Rand Paul Won't Be Able To Save Detroit

Economic Freedom Zones can't survive the regulatory state.

Like yesterday’s fashions, old policies never die, they simply return with new accessories. So it is with Rand Paul’s proposal to create Economic Freedom Zones for Detroit and other depressed cities—a recycled version of the Enterprise Zones of 1980s.

But if past is prelude, this idea won’t work not because it doesn’t make sense—but because Washington won’t allow a sensible version to pass its august chambers.

Freedom Zones is Paul’s answer to Obama’s bailout—oops, aid—package for Detroit and a way to show minorities that the GOP cares. Unlike Obama’s plan, Paul won’t offer federal handouts for housing, brownfield cleanup, highways and gang busting. Rather, he’ll slash federal taxes (income, corporate, capital gains and payroll) and regulations (EPA’s storm-water clean up rules) for areas whose unemployment is 50 percent over the national average.

For Detroit, this would work out to a $1.3 billion-stimulus over 10 years. “These zones don’t ask Houston or Atlanta to bailout Detroit,” he said last week. “It frees Detroit to bail itself out.”

That would be a correct statement if Paul’s proposed bill had included spending cuts to offset the lost tax revenue. It doesn’t.

That issue aside, the theory behind the Freedom Zones concept is that jumpstarting growth in depressed areas requires not a top-down industrial policy with Uncle Sam picking winners and losers. Rather, it requires giving these areas a more competitive economic environment that overcomes their existing disadvantages—inhospitable climate, dying local industries—to boost local entrepreneurs and attract outside investors.

This approach worked well in England, turning London’s depressed docklands into a super-dynamic hub for finance and other businesses in the 1980s. It also transformed India’s Bangalore from a sleepy little town (that Winston Churchill once compared to a prison) into a global IT powerhouse in the 1990s.

But it has been a disappointing failure in America. Why? Because neither Republicans nor Democrats have ever managed to create anything resembling a genuine Enterprise Zone.

The crucial thing is not just tinkering with taxes but also regulatory relief at both the federal and local level. But even Ronald Reagan, whose HUD secretary Jack Kemp conceived the whole idea, ultimately proposed only cosmetic regulatory changes, focusing mainly on tax breaks. The upshot was not new growth but simply shifting of businesses—sometimes moving no more than few blocks—to lower-tax zip codes.

Bill Clinton gave up even the pretense of tax relief in his 30-plus “Enterprise Zones,” deploying instead “targeted investments,” a glorified term for handouts. Worse, in order to qualify for these “investments,” state officials had to submit elaborate plans for retraining workers and building cheap housing to an “Enterprise Board.”

This exercise in bureaucratic central planning turned the whole concept of Enterprise Zones on its head, producing no discernible impact on the targeted communities. (Some areas of Detroit got the Empowerment Zone desgination in 1994 but that didn’t stop the city from becoming an economic basket case anyway.) It also increased local red tape and corruption. A 2003 audit of Cincinnati’s Empowerment Zone found that state officials routinely misused federal funds to inflate their own salaries, prompting President Bush to eventually slash funding.

The bipartisan failure to implement the concept without dilution or distortion is no accident. There are systemic reasons for it.

The federal regulatory state has been the liberal tool of choice for enacting sweeping environmental, consumer, and workplace protections over the past 50 years. Liberals regard the country’s primary challenge not as wealth creation—but protecting Americans from the ill effects of wealth creation. Depressed cities are a price they are willing to pay (unlike, say, in India, where eradicating rampant poverty is still the central political task).

Hence, liberals are not going to simply stand back and allow the weakening, say, of EPA’s clean water mandates or OSHA’s workplace requirements in the name of reviving local economies.

If Paul wants to succeed, he’ll have to do more than outline an abstract concept. He’ll have to present it in a form that can withstand the inevitable political onslaught. Lame half gestures won’t fix Detroit or win over its minorities.

This column originally appeared in the Washington Examiner

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  • Ted S.||

    I oppose the idea of special tax-free zones: the entire country ought to be a tax-free zone.

  • Anvil||

    I agree too, but at least a test sample can prove skeptics wrong before enacting over a broader span.

  • Anonymoose||

    Of course it would bring the 1% to Detroit and improve the local economy but at the expense of the rest of the country. This is just yet another attempt of the rich to enjoy all the things they need government to pay for without paying their fair share, like ROADS, and will increase not decrease the horrible income inequality in this country.

  • DJK||

    I doubt it. The 1% you hate so much tend to live in regions with high regulatory burdens. They could move to other places with lower taxes but don't. Why not? Could it be that there's a reason to stay in those high tax, highly regulated places? Like, say, government-imposed barriers to entry in the industries they control? Subsidies to their "important" businesses? Hmmm...

    You note that this reform would help Detroit and hurt the rest of the country. Yet you take that to mean that it shouldn't be implemented anywhere, not that it should be implemented everywhere. Why is that?

  • DJK||

    I realize that you may have been sarcastic in your post. It's so hard to tell these days.

  • MockingJay||

    lol, with friends like Shikha, who needs journ0list hacks and 90% of the MSM? Seriously, it's FUD like this that makes me all but certain that Rand is royally FUBAR in 2016.

    If not even the small cadre of professional & proficient libertarian/conservative writers & bloggers who actually support/believe in most of what Rand Paul champions are willing to "buck up" and defend/praise/promote/etc. him with as much verve and vigor as virtually 90% of the MSM does for Obama, Clinton & the Washington Establishment, then not only are the next few years going to be absolutely brutal, but the game is already lost before it even began.

    But hey, at least libertarians like Shikha, will be able to say "I never played favorites or used my talents as a writer to spin for a preferred politician or party...like virtually all my journ0list friends did for Obama & Hillary..."

  • Ted S.||

    OT: I didn't see it in the previous two threads, so:

    Peter O'Toole, 1932-2013

  • Archduke von Pantsfan||

    won't get 40 articles about O'Toole.

    /hoping

  • ||

    We'll always remember his daughter, Plenty.

  • Almanian!||

    Know who else died in 2013

    LOU REED

    A little more important figure than your little British actor.

    RIP, LOU

  • TANSTaaFL||

    LoA is one of the greatest movies ever made. So much good social and historical commentary mixed with excellent acting, sets and staging, and soundtrack. Not to mention Obi-wan Kenobi as Prince Fiesal.

    BTW, the movie some excellent dialog. Extremely witty and entertaining:

    Bentley(reporter): I heard in Cairo that Major Lawrence has a horror of bloodshed.
    Prince Feisal: That is exactly so. With Major Lawrence, mercy is a passion. With me, it is merely good manners. You may judge which motive is the more reliable.

    Lawrence: My manner, sir; it looks insubordinate but it isn't, really.
    Gen Murray: You know, I can't make out whether you're bloody bad-mannered or just half-witted.
    Lawrence: I have the same problem, sir.

  • prolefeed||

    This seems to be more of a campaign 2016 stop for Paul than a serious attempt to get the Detroit government to quit destroying the local economy.

  • Archduke von Pantsfan||

  • Fatty Bolger||

    That was great.

  • BakedPenguin||

    Agreed. I once had a temp job grading 4th grade FCATs. One kid misspelled "count". By omitting the "u".

    I remarked to the woman next to me that he probably made spelling bees more interesting.

  • BakedPenguin||

    Crap. Omitting the "o".

  • James Anderson Merritt||

    It really is too bad we can't edit our comments here. The original comment puzzles, the correction amuses, but the posting would have more impact if only the repaired version would be displayed after correction. We played ball with you, Reason, by registering to comment on this site. Please return the favor, by allowing editing of posts by their registered authors, and relaxing the absurd character-count limit.

  • XM||

    Disqus will make our lives better.

  • robc||

    Fuck no, Disqus sucks hard.

  • Muzzle of Bees||

    These comment threads are impossible to follow over time unless you live on them. I'm continuously amazed at the ability of members of the commentariat to actually carry on extended discussion threads without receiving any notifications. I'd be down for Disqus or something similar.

  • ||

    Numbers 7 and 11 are correct given the instructions. I would give them credit if I were the grader.

  • PapayaSF||

    Many good ones, a few sad ones.

  • On The Road To Mandalay||

    Paul definitely needs to change his hair stylist, whoever that might be. In the photograph with him shaking hands with the old dude, it looks like he (Paul) is getting ready to star in a movie about teenagers in the 1950s. Maybe he should get out of politics and go to Hollywood.

  • James Anderson Merritt||

    Watching Stossel and The Independents on Fox Business Channel last week, I was struck by the ads for New York (State). They were basically bribing start-up businesses to establish themselves in the State's apparently recently declared special enterprise zones, where taxes would be waived for TEN YEARS (and there would probably be some easing of the regulatory compliance burden as well). The ads said such things as, "we get it!" But clearly, the plan is to get businesses in place to provide jobs immediately and tax revenues eventually, so that the politicians can continue to spend more of the money of a growing number of "other people." That is to say, they are trying to lure (and keep) a new flock of cash cows. If they REALLY got it, they would consider making the entire State a permanent enterprise zone, and back off taxing New Yorkers so heavily, in exchange for "services" of dubious or even negative value -- which mostly entail micromanagement of or disruptive interference in the people's lives.

  • LIFE.time.opertunity||

  • prolefeed||

    You're bad at math, troll. Working over 10 hours a day, every day, ain't a "few hours".

  • Bill Dalasio||

    I'm not normally one for accusations of false equivalence, but I think such might apply here. Dalmia accuses both Democrats and Republicans of wanting to subvert the intention of enterprise zones, but offers up substance only with regard to liberals (presumably Democrats). It could be that Republicans are equally dismissive of the concept, but it hardly shows in this article.

  • prolefeed||

    This isn't substance?

    The crucial thing is not just tinkering with taxes but also regulatory relief at both the federal and local level. But even Ronald Reagan, whose HUD secretary Jack Kemp conceived the whole idea, ultimately proposed only cosmetic regulatory changes, focusing mainly on tax breaks. The upshot was not new growth but simply shifting of businesses—sometimes moving no more than few blocks—to lower-tax zip codes.

  • Tulpa (LAOL-VA)||

    Dalmia accuses both Democrats and Republicans of wanting to subvert the intention of enterprise zones

    So, no, it's not.

  • Bill Dalasio||

    Not really. It's pretty evident that what happened with Kemp's attempt was a failure, not an opposition on substance. If someone were to criticize Justin Amash or Rand Paul of being pro-surveillance because they've never sponsored a bill to have the NSA disbanded, would you take the accusation seriously?

  • VG Zaytsev||

    Because neither Republicans nor Democrats have ever managed to create anything resembling a genuine Enterprise Zone.

    The crucial thing is not just tinkering with taxes but also regulatory relief at both the federal and local level. But even Ronald Reagan, whose HUD secretary Jack Kemp conceived the whole idea, ultimately proposed only cosmetic regulatory changes, focusing mainly on tax breaks

    First of all, Kemp was HUD secretary under Bush the elder, not Reagan.

    Secondly, the democrat controlled Congress refused to pass Kemp's beefed up enterprise zones.

  • Car Scanner||

    So who can save Detroit?

  • RishJoMo||

    Sounds like a plan to me dude.

    www.AnonGoes.tk

  • ibcbet||

    I think thats not good idea

  • Contrarian P||

    I don't get "the current political class will never go for it" as an argument against something. If it's a good idea, it should be put forward and discussed. I'm sure that twenty years ago the legalization of marijuana would have been dismissed similarly. If we apply that standard, pretty much all of libertarianism goes out the window. I'm not ready to give up principles just because our ruling class is made up of hacks.

  • SteveParkhurst||

    A minor correction. The writer stated: "But even Ronald Reagan, whose HUD secretary Jack Kemp conceived the whole idea,"

    Jack Kemp was HUD Secretary under President George HW Bush, not under President Reagan.

    Makes me wonder what else was incorrect about this article.

  • walkthejosh||

    This proposal is just more of the standard pro-business nonsense. Instead of ending regulatory barriers to entry and preferential tax treatment that keeps average people from competing and getting by, this is the standard Republican plan of giving even more preferential tax treatment to well-established, typically state-aided businesses and selling it as the free market.

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