§4. Let us now pass to consider changes in taxation. Here the fundamental question is whether the design of the change is to get rid of the technical defects or indirect economic disadvantages of certain established taxes, or to alter the distribution of the burden of taxation in order to make it more equitable. In the former case equity requires the legislator to aim at compensating for any extra burden which the improvement in question will impose on particular classes by lightening in some other way the contributions of these classes to the public needs; but the discussion in the last chapter will have shown that we cannot practically hope to attain more than a rough approximation to equity in the allotment of the burden of taxation. In the latter case there is prima facie no ground for compensation, so far as the change in question really carries out the design of the legislature; since it is obvious that if changes in taxation are designedly of a distributional kind,---if the aim in making them is to carry out more exactly the principle of proportional equality in taxation, however this principle may be defined,---their aim would be defeated by giving full compensation to the persons who were losers by the change. For a similar reason, no general claim to compensation can be held to arise, in the case of changes in the incomes of different classes, caused by public expenditure undertaken with a view to equalisation of opportunities; for instance, if the increase of competition for the better paid positions in trade and industry, resulting from the extension of educational advantages to the poor, reduces the market value of educated labour. At the same time it is important, in organising public expenditure on education, to avoid the hardship as well as waste that may be caused by artificially increasing the supply of any particular class of skilled services, and thus preventing an adequate return for the labour and expense which the acquisition of the skill has involved.
This leads us to consider generally the case of detriment caused to the economic interests of special classes of persons by some action of Government other than taxation or legislation that invades established rights. An important instance of this occurs when Government undertakes industries in competition with the industries of private individuals; or gives special facilities and encouragement for the undertaking of such industries. Here, I conceive, the only admissible claim to compensation must be rested on the degree of loss inflicted by such competition, rather than on the mere fact that loss is suffered: since such loss is in kind similar to that which, under the conditions of open competition, is continually inflicted on private individuals or companies by the success of rivals. Suppose, for instance, that a railway was made for which the land required was obtained by free purchase from the owners, without governmental interference: it is obvious that no one would think of expecting the railway company to compensate for the loss inflicted on a stage-coach company. And if so, it does not seem that the stage-coach company can acquire any additional claim for compensation, because the land is compulsorily taken, or the railway made at the public expense. But, owing to the magnitude of the resources at the disposal of a government, it is no doubt a peculiarly formidable industrial rival; care should therefore be taken that it does not use its giant's strength as a giant, so as to inflict on private industries loss much more severe and sudden than they would be exposed to in ordinary industrial competition. Where action causing such sudden and severe loss cannot be deferred, it is reasonable that some compensation should be given to the persons damnified.
The same general considerations appear to be applicable to the case of the withdrawal of advantages which have been practically conferred on private traders by the action of Government, without being legally secured to the persons enjoying them.[Back to:] [Elempol, Chapter 12, Section 3] Governmental Encroachments and Compensation