatsoever to use force against other states merely because of a discriminatory or private purpose taking, there is no sense in which it is proper to term the taking “unlawful.” As discussed above,24 this is indeed the case under international law. Under accepted international law, a sovereign nation has a perfect right to expropriate any property within its border, for any reason, whether discriminatory or not, whether for a public or private purpose. A state has this right, because other nations have no right to use force to prevent or undo such expropriations. A discriminatory or arbitrary or private-purpose taking by a state simply entails no consequences different in kind from a normal expropriation, whether in practice or in principle. This is true even if a higher damages award accompanies an “illegal” taking than a legal taking.
Whether a taking is “illegal” or not, an obligation to compensate the investor for the full value of the investment arises.25 However, even if an “illegal” taking such as a discriminatory one requires the host state to compensate the investor at a higher damages standard than for a nondiscriminatory taking, there is no difference in kind that justifies classifying the discriminatory taking as “illegal.” Because states may not use force against one another merely in response to property crimes, an expropriating state can only be ordered to pay monetary damages to the investor. At most then, an “illegal” taking would result in a higher damages award than a legal one. But even if a higher damages award is awarded for an “unlawful” expropriation than for a “lawful” one, clearly there is no basis for calling one sort unlawful and the other lawful.
The usage of the terms unlawful and lawful has always been muddled in this area of international law. For instance, if an expropriation is nondiscriminatory and serves a public purpose, then it is, under prior paradigms, only unlawful if not accompanied by compensationCthe amount of compensation that should accompany a legal expropriation, whatever standard that may be. But the nature of the “unlawfulness” is unclear in this case, for since compensation is also a “requirement,” presumably the taking is “unlawful” if compensation is not timely paid. But if and when compensation is eventually paid (taking into account any permissible delays in paying), it will be the legal-expropriation compensation amount (perhaps adjusted by interest), even though the failure to pay timely would seem to have rendered the taking at least temporarily “unlawful.” There is no difference to the state whether it pays compensation ahead of time thereby rendering the expropriation “legal,” or does not seasonably compensate (thereby “unlawfully” taking) and pays in accordance with the same compensation standard at a much later time. Surely it is nonsensical to distinguish between “unlawful” and lawful here. For whether the state accompanies the taking with compensation (lawful) or unseasonably makes payment of compensation much later (unlawful), the result is the same, in terms of lawfulness, and we surely here have a distinction without a difference.
If a “lawful” expropriation results in an award of damages, what does an “unlawful” expropriation result in? Again, an award of damages, since restitution in kind is not awardable or enforceable. Assuming arguendo a higher damages award could be awarded for an “unlawful” taking than for a lawful one,26 still an award of damages is being awarded for a purportedly “unlawful” taking. But then what is the difference in kind between a lawful and unlawful taking? Both give rise only to an award of damages. Clearly, there is no difference in kind between unlawful and lawful takings under this paradigm, only a difference in degree. But, if so, why call one “lawful” and one “unlawful”? This makes no sense and is absurd.
If discrimination and public purpose merely justify a higher damages award, and are still called “unlawful,” consider the situation where a concession guarantees the investor a standard of compensation, in the event of a taking, that is higher than he would receive under default international law for a legal taking. In this case, if the state legally expropriates the investor’s property, then under the concession the state is obligated to pay the investor at a heightened compensation standard, just as it would be if the taking were discriminatory and discriminatory takings gave rise to enhanced damages. By this logic, a legal taking would be “illegal” because, just like a discriminatory taking, it gave rise to a higher-than-normal damages standard. Of course a legal taking is not an illegal one, though, which illustrates the absurdity of classifying a taking as illegal merely because damages are higher than they would be for a “legal” taking.
The only thing such a classification could hope to achieve would be an enhanced or penal damages award, but even this is illegitimate as discussed in Part III.C, below, because full compensation is the only justifiable standard for any sort of international expropriation. Further, there would be no need to characterize an expropriation as “unlawful” if the sole goal were to have higher damages awarded, just as one need not characterize a taking as illegal to justify awarding damages under a contractually-specified damages standard. One would simply say that an additional harm or damage was visited upon the investor by the discrimination, which is also an effective “taking” of his property right which also requires compensation. But characterizing some takings as “unlawful” only confuses the issue and does not help clarify or explain the situation. To characterize a taking as unlawful must in some sense mean that the state must not do it; but under international law, a state has a perfect right to expropriate property, even for a discriminatory reason, as long as an appropriate award of damages is made. Since a “legal” expropriation is an action which gives rise to an obligation to pay monetary damages, and so is an “illegal” one, there is no difference in kind between them that justifies classifying them differently. For these reasons, nondiscrimination and public purpose should not be seen as “requirements” of international law. Thus, there can be no “illegal” taking, only a breach of a state’s duty to discharge its financial obligations that arise from an expropriation. Whether such a breach would be illegal or not is a separate question, discussed below.27
c) Full Compensation
In the preceding section,28 we argued that remedies for illegal and legal takings do not differ in kind because both an illegal and legal taking result in an award of damages to the investor, and nothing moreCeven if “illegal” takings give rise to an obligation to pay a higher monetary damages award than would accompany a “legal” taking. In this section we argue further that, not only is there no difference in kind between “illegal” and legal takings, but that there is no difference in degree either, because the full compensation standard is applicable in both situations. That is, because full value is the only supportable standard for an award of damages, whether the taking is classified as “unlawful” or lawful, remedies for illegal and legal takings should not even differ in amount. Therefore, it becomes even clearer that distinguishing between unlawful and lawful takings is unwarranted, further illustrating the meaninglessness of the “requirements” of nondiscrimination and public purpose.
Under international law, an expropriation is legal only if the expropriation is: (1) for a public purpose; (2) nondiscriminatory; and (3) accompanied by prompt, adequate, and effective, or at least “appropriate,” compensation.29 International law has long been in a state of confusion over how much compensation an expropriated investor is entitled to;30 however, Professor Brownlie notes that “it is significant that the right to compensation on whatever basis, is recognized in principle.”31 In other words, what is “adequate” compensation? There is disagreement as to whether “full value,” which includes both damnum emergens (e.g. the value of physical assets such as factories and equipment) and lucrum cessans (lost profits), should be awarded, or merely damnum emergens, and there is disagreement as to whether the amount of damages should be enhanced if the expropriation is in some sense “illegal” under international law.32
There can be no doubt that, despite biased arguments to the contrary, full value is the only just and objective standard by which to award compensation to an investor whose property has been expropriated, whether the expropriation was discriminatory or for a public purpose or not. In a national context, the market value of condemned property is paid as a matter of course, even for legal expropriations.33 Where the taking is illegal, e.g. not in accord with due process or for a purely private purpose, the owner may be entitled to injunctive relief or to damages. These remedies are mutually exclusive, and the owner must elect one of them.34 Therefore, in the U.S., when the owner chooses not to enjoin an illegal taking, the remedy of compensation for the market value of the property remains.
With regard to the international law standard, Professor Higgins adopts the common-sense view that the economic “value” of property of course includes expectations of future profits,35 although this view, remarkably, is not universally accepted. In general, recent case law, including the Iran-U.S. Claims Tribunal and transnational arbitral tribunals,
retains the standard of full compensation as a rule in the case of expropriation, but also goes further. Although the standard of full compensation has been uniformly implemented in all instances of lawful expropriation or nationalization, with the exception of the Libyan American Oil Co. Arbitration which, however, may be regarded as having some special features, it is possible to reconcile the recent case law, particularly the decisions, with the legal position which had developed through the other sources by interpreting it as indicating that, while nationalization, so-called, may precipitate an exception permitting a deviation from full compensation, not all cases of nationalization would warrant the incidence of an exception.36
Charles Brower, in discussing international law developments in light of the Iran-United States Claims Tribunal, also notes “the strong support manifested today for the principle of full compensation.”37
As Brice Claggett perceptively observes,
there remains a significant body of opinion, even including some Western scholars, arguing that when a particular expropriation is part of a broad-scale nationalization of an entire industry or segment of the economy, something less than full compensationCpartial compensationCis all that is required. . . . I call [this theory] the “partial confiscation” theory. If a man steals $10 from me and gives me back $4, he has still stolen $6. I am not able to understand why similar conduct by governments should be viewed any differently. And I have never seen any suggestion of a principledCor even an unprincipledCbasis on which “partial” compensation might be measured or calculated.38
Lauterpacht perceptively notes that the distinction between damnum emergens and lucrum cessans is invalid, and that “lost profits” of course must be taken into account when determining the value of an economic asset.39 Thus, as the validity of separating lucrum cessans from the value of property is called into question, the view that “legal” expropriations give rise to only damnum emergens but not lucrum cessans is similar called into question. Lieblich has also noted that, “if future profits (or, more correctly, future cash flows) may not be taken into consideration in determining the value of expropriated property, it is not possible to determine its value at all.”40 Lauterpacht is worth quoting at length:
The core question . . . is how does one reach a cash figure to reflect the concept of the “full equivalent”? In truth, however, the problem is a wider one: regardless of the standard of valuation, whether full or less than full, how does one go about the process of any valuation? Even if one were to adopt a standard of half-value or any other fraction of full value, logically one still has to have a value from which to start. And, in this connection, the central connection is, to what extent may one take into account the revenue-earning capacity of the asset? . . . International legal thinking on this subject has for long been dominated by the traditional Roman law distinction between damnum emergens and lucrum cessans. In property terms, the former has been associated with a concept of the intrinsic value of property, unrelated to its earning capacity; the latter has been identified with loss of profits. And there have been quite a number of international arbitral decisions which, though prepared to attribute a value to an asset, have treated this as something quite distinct from its earning capacity. The latter was seen as something to be equated with loss of profits and for this reason to be excluded to the extent that such losses are uncertain or speculative. . . . In recent years, however, there have been signs of a growing willingness on the part of international tribunals to appreciate that the value of an asset is not something that can be divorced from its revenue-generating capacity. And, in this, international legal thinking is coming into line with established economic thinking and methods of valuation in general use all over the world. To a body of experienced practical lawyers, it hardly needs saying that few things have an intrinsic value, certainly not in the commercial world. An asset is worth only so much as it can earn; and it is in terms of its earning capacity that its economic value must be measured.41
It is clear that if property is taken and compensation is awarded therefor, it can only be compensation for the full value of the property taken, whichever valuation method is used. Of course, a consistent application of this view implies that the amount of compensation should not change depending upon the legality of the expropriation.42 Professor Higgins follows the logic of her premises to its inevitable conclusion. Despite pronouncements of other commentators and arbitrators to the contrary, Higgins tentatively concludes “that the value of the property does not change by virtue of the lawful or unlawful nature of its taking . . . .”43 This view also makes sense, because it makes little difference to an investor why his property was taken, for the damage done to him regardless of the motivation for the theft can only be measured by the (full) economic value of the property. Of course, if this is the case, it makes no sense to distinguish between “illegal” and “legal” takings. For whether the expropriation is discriminatory or not, or for a public purpose or not, full compensation should be awarded to the investor as damages.
Such a result is sensible, because the value of the property taken does not change because the state expropriated the property in a discriminatory fashion, rather than in a more gentle, kindly, nondiscriminatory fashion. It does not matter to the investor why the state took the property. The investor is concerned with its economic utility, or value, to him. The harm done to an investor by an expropriating state is that the property has been taken. The reason is irrelevant. Accordingly, once an investor’s property has been taken, no additional harm is done to him because of the motivation behind the taking.
This interpretation of international law actually meshes well with the view expressed in the Restatement (Third) of the Foreign Relations Law of the United States. The Restatement provides, in pertinent part:
Section 712. Economic Injury to Nationals of Other States
A state is responsible under international law for injury resulting from:
(1) A taking by the state of the property of a national of another state that is (a) not for a public purpose, or (b) discriminatory, or (c) not accompanied by provision for just compensation; . . . .
However, because it is the taking that causes injury to nationals, there is simply no injury that results from a non-public purpose or discriminatory taking. Therefore, even under the above restatement of the law, a state is responsible for nothing solely on account of provisions (1)(a) and (b). The section would make just as much sense were subsections (1)(a) and (b) to be eliminated from the text of the section. A similar analysis applies to statements such as Brownlie’s, to the effect that a state action “will entail state responsibility if . . . it constitutes . . . an expropriation contrary to international law.”44 As Brownlie also notes, “the law of responsibility is concerned with the incidence and consequences of illegal acts, and particularly the payment of compensation for loss caused.”45 Further, as Judge Huber said in a report on the Spanish Zone of Morocco Claims, “Responsibility is the necessary corollary of a right. All rights of an international character involve international responsibility. If the obligation in question is not met, responsibility entails the duty to make reparation.”46 But if there is no separate harm that befalls an investor due to the character of the expropriation apart and aside from the taking itself, there is nothing to make reparation for. This implies that there can be no correlative state responsibility, because there is no separate loss for the state to be responsible for, which further implies that no illegal act was committed by the state.
Further, consider the fact that a nationalization that is truly legal, nonarbitrary, nondiscriminatory, and for a public purpose still requires at least some amount of compensation. The “good” motivation of the government does not excuse it from paying compensation. The quite proper thinking behind this is that the investor was harmed just because its property was taken, and the good motive of the government is irrelevant. But similarly, if motive, intent, and purpose is irrelevant in determining whether harm was done to the investor, is should be irrelevant in determining how much harm was done to the investor. No worse harm is done to the investor if the taking is motivated by benevolence, spite, or even malice.47 The harm done is still the same and can be adequately compensated for by awarding damages equal to the full value of the property taken. It therefore simply makes no sense to characterize nondiscrimination and public purpose as requirements of international law, or to award higher damage awards if these elements are present.
d) Further Problems with Nondiscrimination and Public Purpose
As explained in Parts III.A-III.C, above, since there is no remedy at all, even in principle, for breach of the alleged requirements of nondiscrimination and public purpose, they cannot be said to be requirements of international law. As discussed below, however, such a classification would be problematic for other reasons as well.
First, both nondiscrimination and public purpose are vague concepts. All takings are discriminatory; it is unclear what a “nondiscriminatory” taking would be. To discriminate is to make a distinction, to mark or perceive the distinguishing or peculiar features of;48 and a state always must decide whom to expropriate, which is to say, to discriminate against the investor as opposed to all others. The harm done to an investor first and foremost by an expropriation is the fact that his property has been confiscated; yet, if he has been compensated for the full value of his property, then he has been fully compensated.
ii) Public Purpose
The public purpose concept is similarly amorphous, and lacks clear definition. As one legal encyclopedia puts it,
No general definition of what degree of public good will meet the requirement of a `public use’ . . . can be framed, since in every case it is a question of public policy, the determination of which is dependent upon facts and circumstances. The meaning of the term is flexible and . . . must be applied in the light of what the legislature seeks to accomplish and what it may properly consider to be a public use at the present time.49
Such an explanation, riddled with further obscure terms such as “public policy” and circular references like “properly,” makes it clear that the concept of public use can have no principled, objective definition that is not subject to continual redefinition by the government. Because the point of the public use requirement is to limit the government’s discretion, limiting the government with a concept that the government itself may define becomes largely inefficacious.50
Further, the state is merely a fiction, and has no “purposes” separate and apart from those of individuals within the government who motivate, encourage, and institute the expropriation. Only individuals have purposes.51 All state actions are partially socialistic in that they are welfare transfersCsome individuals are benefitted and some are harmed, by their bodily or property rights being violated. Even in a representative government, not all the citizens or subjects are represented, because there is never unanimity.52 Thus, any action taken by a state will be for the benefit of only some of the citizens of the country, and in some cases only for the benefit of government employees.53 The difference between a purely public and purely private purpose is only one of degree, not of kind, depending upon the ratio of the number of exploiters to the number of those exploited. There is no nonarbitrary, objective, justifiable criteria to distinguish between public purpose and non-public purpose.54
If state action that is not for a public purpose is undesirable, and if every governmental action is, at least in part, motivated by a non-public purpose, some might suggest eliminating the coercive institution of the state altogether, adopting instead a totally free society, in which only private purposes may be pursued.55 But so long as states exist, so long as states are seen as sovereign and legitimate under international law, it is necessary to accept the fiction that governments represent the people, a fiction under which state actions that are in actuality not “for a public purpose” must nevertheless be assumed to be.
There is yet another reason why the standard of compensation should not depend on the public or non-public purpose behind the taking. For even if some takings can be identified as egregiously lacking in a public purpose, this merely implies that the state action is not representative, and that the action cannot fairly be said to benefit the people as a whole, as opposed to the government or a rent-seeking special interest group. In this case, however, it is clear that it is the people themselves that are harmed when their interests are insufficiently represented. Why should this give an additional cause of action or grievance to the expropriated investor? As already argued, he is harmed because his property is taken. Whether it “really” benefits the people of the host state, or only government officials, it is hard to see how this is relevant to a calculation of the harm done to the investor.
Further, if no state action is for a purely public purpose, then no state action is completely “legal” or “illegal”Call expropriations are partially “illegal” and partially “legal,” but this just gets us farther afield from the initial problem of making the investor whole for the loss he has suffered, and further demonstrates the uselessness of the legal/illegal distinction based on the public/private purpose classification.
4) INALIENABILITY AND REALITIES OF POLITICAL RISK
The recognition of property rights is without doubt necessary for civilized human life.56 Individuals will tend to flourish when governments respect them. A state that respects property rights is clearly preferable, therefore, to one that does not, at least for those in favor of civilization and individual human flourishing. This is certainly true from the point of view of foreign investors that own property in host states. Both investors and host states (and the citizens of the host state) are vastly better off when the host state recognizes and respects property rights. Nevertheless, some states inevitably will trample property rights, out of lack of respect for individual rights, and out of more concern with short-run interests than with long-term, civilized flourishing. In today’s reality and under international law, such states simply cannot be compelled to respect property rights.
As Professor Higgins notes, a right without a remedy is a hollow one.57 Because of this fundamental truth, investors should recognize the realities of political risk, and should realize that there is no right under international law to not have one’s foreign investments expropriated in discriminatory fashion or for a non-public purpose. As explained earlier in this article, there is absolutely no remedy for such an asserted right; states suffer no meaningful consequences under international law due to the fact that a taking is “unlawful,” because no enforcement or coercive sanction at all can be applied for even the most egregious expropriation. Thus, perhaps unfortunately, even if a state wishes to bind itself to not commit certain sorts of expropriations, it simply may not do so. The simple fact is, even if a state solemnly promises not to take property, in later years it just might do so, nevertheless, and get away with it. Part of the reason for this is that it is seen as an infringement of the state’s sovereignty to apply force to it to make it comply with prior promises regarding the disposition of property rights within its own territory. Its sovereignty makes its will in this regard inalienable.58
However, awards of damages may be enforced, in at least some instances, for example where property of the expropriating state is situated outside its borders and may be seized in satisfaction of a judgment in the courts of another state. Further, although a state’s right to expropriate is inalienable, it may bind itself to pay monetary damages conditional upon an expropriation. It appears that it is less of an infringement of the sovereignty of a state to expect it to make a one-time (or during a limited period) payment of money than to demand that it change, or refrain from changing, the existing allocation of property rights within its own territory. Thus, a state may alienate its right to refuse to pay compensation, at least where other states can seize property of the host state external to it, and within the jurisdiction of the seizing state.
Host states and investors, for example, may enter into internationalized contracts containing “stabilization clauses,” which states that the law in force in the state at a given date is the law that governs the contract, regardless of future legislation, decrees, or regulations issued by the government.59 In other words, by agreeing to a stabilization clause, a state alienates its right to unilaterally change the regime and rights relied upon by, and promised to, an investor. The stabilization clause is crucial in maintaining the investor’s rights to compensation, even if the host state changes the law to deny this right. As stated by the tribunal in Texaco v. Libyan Arab Republic,60 “[n]othing can prevent a State, in the exercise of its sovereign, from binding itself irrevocably by the provisions of a concession and from granting to the concessionaire irretractable rights . . . . [I]n entering into concession contracts with the plaintiffs, the Libyan State did not alienate but exercised its sovereignty.”61 The court’s semantics here are questionable, since the state, in “binding itself irrevocably to the provisions of a concession” is clearly attempting to exercise its sovereignty to alienate its right to violate the contract. As we maintain, a state may commit itself to pay compensation if it expropriates, but it simply cannot alienate its right to expropriate.
Therefore, the obligation to compensate may be considered a valid requirement of international law, because, although a state may not be invaded to recoup enough property to satisfy a damages award, it is at least possible in principle to order a state to make such payment, and to satisfy a damages award by enforcement in foreign courts.62
As Higgins points out, the fundamental political-risk problem facing a foreign investor, such as a petroleum investor, is: “how can he be sure that, given the vast resources he will be required to make, he will be allowed to reap the benefits of his investment and work effort, and that the rewards will not be taken from him just as the fulfillment of the contract terms beings to bear fruit (that is to say, petroleum)?”63 Of course, the answer to this question is, he cannot. As long as nation-states have “sovereignty” over their territories, there is always a possibility that the government will infringe the investor’s property rights, although there are ways to minimize such “political risks.”64
It is true that most advocates of “permanent sovereignty over natural resources” were making biased arguments, skewed completely in the (short-term) interest of the socialist governments that wished to take the property of foreign industries. That is not, however, our motivation for explaining that states do, in actuality, have an inalienable right to expropriate foreign investments. We believe in the sanctity, under natural law, of property rights.65 Unfortunately, it is not always possible to protect the rights to life, liberty, and property.
Where sovereign states exist, and are recognized as such under international law, the simple fact is that their sovereignty makes their will inalienable in certain respects. Even though it might be to a nation’s benefit to be able to enter into a binding guarantee that it will not ever expropriate someone’s property, this is in fact not binding, since there is no one to bind a sovereign nation.66 This inalienability is implicit in the well-known concept of parliamentary or legislative sovereignty. A legislature simply does not have the ability to tie its future hands, just as a man may not sell himself into slavery. If a legislature votes to enact a given law, it may repeal the law later. Even a constitution may be amended according to the procedure it prescribes, or even abolished and replaced in a bloody or bloodless revolution. In the modern world of liberal democracy, “Sovereignty shifts from King to State, and this State `can no more alienate its sovereignty than a man can alienate his will and remain a man.’”67
In the United States, for example, this principle has been recognized by the U.S. Supreme Court:
The taking of private property for public use upon just compensation is so often necessary for the proper performance of governmental functions that the power is deemed essential to the life of the State. It cannot be surrendered, and, if attempted to be contracted away, it may be resumed at will.68
As Professor Bowett has noted,
The position in the law of England is very similar. Where the Crown acts in an executive capacity to vary or terminate a contract, its action is deemed to be lawful, and no breach of contract. . . . “[A] government cannot fetter its duty to act for the public good. It cannot bind itselfCby an implication in the contractCnot to perform its public duties.”69
But this has always been the case. No matter what the arbitral tribunals say about the unlawfulness of an expropriation, and even if they order restitution, as Texaco did, the simple reality is that investors who are robbed of their property by a host state can only recover monetary damages, and then only in cases where assets of the expropriating state may be found in other jurisdictions, in states that are willing to seize the assets, unless the host state voluntarily compensates the investor.
Our urged restatement or recharacterization of the international law of expropriation would not make things worse for investors. Indeed, it recognizes that investors will always have to face risks as long as they are at the mercy of the whim of a sovereign state. These risks are real, and are not increased by frankly recognizing them. Investors can only be made better off by realizing the risks of potential investments, risks which are hopefully clarified in this article.
A state cannot even guarantee it will have enough assets overseas at the moment of expropriation to satisfy a damages award. Indeed, it would be likely to surreptitiously begin to remove such assets prior to an expropriation. A state could deliver a large amount of funds in escrow to a neutral, third party not subject to the host state’s jurisdiction, but this is probably unworkable in practice, especially with the alternatives of investment insurance open to the investor such as OPIC, MIGA, and private insurance.70 Of course, a state could attempt to establish a policy of reluctance to expropriate, in an attempt to have a low “political risk” rating by insurers, so that the premiums would be more affordable to investors, thus promoting, in the long run, more investment in the country. It could also set up a stable government that enshrines property rights to a certain extent, such as in the U.S., where investors are, as a practical matter, not concerned with uncompensated expropriation. But this is about all it can do.
Under our interpretation, a court should not take into account the purpose of an expropriation, unless it is relevant for the interpretation of a given BIT or concession agreement. For example, if the concession allows expropriation, without damages or with a lesser damages standard, if “justified” (e.g. by force majeure), the tribunal or court can properly look at motivation. Similarly, if a concession provides that the full value of property will be awarded for a “lawful” expropriation (where “lawful” is a contractual, defined term perhaps including nondiscrimination and public purpose), but provides for a higher standard (e.g., treble damages) for “unlawful” takings, the court should do this too. In other situations, a concession may provide for liquidated damages, which the tribunal should also give effect to.
But, without provisions more specific or to the contrary, a court should award to an investor what was taken from himCi.e., the full value of the property. In doing so, the court would implicitly recognize that the nondiscrimination and public purpose requirements are illusory, and only serve to muddy the international law waters.
*LL.M. (international business law) 1992, University of LondonCKing’s College London; J.D. 1991, Paul M. Hebert Law Center, Louisiana State University; M.S. Electrical Engineering 1990, B.S.E.E. 1987, Louisiana State University. The author is an associate in the intellectual property department of Schnader, Harrison, Segal & Lewis in Philadelphia, and may be reached at firstname.lastname@example.org (internet).
**LL.M. (international business law) 1992, University of LondonCKing’s College London; J.D. 1991, Paul M. Hebert Law Center, Louisiana State University; B.A. English Literature 1988, Louisiana State University. The author is an associate in the finance and real estate sections in the Houston, Texas office of Jackson & Walker, L.L.P.
4See, e.g., M.N. Shaw, International Law 516-24, 528 (3d ed. 1991); Ian Brownlie, Principles of Public International Law 538, 542-43, 544 n23, 548 (4th ed. 1990); Rosalyn Higgins, Problems and Process: International Law and How We Use It 142 (1994); Derek William Bowett, State Contracts with Aliens: Contemporary Developments on Compensation for Termination or Breach, 59 Brit. Yearbook Int’l L. 49, 59 (1988); Declaration on Permanent Sovereignty over Natural Resources, UN General Assembly Resolution 1803 (XVII) (1962), 17 UN GAOR Supp. (No. 17) at 15, UN Doc. A/5217 (1962), & 4 (“public utility”), reprinted in 57 Am. J. Int’l L. 710 (1963), 2 I.L.M. 223 (1963); Restatement (Third) of the Foreign Relations Law of the United States Section 712 (American Law Institute 1987). Professor Brownlie cites other conditions that may make an expropriation “unlawful.” Brownlie, at 441, 537-39. Bilateral Investment Treaties (BITs) can also provide similar standards. For example, Article III of the United States-Russia BIT provides, inter alia, that investments shall not be expropriated, directly or indirectly, unless the expropriation is for a public purpose, is performed in a nondiscriminatory manner, and upon payment of prompt, adequate, and effective compensation. Treaty Concerning the Encouragement and Reciprocal Protection of Investment, June 17, 1992, U.S.-the Russian Federation, S. Treaty Doc. No. 102-33, 102d Cong., 2d Sess. For further discussion of BITs, see Paul E. Comeaux & N. Stephan Kinsella, Reducing Political Risk in Developing Countries: Bilateral Investment Treaties, Stabilization Clauses, and MIGA & OPIC Investment Insurance, 15 N.Y. L.Sch. J. Int’l & Comp. L. 1, Part II (1994).
5Professor Brownlie notes the following terminological distinctions. If a taking or expropriation is not accompanied by compensation, or the taking is otherwise “regarded as unlawful, then the taking is sometimes described as confiscation. Expropriation of one or more major national resources as part of a general programme of social and economic reform is now generally referred to as nationalization or socialization.” Brownlie, supra note 4, at 532. Expropriation can also include so-called creeping or indirect expropriation.
6Rosalyn Higgins, Problems and Process: International Law and How We Use It 141 n. 29 (1994), citing the following cases as the “great oil arbitrations”: Petroleum Development Limited v. Sheikh of Abu Dhabi, 18 ILR 37; Saudi Arabia v. Aramco, 47 ILR 117; Sapphire International Petroleum Ltd. v. NIOC, 35 ILR 136; BP v. Libyan Arab Republic, 53 ILR 297; Texaco v. Libyan Arab Republic, 53 ILR 389; Liamco v. Libyan Arab Republic, 62 ILR 140; and Kuwait v. Aminoil, 66 ILR 518.
15Id. at 63. Bowett maintains that there may be three standards of compensation, (1) for an unlawful taking, (ii) for a lawful ad hoc taking, and (3) for a lawful, general act of nationalization. Id. at 73. See also Brownlie, supra note 4, at 538-39, stating that:
The practical distinctions between expropriation unlawful sub modo, i.e. only if no provision is made for compensation, and expropriation unlawful per se, would seem to be these: the former involves a duty to pay compensation only for direct losses, i.e. the value of the property, the latter involves liability for consequential loss (lucrum cessans); the former confers a title which is recognized in foreign courts (and international tribunals), the latter produces no valid title. [Footnotes omitted.]
18On the subjective theory of value, see Ludwig von Mises, Human Action: A Treatise on Economics 94-97, 200-206, 331-33 et passim (3d rev’d ed. 1966); Murray N. Rothbard, 1 Man, Economy, and State: A Treatise on Economic Principles 14-17 (ch.I, ‘ 5.A) (1962); and Alexander H. Shand, The Capitalist Alternative: An Introduction to Neo-Austrian Economics ch. 4, esp. ’2 (1984).
19Under the 14th amendment to the U.S. Constitution, no governmental action, including takings, should be improperly “discriminatory.” That Amendment provides, in part: “No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction equal protection of the laws.”
20However, this does not mean that the concept “public purpose” is not without problems. See Part III.D, infra, for a discussion of the problematic nature of the “discrimination” and “public purpose” requirements.
22The Declaration of Independence provides: “We hold these truths to be self evident: that all men are created equal, that they are endowed by their creator with certain unalienable rights, that among these, are the rights to life, liberty, and the pursuit of happiness . . . .” Consistent with the individual right to free speech, as one of our “unalienable rights,” the First Amendment to the United States Constitution provides: “Congress shall make no law . . . abridging the freedom of speech, or of the press . . . .”
32See, e.g., Shaw, supra note 4, at 523-24. See also C.F. Amerasinghe, Issues of Compensation for the Takings of alien Property in the Light of Recent Cases and Practice, Int’l & Comp. L.Q. 41 (1992), p. 22; Patrick M. Norton, A Law of the Future of a Law of the Past? Modern Tribunals and the International Law of Expropriation, Am. J. Int’l L. 84 (1991); Comeaux & Kinsella, supra note 4, at 25-31; and other sources referenced in Comeaux & Kinsella at nn76, 102.
42Brower notes that several of the Iran-US Claims Tribunal holdings award full, fair market value for nationalized property, thus “implicitly reject[ing] the notion of a two-tiered system of compensation, providing partial compensation in lawful expropriations and full compensation in unlawful ones.” Brower, supra note 37, at 664, discussing American International Group v. Iran, Award No. 93-2-3 at 21-22 (Dec. 19,1983), 4 Iran-U.S. C.T.R. 96, 109 (1983). A subsequent case concluded that full compensation must be awarded “whether or not the expropriation was otherwise lawful.” Id., quoting SEDCO, Inc. v. National Iranian Oil Co., Award No. ITL 59-129-3 at 11-13 (Mar. 27, 1986), 25 I.L.M. 629, 634-35 (1986). See also Amerasinghe, supra note 36, and accompanying text. But see Bowett, supra note 4, at 64, 67-70.
50The concept does, however, have at least some utility in national context, where it serves to restrict the total number of governmental takings, even though the concept has no precise definition. See Part III.B.1, supra; and Epstein, supra note 17, at chapter 12.
51For discussion of this subject, see Mises, supra note 18, at 17, 41-44 et passim; Tibor R. Machan, Individuals and Their Rights 7-22 et passim (1989); idem, Some Philosophical Aspects of National Labor Policy, 4 Harv. J. Law & Publ. Pol’y 67, 140-48 (1981); idem, Individualism and Political Dialogue, Poznan Studies in Phil. (1995, forthcoming); Ayn Rand, The Soul of the Individualist in For the New Intellectual 78 (Signet 1961); idem, What is Capitalism, in Capitalism: The Unknown Ideal 15 (Signet 1967); Leonard Peikoff, Objectivism: The Philosophy of Ayn Rand 198-202, 297-303 (1991). See also Loren E. Lomasky’s discussion of the role of projects in individuals’ lives in chapter 2 et seq. of his Persons, Rights, and the Moral Community (1987).
52For further discussion of problems of representation in modern times, see Bruno Leoni, Freedom and the Law 19 et passim (Liberty Fund expanded 3d. ed. 1991) (1961); Peter H. Aranson, Bruno Leoni in Retrospect, 11 Harv. J. Law & Publ. Pol’y 661, 676-77 (1988); Giovanni Sartori, Liberty and Law 31-32 (1976); and N. Stephan Kinsella, The Irrationalism of the Civil Law, at Part IV.C.3, “Special Interests and the Unrepresentative Character of Legislation” (1995, forthcoming).
53The late Professor Murray N. Rothbard developed a useful classification or typology of aggressive government intervention that is illuminating in this context. If an aggressor’s command or order involves only the commanded individual himselfCi.e., the aggressor restricts the individual’s use of his own property, when exchange with someone else is not involvedCthis Rothbard calls autistic intervention. If the aggressor compels an exchange between the individual and himself, or coerces a “gift” from the individual, this may be called a binary intervention, since a hegemonic relation is established between two people: the aggressor and the individual. If the aggressor compels or prohibits an exchange between a pair of subjects, this is called triangular intervention. Examples of autistic intervention are murder or compulsory prohibition or enforcement of a salute or speech. Taxation, conscription, slavery, and compulsory jury service are examples of binary intervention. Examples of triangular intervention are price controls, minimum wage laws, and licensing. Rothbard, 2 Man, Economy, and State, supra note 18, at 766-68. See also idem, Power and Market: Government and the Economy 11-12 (1970). As Professor Hans-Hermann Hoppe notes, triangular intervention, unlike binary intervention, produces no income for the state, but, instead, “satisf[ies] pure power lust, as when A, for no material gain of his own, prohibits B and C from engaging in mutually beneficial trade”. Hans-Hermann Hoppe, Banking, Nation States, and International Politics: A Sociological Reconstruction of the Present Economic Order, in The Economics and Ethics of Private Property: Studies in Political Economy and Philosophy 81 (1993) (first published in 4 Rev. of Austrian Economics 55 (1990)).
54As Epstein notes, “[t]he language of public use invites the theory of public goods.” Epstein, supra note 17, at chapter 12. The concept “public use,” therefore, is as fallacious as is the concept “public good.” For an illuminating discussion of the invalidity of the distinction between public and private goods, see Hans-Hermann Hoppe, Fallacies of Public Goods Theory and the Production of Security, in Hoppe, supra note 53, esp. p. 7 (first published in 9 J. Libertarian Stud., No. 1 (1989)). See also Jeffrey Rogers Hummel, National Goods Versus Public Goods: Defense, Disarmament, and Free Riders, 4 The Review of Austrian Economics 88 (1990) and the works cited at n4, et passim; and Shand, suprar note 18, at ch.7, ‘ 2.
55For works in favor of anarcho-capitalism and arguing that a free society could function without chaos (contrary to popular conceptions of anarchy), see Bruce L. Benson, The Enterprise of Law: Justice Without the State (1990); idem, The Impetus for Recognizing Private Property and Adopting Ethical Behavior in a Market Economy: Natural Law, Government Law, or Evolving Self-Interest, 6 The Review of Austrian Economics 43 (1993); David Friedman, The Machinery of Freedom: Guide to A Radical Capitalism (2d ed’n 1989); Morris and Linda Tannehill, The Market for Liberty (Laissez Faire Books Reprint ed’n 1984); Murray N. Rothbard, For A New Liberty: The Libertarian Manifesto esp. ch. 12 (reprint ed. 1985); idem, The
Ethics of Liberty (1982); Hans-Hermann Hoppe, A Theory of Socialism and Capitalism: Economics, Politics, and Ethics (1989); George H. Smith, Justice Entrepreneurship in a Free Market, in Atheism, Ayn Rand, and Other Heresies (1991); Hummel, supra note 54; Lysander Spooner, No Treason No. VI: The Constitution of No Authority, in No Treason: The Constitution of No Authority and A Letter to Thomas F. Bayard (Ralph Myles Publisher ed’n 1973) (1870) (also reprinted in The Lysander Spooner Reader (1992)); James J. Martin, Men Against the State: The Expositors of Individualist Anarchism in America, 1827-1908 (1970); Terry Anderson & P.J. Hill, An American Experiment in Anarcho-Capitalism: The Not So Wild, Wild West, 3 J. Libertarian Stud. 9 (1979); George Woodcock, Anarchism: A History of Libertarian Ideas and Movements (1962).
56See generally the works cited in note 55, supra; Ayn Rand, Capitalism: The Unknown Ideal, supra note 51; idem, The Virtue of Selfishness: A New Concept of Egoism (Signet 1964); Ludwig von Mises, Liberalism: In the Classical Tradition (trans. Ralph Raico, 3d ed’n 1985); idem, Human Action, supra note 18; Tibor R. Machan, Individuals and Their Rights, supra note 51; Richard A. Epstein, Simple Rules for a Complex World (forthcoming, Harvard University Press, 1995); Roger A. Pilon, Ordering Rights Consistently: Or What We Do and Do Not Have Rights To, 13 Ga. L. Rev. 1171 (1979); Friedrich A. Hayek, The Road to Serfdom (1944); idem, The Constitution of Liberty (1960); idem, Law, Legislation, and Liberty (3 vols. 1973, 1976, 1979); Robert Nozick, Anarchy, State, and Utopia (1974); Lomasky, supra note 51; Jan Narveson, The Libertarian Idea (1988); Charles Murray, In Pursuit: Of Happiness and Good Government (1988); Douglas B. Rasmussen & Douglas J. Den Uyl, Liberty and Nature: An Aristotelian Defense of Liberal Order (1991); Milton Friedman, Capitalism and Freedom (1962); Milton & Rose Friedman, Free to Choose: A Personal Statement (1980).
Full permanent sovereignty of every state over its natural resources and all economic activities. In order to safeguard these resources, each State is entitled to exercise effective control over them and their exploitation with means suitable to its own situation including the right to nationalization or transfer of ownership to its nationals, this right being an expression of the full permanent sovereignty of the State. No State may be subjected to economic, political or any other type of coercion to prevent the free and full exercise of this inalienable right; . . . .
G.A. Res. 3201 (S-VI) (1974), S-6 U.N. G.A.O.R. Supp. (No. 1) at 3, UN Doc. A/9559 (1974), reprinted in 13 I.L.M. 715 (1974), at paragraph 4(e) (emphasis added). Similarly, the United Nations Charter of Economic Rights and Duties of States provides that
Every State has the sovereign and inalienable right to choose its economic system as well as its political, social, and cultural systems in accordance with the will of its people, without the outside interference, coercion or threat in any form whatsoever.
G.A. Res. 3281 (XXIX) (1975), 29 UN GAOR Supp. (No. 31) at 50, UN Doc. A/9631 (1974), reprinted in 69 Am. J. Int’l L. (1975), 14 I.L.M. 251 (1975) (emphasis added). However, the last consensus regarding the international law of expropriation was embodied in the 1962 General Assembly Resolution 1803 (XVII), Permanent Sovereignty Over Natural Resources, supra note 4. Norton, supra 32, at 478; Brownlie, supra note 4, at 543; Amerasinghe, supra note 36, at 36. Thus, Resolutions 3201 and 3281 are not cited here as authority for principles of international law, but rather for the usage of the concept of inalienability. (Resolution 1803 does not specifically refer to inalienability.)
For further discussion of the concept of inalienability with regard to the doctrine of permanent over natural resources, see A.Z. El Chiati, Protection of Investment in the Context of Petroleum Agreements, 4 Recueil des Cours 9, 153 et seq. (1987).
60Texaco Overseas Petroleum Company and California Asiatic Oil Company v. The Government of the Libyan Arab Republic, 53 I.L.R. at 474, 482 (quoting Saudi Arabia v. Arabian American Oil Company, Award of August 23, 1958 (Aramco), 27 I.L.R. 117, 168).
62See, e.g., Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 330 U.N.T.S. 38 (1959); Comeaux & Kinsella, supra note 4, at 11, 29; Leo J. Bouchez, The Prospects for International Arbitration: Disputes Between States and Private Enterprises, 8 J. Int’l Arb. 81, 111 passim (1991); Ian F. G. Baxter, International Business Disputes, 39 Int’l & Comp. L.Q.. 288 (1990); Peter M. McGowan, Arbitration
Clauses as Waivers of Immunity from Jurisdiction and Execution Under the Foreign Soverign Immunities Act of 1976, 5 N.Y.L. Sch. J. Int’l & Comp. L. 409, 417-19 (1984); Note, Enforcing International Commercial Arbitration Agreements and Awards Not Subject to the New York Convention, 23 Va. J. Int’l L. 75 (1982); J. Stewart McClendon, Enforcement of Foreign Arbitral Awards in the United States, 4 Nw. J. Int’l L. & Bus. 58 (1982); and Georges R. Delaume, State Contracts and Transational Arbitration, 75 Am. J. Int’l L. 784 (1981).
66This is not, however, an argument for the elimination of multiple sovereign states by the establishment of a one-world government, as is favored by many naive and/or socialist-minded individuals today. Moving in this direction creates far more problems than it solves. Indeed, movement toward many, small, independent and sovereign states (also called devolution, decentralization, or federalism), would be a move in the right direction. This is because smaller governments, which are more responsive to their subjects’ rights, would tend to be less intrusive and socialistic, and hence more respectful of property rights, than would a more centralized and powerful government. Relatively small governments in a decentralized set of governments are therefore less likely to expropriate individual property than would be a one-world government.
67Jean Bethke Elshtain, Sovereign God, Sovereign State, Sovereign Self, 66 Notre Dame L. Rev. 1355, 1367 (1991), quoting Charles Merriam, History of Sovereignty Since Rousseau: Studies in History, Economics and Public Law 33 (1990). On the inalienability an individual’s will and the impossibility of voluntary slave contracts, see Williamson M. Evers, Toward a Reformulation of the Law of Contracts, 1 J. Libertarian Stud. 3, 7 (1977); Rothbard, The Ethics of Liberty, supra note 55, at 134-35; Machan, Individuals and Their Rights, supra note 51, at ch.13, pp. 129-130, 196; idem, Human Rights and Human Liberties: A Radical Reconsideration of the American Political Tradition 116-17 (1975); Locke, supra note 3, at ch. 4; Randy E. Barnett, A Consent Theory of Contract, 86 Colum. L. Rev. 269, 293 n99 (1986). Rothbard and Evers further cite Jean-Jacques Rousseau, The Social Contract, bk. 1, ch. 4 in Social Contract (E. Barker, ed., 1948) at 174-75; John Stuart Mill, On Liberty ch. 5 (ssss); and John Trenchard and Thomas Gordin, writing in Cato’s Letters, no. 59, in The English Libertarian Heritage (D.L. Jacobsen, ed., 1965). Barnett further cites the following useful sources on the issue of inalienability: J. Feinberg, Rights, Justice, and the Bounds of Liberty 238-46 (1980); D. Meyer, Inalienable Rights: A Defense (1985); H. Veatch, Human Rights: Fact or Fancy? ch. 3 (1986); Epstein, Why Restrain Alienation?, 85 Colum. L. Rev. 970 (1985); Kuflik, The Inalienability of Autonomy, 13 Phil. & Pub. Affs. 271 (9184); McConnell, The Nature and Basis of Inalienable Rights, 3 Law & Phil. 25 (1984); and Rose-Ackerman, Inalienability and the Theory of Property Rights, 85 Colum. L. Rev. 931 (1985).
69Bowett, supra note 4, at 57-58, quoting Czarnikow v. Rolimpex,  3 WLR 686 per Lord Denning MR, following The Amphitrite,  3 KB 500. See also H.L.A. Hart, The Concept of Law (1961) (discussing Parliamentary sovereignty).