Home
/
RELIGION & LIBERTY ONLINE
/
How Enterprise Zones Lead to Cronyism
How Enterprise Zones Lead to Cronyism
Jan 21, 2026 6:08 AM

Barack Obama calls them Promise Zones while Rand Paul calls them Freedom Zones. But when they were first proposed they were called Enterprise Zones.

In the 1980s, then-congressman and self-described “bleeding-heart conservative” Jack Kemp became the first lawmaker to popularize enterprise zones, which he supported to foster entrepreneurship and job creation. Enterprise Zone policies attempt to incentivize businesses to locate within their borders—usually in blighted urban areas—by offering targeted benefits to particular industries panies. These e in many forms, including business tax credits for investments, property tax abatements, and reductions in the sales tax.

There’s a couple of problems with enterprise zones, though. There’s no evidence they work. And worse, they encourage and perpetuate cronyism.

As a new paper by Christopher J. Coyne and Lotta Moberg ofthe Mercatus Center explains, “Despite good intentions, policymakers often overlook the unseen and unintended negative consequences of targeted-benefit policies.” One of these unintended negative consequences is increased cronyism, the practice of exchanging favors between powerful people in politics and business:

Policies that favor some people panies over others are also vulnerable to distorted incentives. Those who can benefit from the government’s incentive schemes will engage in rentseeking in order to shape policies to benefit their own narrow interests. When such rent-seeking es prevalent, and firms can succeed by winning favorable status from the public sector, a system of cronyism develops whereby firms habitually serve political interests instead of satisfying private consumers, and whereby petition replaces petition. This incentivizes people to redirect their efforts from productive, positive-sum activities to unproductive and even negative-sum activities.

At The Foundry, Kenric Ward highlights some of the “dubious deals” from the study:

• As of 2013, Walmart had received at least 260 special state benefits worth more than $1.2 billion. For every 100 new Walmart jobs, an average of 50 existing jobs disappear as other retailers are crowded out.

• Apple got $370 million in state tax breaks for setting up in North Carolina. With just 50 jobs created, that’s $7.4 million per job.

• New York grantedaluminum giant Alcoa free electricity for more than 30 years (estimated value: $5.6 billion). In return, Alcoa pledged to make a $600 million investment and promised not to fire more than 165 workers. Subsequently, New York raised taxes multiple times on its citizens.

“People respond slowly to labor-market demand, and it may take many years for rent-seeking to e professionalized,” say Coyne and Moberg. “Once it is in place, however, cronyism is hard to root out precisely because those involved in it have an incentive to perpetuate it.”

The example of enterprise zones provides an important public policy lesson: Even poverty-fighting conservatives aren’t immune from the law of unintended consequences when we try to circumvent the functions of the free market.

Comments
Welcome to mreligion comments! Please keep conversations courteous and on-topic. To fosterproductive and respectful conversations, you may see comments from our Community Managers.
Sign up to post
Sort by
Show More Comments
RELIGION & LIBERTY ONLINE
Trade war hits home: How tariffs disrupt American businesses
Despite the “America-first” claims of trade protectionists and economic nationalists, we continue to see the ill effects of the Trump administration’s recent wave of tariffs—particularly among American businesses, workers, and consumers. Alas, while such controls may serve to temporarily benefit a select number of businesses or industries, they are just as likely to distort and contort any number of other fruitful relationships and creative partnerships across the economic order—at home, abroad, and everywhere in between. In a recent article for...
Video: David Hebert on how ice got to India
The 2019 Acton Lecture Series wrapped up last week Thursday with a lecture by David Hebert,assistant professor of economics and director of the Center for Markets, Ethics, and Entrepreneurship at Aquinas College. Hebert told the story of Frederick Tudor, a Boston entrepreneur who in the early 1800s set about finding a way to transport ice to Cuba, believing that given the opportunity, Cubans would pay handsomely for the resource. It wasn’t easy, but in the end he was right, and...
How reason and faith complement each other
Faith and reason are mutually reinforcing. When faith and reason bined, faith is kept from metastasizing into irrationality and reason is kept from ing overly materialistic. bination of faith and reason is the foundation of Western Civilization. In a new review of Samuel Gregg’s book, Reason, Faith, and the Struggle for Western Civilization, Gene Veith of Patrick Henry College notes that “[t]he scholastic theology of Roman Catholicism, grounded as it is in Aristotelian philosophy, does indeed integrate faith and reason,...
Jeremy Corbyn would destroy the US-UK special relationship
Citizens across the UK are casting their votes in the 2019 general election. Jeremy Corbyn “seems in equal parts blind to the violence of socialism, the goodness of the West, and anti-Semitism in his own party,” I write in my new article for The American Spectator. The voters’ decision will have a decisive impact on the United States and the West as a whole. The Labour Party leader would destroy the special relationship of the U.S. and the UK. After...
Acton Line podcast: Elizabeth Warren wants $3 trillion tax hike; Mark Hall on America’s Christian founding
Massachusetts Democratic Senator and presidential candidate Elizabeth Warren has proposed to increase taxes for big businesses and high earners to rake in nearly $3 trillion per year. Warren plans to use this tax to fund spending in health care, education, and family benefits, and as a result, according to Warren, the economy would grow. Are economists in agreement with Warren? What would increased taxes on the wealthy do for the economy? Dave Hebert, professor of economics and director of the...
The Virtue of Liberalism
Today, Law & Liberty published the text of my lecture for the Philadelphia Society in October: “Why Economic Nationalism Fails.” The topic for the panel was “Conservatism and the Coming Economy.” Since I’m not a determinist and doubt my own powers of prediction, I focused on what political economy conservatives ought to support in the future, despite worrying trends in the present: Conservatives ought to reaffirm the good of economic liberty, both domestically and internationally. Free markets and free trade,...
A bait and switch at Peter’s Pence?
The Wall Street Journal’s recent article on the Vatican’s main charitable appeal landed like a bombshell this week. And it didn’t help that we’re in the midst of the holiday giving season. The Roman Catholic Church conducts an annual collection known as Peter’s Pence, which is touted as supporting mercy ministries and serving those most in need. Shockingly, the Journal has reported that for at least the last five years “as little as 10%” of the approximately $55 million raised...
An encyclical on China and the US?
Sen. Marco Rubio’s recent speech on capitalism and mon good, taking its point of departure in Rerum Novarum, has gotten a good bit of coverage. Yesterday he delivered remarks at the National Defense University and opened with these words: This morning I am honored to speak here at the National Defense University to discuss the defining geopolitical relationship of this century: the one between the United States and China. Unfortunately, I was unable to find a papal encyclical on this...
Wilhelm Röpke on liberalism and Catholic social teaching
This week’s Acton Commentary, adapted from my preface to the newest Acton Institute publication The Humane Economist: A Wilhelm Röpke Reader, illustrates what makes Röpke such an interesting and vital economist: Röpke saw his project in holistic terms involving intersecting and interdependent spheres or orden that to be fully appreciated and understood scientifically must be examined in their economic, social, and moral dimensions. mitments to mainline economic analysis, the importance of social institutions, and the moral and religious framework of...
Hugo Chavez and Jack London on why socialism kills
In an emotional story in the January 2020 issue of Reason, Jose Cordiero relays how “socialism killed my father” – through economic scarcity. His article highlights the life-and-death stakes of wealth creation. Cordiero writes that he was working in Silicon Valley when he got a call that his father had experienced kidney failure in Caracas. Yet even traveling to Bolivarian Venezuela became virtually impossible. The economic collapse ushered in by Hugo Chavez’s socialist policies dried up demand: Indeed, the number...
Related Classification
Copyright 2023-2026 - www.mreligion.com All Rights Reserved