Home
/
RELIGION & LIBERTY ONLINE
/
How Enterprise Zones Lead to Cronyism
How Enterprise Zones Lead to Cronyism
Dec 15, 2025 10:36 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
5 ways the church can help the poor
munity includes people who are both materially poor and ‘poor in spirit’,” says Zachary Ritvalsky in this week’s Acton Commentary. “However, what exactly does it mean to say that people are ‘poor in spirit’?” To be “poor in spirit” is not the same as being economically poor, yet both kinds of poverty matter, and the church must address both. In mentary on Matthew, John Nolland interpreted the phrase like this: “The poor in spirit would be those who sense the...
Explainer: What you should know about President Trump’s FY2018 budget
What is the president’s budget? Technically, it’s only a budgetrequest (and in this case, just a blueprint of a request). The budget request is aproposal telling Congress how much money the president believes should be spent on the various Cabinet-level federal functions, like agriculture, defense, education, etc. (The 62-page budget blueprintcan be found here.) Why does the president submit a budget to Congress? The Congressional Budget Act of 1974 requires that the President of the United States submit to Congress,...
Understanding the President’s Cabinet: HHS Secretary
Note: This is the eighth in a weekly series of explanatory posts on the officials and agencies included in the President’s Cabinet. See the series introductionhere. Cabinet position:Secretary of Health and Human Services Department:Department of Health and Human Services Current Secretary: Thomas E. Price, M.D. Succession:The HHS secretary is twelfth in the presidential line of succession. Department Mission:“It is the mission of the U.S. Department of Health & Human Services (HHS) to enhance and protect the health and well-being of...
Beyond a material understanding of poverty
As we continue to encounter the adverse effects of particular forms of foreign aid, it es increasingly clear that plex social and economic problems requires a level of care, concern, and discipleship not well suited to detached top-down “solutions.” But just as we ought to be more careful about the types of solutions we create, we ought to be equally concerned about the nature of the needs themselves, which are no plex or difficult to discern. Most typically, those blind...
Radio Free Acton: Anne Rathbone Bradley on the power of economic freedom
Today on Radio Free Acton, we talk with Anne Rathbone Bradley, Ph.D. She serves as Vice President of Economic Initiatives at The Institute for Faith, Work and Economics, and joins us to talk about the vital role that economic freedom plays in lifting people out of poverty. We also address some of mon clichés that are used to attack the market economy, and even take a short peek into the political economy of Al Qaeda. You can listen to the...
Economist as prophet vs. savior
What do economists actually know? What can they possibly know? Assuming his usual role as the insider skeptic, economist Russ Roberts ponders those questions at length, concluding that far too much economic analysis is conducted and promoted with far too little humility. bination of economics with statistics in plex world promises a lot more than it delivers,” Robertswrites. “We economists should be more humble and honest about the reliability and precision of statistical analysis.” This is especially true in an...
5 Facts about the Congressional Budget Office (CBO)
On Mondaythe Congressional Budget Office (CBO) released its report on the projected effects of the House Republican plan to replace the Affordable Care Act. Here are five facts you should know about the federal agency that “scores” legislation: 1. The Congressional Budget Office (CBO) is an independent, nonpartisan federal agency within the legislative branch that provides analyses of budgetary and economic issues to support the Congressional budget process. (The CBO can sometimes be confused with the Office of Management and...
What you should know about deadweight loss
Note: This is post #24 in a weekly video series on basic microeconomics. When prices are controlled, the mutually profitable gains from free trade cannot be fully realized, creating what is known as deadweight loss. In this video by Marginal Revolution University, Alex Tabarrok shows how to calculate deadweight loss using our example of a price ceiling on gasoline. (If you find the pace of the videos too slow, I’d mend watching them at 1.5 to 2 times the speed....
5 facts about the Brexit vote and Scottish independence
Scottish First Minister Nicola Sturgeon meets with members of European Parliament. On Monday night, Parliament passed a bill allowing Prime Minister Theresa May to withdraw the United Kingdom from the European Union under Article 50 of the Lisbon Treaty. On the same day, Scottish First Minister Nicola Sturgeon called for Scotland to hold a second referendum on declaring independence from the UK. Here are five facts you should know about these momentous developments within the transatlantic alliance: 1. The bill...
‘Instruction by which we may profit’: A guide to reading Tocqueville’s ‘Democracy in America’ (Part 1)
When Alexis de Tocqueville authored Democracy in America, a two-volume treatment of America, he wrote it “to find there instruction by which we ourselves may profit.” By “we,” Tocqueville was referring to his fellow Frenchmen, but although he may have written those words in 1835, we as Americans of the 21st century also have plenty to profit from Tocqueville’s wisdom, if we’ll but receive it. In the next several posts, we’re going to walk through Democracy in America methodically and...
Related Classification
Copyright 2023-2025 - www.mreligion.com All Rights Reserved