The current Constitution, the one that bears the signature of President Ricardo Lagos Escobar, as he himself has just reminded the country, establishes that when someone expropriates an asset, they must be paid a market value in cash in exchange.
Regarding the price, the Constitution grants the expropriated power of negotiation by establishing that “it will be set by mutual agreement or in a sentence issued according to law” by the courts. In addition, it determines that “the physical possession of the expropriated property will take place following payment of the total compensation”, which in the absence of an agreement must be delivered “in cash in cash”.
That’s an easy rule to understand and apply, but it’s not entirely fair. A simple analysis allows us to conclude that it is not responsible for the costs of replacing the expropriated asset. In the case of a home, this includes a possible tax on capital gains, search costs, temporary rental, removals, stamp duty, broker commission and others. That value should not be less than 10% of the property. The fair thing would be that in addition to the market value, the impact of the decision with which the State affects freedom for a cause “of public utility or national interest” would be compensated. In this way, what the Constitution does is establish a floor.
In this regard, the Constitutional Convention has so far approved only a few norms that concern property. It enshrined the principle that “no person can be deprived of his property, except by virtue of a law that authorizes expropriation for reasons of public utility or general interest declared by the legislator.” He added that “it will correspond to the law to determine the way of acquiring the property, its content, limits and duties, in accordance with its social and ecological function.”
The specific regulations for expropriation have not yet been approved by the Plenary, since the subsections returned to commission. Among them, the one that established that “the law will determine the criteria to define the fair amount of the payment, its form and opportunity, having to consider both the public interest and that of the owner.”
Among the reasons that explain the rejection of this norm is the ambiguity of the rule, since “fair” can be anything if no criteria are mentioned to define it. Constitutionalist lawyer Sebastián Soto explained the risk in a graphic way: “Tomorrow the law might determine the expropriation of your assets or savings, of a company or a media outlet, without compensation or setting deadlines or ridiculous forms of payment.”
In addition, handing over the decision to the legislator regarding the amount to be paid not only casts doubt on the timeliness of payment, but also brings to mind the violations of property rights in the 1960s and 1970s. Finally, when the person who expropriates is the one who defines the “fair” value brings out an obvious conflict of interest that can give life to that old saying: “He who shares and distributes gets the best part”.
The defense of property, coupled with respect for the rule of law and the freedom to undertake, are essential elements for the proper functioning of society. As the rector Carlos Peña recently wrote, “limiting or weakening property harms the incentives for well-being, damages autonomy, and by doing so nothing is gained in justice.”
Moreover, without a properly protected system of private property, it will be difficult for the other two elements, freedom and rights, to subsist. In his book Road to Serfdom, FA Hayek states that “our generation has forgotten that the system of private property is the main guarantee of freedom, not only for those who possess it, but marginally less so for those who do not.” As David Hume argued, “Liberty of any kind is seldom all lost in an instant.”
Chilean institutions took an unexpected turn in October 2019. With this, the civilization that we all built for 200 years was confined, which brings with it threats and opportunities. Will the defenselessness of private property be legitimized by the will of a transitory majority? I think not, since it is a human right that no circumstantial majority can surpass.
It is to be hoped that the majority that prevails in the Convention understands that protecting private property is a universal principle required for any free society, as history has confirmed over and over once more.
