Why GOP Isn't In The Zone On Enterprise Zones

Being "pro-business" isn’t the same as being pro-market, pro-economic growth or, for that matter, pro-free enterprise. I offer that as a friendly admonishment to Republicans opposing Gov. Jerry Brown’s plan to end California’s enterprise zones. They really should know better.

Instead of fighting for a flawed scheme to entice businesses, Republicans would do well to make a vigorous case – call it "populist" if you like – for liberating Californians from central planners, well-heeled lobbyists and $400-an-hour corporate consultants.

At this point, really, what would they have to lose?

Brown very much wanted the new budget to do away with the nearly 30-year-old "EZ" program, which provides employers with tax credits of as much as $37,000 per worker in some 40 designated areas around the state. Brown proposed replacing enterprise zones with new tax credits for new manufacturing and research equipment.

Brown didn’t quite get his wish, though he hasn’t abandoned the idea. Among the myriad reasons for eliminating the zones, Brown pointed to a 2011 Public Policy Institute of California study that found they really haven’t delivered much in the way of jobs or economic growth when compared with the rest of the state.

And rather than benefiting startups or small businesses – unless you count a pair of strip clubs in Rancho Cordova – the program has tended to enrich huge companies such as Disney and Wal-Mart, not to mention big-time commercial real estate developers.

The correct term for all that is "corporate welfare."

True, plenty of Democrats have spoken out against Brown’s plan. The Democratic mayors of Los Angeles, Long Beach, San Diego, Sacramento, San Jose, Oakland, and Santa Ana joined the Republican mayors of Fresno and Anaheim in a letter to Brown urging him to reconsider his idea.

But it’s the Republicans who have decided to go to the wall for enterprise zones. State senator and Republican minority leader Bob Huff told me this week he’s strongly opposed to Brown’s plan, which he says would represent nothing less than "a $730 million tax increase on economically distressed communities."

George Runner, the former state legislator and current member of California’s state Board of Equalization, agrees with Huff. While conceding the need for some reforms, Runner also points out the new state budget will provide "not one new dime" for economic outreach or development.

Republican opposition isn’t hard to understand, and even has some merit.

They cannot fathom why for the love of God anyone would subject beleaguered businesses to higher costs and heavier regulation. Enterprise zones were supposed to be sunny islands of economic tranquility in a hostile anti-capitalist sea, after all. Isn’t the unemployment rate high enough?

"At the very least," Huff explained to me, enterprise zones can be effective at "slowing economic hemorrhaging in areas where jobs are difficult to maintain during extended periods of economic turmoil."

Trouble is, as my Manhattan Institute colleague Edward Glaeser points out, it makes no economic or policy sense to keep pushing enterprise zones when they offer comparatively little bang for the buck.

"They can create jobs, but do so at high cost," Glaeser argues, "while it is hard to see the rationale for bribing enterprises to locate in less productive areas."

Right – which is why enterprise zones often end up in neighborhoods that have little trouble attracting business investment. San Francisco’s enterprise zone, for example, includes the financial district and Fisherman’s Wharf – not exactly the picture of economic depression.

But Runner says he’s seen the benefits of the program firsthand. As mayor of Lancaster in the 1990s, he used enterprise zone incentives to persuade a few businesses fed up with less hospitable cities from leaving California altogether, saving several hundred jobs.

Republicans made the same case in 2011 for saving California’s 400 redevelopment agencies, which Brown successfully eliminated. Sure, the agencies might have run roughshod over small businesses and homeowners’ private property rights – but that was always in somebody else’s district.

Deep down, Runner and his colleagues know that enterprise zones are an inadequate remedy for California’s economic woes. "If I had my way," he told me, "the whole state would be an enterprise zone. But we have to acknowledge political reality."

Political reality is what we choose to make of it. California Republicans are politically powerless because most voters accept the caricature of a party that gives lip service to private property rights and free market competition while lending cover to plutocrats and big corporations.

An opposition party cannot merely oppose. It must propose. If Brown wants to eliminate enterprise zones for all the wrong reasons, an opposition party worthy of respect would say so – and go one step further. It isn’t enough for the governor to end enterprise zones only to channel the "savings" into a newfangled, subsidy for favored constituents. End that nonsense.

It’s possible California Republicans may never find their way out of the political wilderness. But why not make the case for real free-market competition, instead of clinging to the status quo? Leave the lickspittle politics to the Democrats.

This piece originally appeared in The Sacramento Bee

This piece originally appeared in The Sacramento Bee