The Market for Sovereign Territory
posted by Joseph Blocher
I’m thrilled to be back at Co-Op, and I look forward to blogging about a few rough ideas that seem to be shaping up as summer research projects. The first of them starts with a story.
Once upon a time, sovereigns bought and sold themselves to one another. Specifically, they purchased sovereign territory. The United States, to take the easiest example, looks the way it does not just because of military conquest, but because of bold real estate deals, including most notably the Adams-Onis Treaty, the Louisiana Purchase, and the Alaska Purchase. Occasionally such sales were tied up with military action, as with the Treaty of Guadalupe Hidalgo, which ended the Mexican-American War, transferred the Mexican Cession, and committed the United States to pay Mexico $15 million “[i]n consideration of the extension acquired.”
Even within the United States, sales of sovereign territory were not unheard of at the time of the Founding. The Constitution’s Enclave Clause specifically refers to the federal government’s power to “purchase[]” and essentially govern “Places” within states. And the states themselves often altered their borders, sometimes for economic reasons. In 1784, for example, North Carolina ceded 29,000,000 acres to the federal government to help pay back the nation’s Revolutionary War debt–a generous but ill-fated gesture that led to the short, unhappy, and largely forgotten life of the State of Franklin.
Somewhere along the way, the market for sovereign territory seems to have dried up, at least as far as I can tell. To be sure, there is still an active market for proprietary interests in public land; the federal government, after all, owns approximately 30% of the nation’s land. But borders–sovereign territory, rather than property–do not seem to be for sale, especially domestically. Why?
One possible explanation is that there’s simply no demand, but that doesn’t seem quite right. It’s not hard to imagine situations in which some state-to-state Coasean bargaining might create mutual gains. California could shore up its budget by selling land to Oregon. Some of the dozens of major interstate metropolitan areas straddling state borders could be consolidated. Or when Martha’s Vineyard voted to secede from Massachusetts in the 1970s (yes, really), and Kansas expressed interest in acquiring it (yep), a deal might’ve been struck that would’ve left the Bay State richer and Kansas with … well, a bay.
I can think of at least three sets of reasons why such sales don’t happen, at least at the domestic level. (Things are more complicated internationally, and in fact some politicians have suggested – how seriously, I’m not quite sure – that Greece sell islands to settle help its debts.) First, the Constitution constrains the market for sovereign territory by prohibiting states from entering into “treaties,” requiring congressional approval for any “Agreement or Compact” among them, and generally discouraging state action that violates background principles of federalism or individual rights. Second, inter-state sales of sovereign territory might raise serious political concerns: the self-determination rights of the people in the territory being sold, the potential for corruption, and so on. Third, sovereign territory might simply be market inalienable–even assuming that they “own” it, perhaps states cannot sell their land any more than citizens can sell their votes.
I’ll try to address these over the next few days. What else am I missing? Any suggestions as to what I should be reading?
June 1, 2012 at 9:09 am
Posted in: Constitutional Law, Economic Analysis of Law, Political Economy, Uncategorized
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Responses (14)
Joe - June 1, 2012 at 11:00 am
http://en.wikipedia.org/wiki/Governors_Island
“On January 31, 2003, 150 acres of the island was transferred to the State of New York for a nominal fee of $1.”
Joseph Blocher - June 1, 2012 at 11:26 am
Joe – that’s fantastic; many thanks.
I need to think more about whether nominal purchases like this are the kinds of sales in which I’m interested – $1 for 150 acres in New York isn’t quite a “market” transaction, but it does take the form of a sale. At they very least, I need to be more precise in my terminology. And of course I’d love to hear any more examples like this one, particularly anything involving two states.
Ken Rhodes - June 1, 2012 at 2:04 pm
I don’t know of any offhand, but I know of one that ought to be consumated: That crazy “indeterminate border” between NC and SC. Here’s a link:
http://www.nytimes.com/2012/04/05/us/the-carolinas-work-to-clarify-their-borders.html?_r=1&pagewanted=all
Here’s a little irony from the article:
The Carolinas embarked on the effort to determine exactly where one began and the other ended in the mid-1990s, when Duke Energy, the North Carolina power company, sold some land along the border to the state. South Carolina did not want to buy land in North Carolina, but figuring out exactly where North Carolina was proved difficult.
“We’d been having nagging problems along the state line for years,” said Sid Miller, who heads the South Carolina side of a joint boundary commission. “This was a way to re-establish the boundary once and for all.”
…The surveyors understand how difficult this makes things for people who relied on faulty county maps and official parcel maps to buy land.
“Our opinion is it’s not their fault,” Mr. Miller said. “The states have let this go for 240 years. This is going to be a pain in the neck for some people.”
At a gas station right on the border at Route 321, business has always been good because smart North Carolinians knew to drive just across the road into South Carolina to get gas that can be 30 cents cheaper a gallon. There is beer to buy on Sunday and fireworks, too.
But the gas station is now technically in North Carolina and the days of cheap gas may be over.
Taxes, of course, are the biggest issue for many who are facing higher bills. But other questions abound. Will a handful of children be forced to change school districts? Will football loyalties have to change? And worse, will South Carolinians fond of that state’s mustard-based barbecue sauce have to learn to sop their pork in the peppery vinegar sauce preferred in the state to the north?
Here’s the denouement envisioned by the article:
Lawyers in the attorney general’s offices in both states are looking into ways to minimize the impact. They cannot do much about football rivalries and barbecue preferences, but they can suggest to the legislatures some grandfathering in of families and businesses hard hit.
Utility companies may be able to cross state lines in some cases, and the states’ departments of revenue are investigating how to offer some tax relief.
“We don’t have all the answers yet,” said Emory Smith of the South Carolina attorney general’s office. “The intent is to work this out now so that everybody knows exactly where the boundary is and there won’t be problems in the future.”
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Grandfathering of individuals and businesses? Tax Relief? Wouldn’t it be a whole lot easier if North Carolina simply sold the land to South Carolina? Both states would amend their documented boundaries accordingly, and NOBODY would be affected, since that’s the way they’ve been living for over 200 years.
Joe - June 1, 2012 at 2:17 pm
Sure thing. Things like that suggest there is a possibly for sales, including those more than token in nature. Good luck.
Joseph Blocher - June 1, 2012 at 5:09 pm
Ken: That’s a great example, and – as a native North Carolinian who has spent spent disgraceful amounts of time and money at South of the Border – it’s particularly near and dear to my heart.
One of the things I’ve been thinking about in relation to this project is the possibility of sales as way to peacefully settle border disputes. The politics of that would be extremely complicated, particularly with large-scale examples like the Kuril Islands. But in a relatively low-pressure situation like the NC-SC boundary issue, an economic solution certainly *seems* possible.
A.J. Sutter - June 1, 2012 at 11:59 pm
“Kuril Islands” — you mean the Northern Territories, as the disputed islands are known here in Japan? One of the difficulties with sale of territory is that a sale presumes the parties agree as to the identity of the owner. In a case like this, a sale would have to include not only disputed territory but a superset of territory that includes territory acknowledged by both sides as belonging to the seller. Good luck with that, especially where undersea oil and gas, 200-mile exclusivity zones, etc. are at issue.
More likely than a true sale would be one side’s quitclaim to the disputed territory, in exchange for some consideration, unlikely to be money — e.g., each side quitclaims to the other complementary parts of the disputed territory. My understanding is that this is pretty much the form of solution Japan and Russia have actually been discussing in recent years, although domestic politics on one or both sides has interfered.
Another issue raised by the “economic” approach is fair valuation. The political issues go beyond the couple you mentioned. How do you value security — or one side’s concerns about security — e.g., in the case of the Golan? How do you value symbolic/historical value, as may be involved with Azerbaijan/Armenia? One reason territories could easily be bought and sold in the Americas was because these areas were still in the “state of nature” for the most part, with little symbolic or historical meaning to the selling states.
And more plainly economic issues could make valuation difficult, too. What about the possibility of discovering underground/undersea resources that weren’t known about at the time of sale — what would be the political repercussions of that, if one sold too cheaply? Even if the parties could plan ahead and agree that the economic interest in subsequently-discovered resources would be shared, suppose that the new gas field or whatever occupied only a fraction of the sold area, with most of it being under the territory of one side or the other? Or that what fraction was where was not so easily determinable? Or what if the new gas field wasn’t in the territory that was quitclaimed, but in territory that might now be disputed with a third country because of shifts in the buyer’s 200-mile exclusivity zone — would the seller have any interest in that? One could imagine endless disputes after the transfer of territory.
There’s something to be said for a more symbolic, less money-based approach to international disputes of this ilk. Solutions like “We were arguing about 4 islands; in the end we got 2 and they got 2,” or “We got 1 island and they got 3, but we got 51% of the territory under dispute,” etc. might be much easier to sell at home, and cleaner overall.
Joseph Blocher - June 2, 2012 at 6:56 am
A.J.: Those are indeed the islands I was thinking about, and the scheme you describe (a quitclaim in exchange for consideration) is basically what I had in mind – the same basic mechanism of settlement we’d expect to see between private parties involved in a dispute. What states would be “selling,” essentially, is their chance of prevailing in the dispute.
I really appreciate the thoughtful comments, and I totally agree about the political complications, which is why I think large-scale sales (particularly those involving heavily inhabited territory), are probably impossible for reasons having little to do with economics. It might also be the case that the “fair valuation” issues you raise are precisely what keeps the market from clearing – perhaps Armenia simply values its historical territory more than any potential buyer.
But as to some of the other complications, wouldn’t side-payments (my use of the word “sales” is clearly not quite right) actually help *simplify* things? After all, if you’ve only got four islands it’s hard to imagine a perfectly even split of any kind, given different sizes and whatnot. Maybe money from one side or the other would help even things up. Again, I could be missing obvious examples here, and would love to know if I am, but I just don’t think that’s something that happens much.
Steven M. Bellovin - June 2, 2012 at 8:05 am
I’ve always liked the Gadsden Purchase as an exemplar, since it was done by the US government to support commercial interests: a better railroad route.
In feudal Europe, I believe there were sovereignty transfers that accompanied marriages, especially when the woman was the heir to some fiefdom.
A.J. Sutter - June 3, 2012 at 8:00 am
Thanks for your reply. I doubt very much that money will change hands between Japan and Russia. On the one hand, there are the symbolic issues –Russia was defeated by Japan in a war that folks in these parts still remember. On the other, the value of undersea resources is quite speculative, and would no doubt be inflated by the Russians (who, due to the aforementioned reasons would certainly never agree to pay cash). So I think the rough, easily explainable kind of solution along the lines of 2-and-2 is probably a more fruitful path.
Joseph Blocher - June 4, 2012 at 7:19 pm
Steven – the Gadsden Purchase really is a great example, both because it was done to support commercial interests, as you point out, and because it was at least nominally separate from the Treaty of Guadalupe Hidalgo. I’ve also been meaning to look into the efforts to acquire Cuba and bits of Latin America in that same time period.
TS - June 4, 2012 at 8:40 pm
Greece should start selling off spare islands to other sovereigns… Next time Mexico needs a peso bailout (as was done with Clinton), we should suggest payment in territory, say, some of Baja California.
Nils - June 5, 2012 at 1:27 pm
Having a state-to-state sale of sovereign territory is really not possible in a post-Wilsonian world — at least not if that territory is populated. The principle of self-determination enshrined in Wilson’s Fourteen Points, which became the basis for colonial demands for independence after WWI, means that the state actually in some sense is not the “owner” of the land, but rather the people who reside in that land, who simply allow the state to “govern.”
P.S. To my knowledge, the last time that a (populated) territory was transferred between two states for cold cash (as opposed to at gunpoint) was the Danish sale in 1917 of the Virgin Islands to the US. The US bought the islands, as well as all the people in them, who became US citizens.
Jim - June 6, 2012 at 3:10 pm
Look up the meaning, and examples thereof, “exclave”.
Won’t help the answer, but will add examples.
Terry - June 7, 2012 at 1:41 am
The notion of popular sovereignty over land in Wilson’s Fourteen Points is incompatible with states’ powers of eminent domain.
As long as a sovereign can force any private title-holder to sell to the state, it could turn around and sell it to another sovereign without violating the letter of any international treaty prohibitions on involuntary transfer of private title among sovereigns.
(I venture to say this a decent demonstration of a fundamental inconsistency in Wilson’s beliefs, by the way.)
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