Callaway County Does Not Need An EEZ

Let the citizens of Callaway County beware: You may think that a nice little sprinkling of government subsidies — done through something called an Enhanced Enterprise Zone (EEZ) — will be a painless and effective way of promoting economic growth and prosperity in your county. However, EEZs and other similar mechanisms have a long and sorry history of producing poor results. This lack of success has not discouraged the Missouri Department of Economic Development (DED) from actively promoting them around the state. The DED’s goal is starting programs; whether it works is not important. Marshall McLuhan famously said that the medium is the message. With the DED, the program is the purpose.

The dirty little secret that the DED and the Callaway County EEZ proponents do not want you to know is that EEZ, Tax Increment Financing (TIF), Community Improvement Districts (CID), and other subsidies do not work. They do not succeed in growing the local economy. All this myriad of subsidies does is shrink the local tax base, encourage more government planning of the economy, and increase the chances of eminent domain abuse. As a famous Swedish economist once said, “It is not by planting trees or subsidizing tree planting in a desert created by politicians that the government can promote . . . industry, but by refraining from measures that create a desert environment.”

If you ask a DED official how effective EEZs are, they will tell you how much investment has occurred within EEZs over the past decade. Their hope is that you will assume all the investment is because of the EEZ. Their lie-by-omission is that they have no idea how much the EEZ aided that investment and how much would have occurred anyway. The consensus among economists is that special tax incentives such as EEZs matter little, and only a very small portion, if any, of investments within a zone can be credited to the subsidies. (This should not be a surprise unless you believe politicians have the ability to see the future and know exactly what business to invest taxpayer dollars in 25 years from now.) Yet the DED will happily let people assume the incentive makes all the difference while hoping nobody asks any follow-up questions.

Most people would claim to oppose corporate welfare, but that is exactly what is being hoisted upon us in Missouri; one special taxing district at a time. This is all being done under the cover of fixing blight, without any real definition of what that means. But the word “blight” is not empty talk. It means many things. One thing it means is that Callaway County is taking a major step toward much heavier use of taxpayer subsidies for all types of commercial activity. Once you have blighted a major portion of the county, it is but a short walk to the point where almost every development in Callaway has some type of subsidy. That is not a “maybe.” That is the current reality in Saint Louis and Kansas City.

The Callaway supporters of the EEZ say that other cities have used these tools with great success (see the KRCG Channel 13 news story on Nov. 29, 2012, for one example). In this, they are completely wrong. The can say it works elsewhere all they want, but they might as well be staring you in the face and telling you the sun rises in the north. The City of Saint Louis has been using urban redevelopment tools such as Enterprise Zones and many others for half a century. How has it worked out? “Mapping Decline,” by Colin Gordon, is a 2008 book that documents the decline of the city of Saint Louis. The book’s research is exhaustive. The dominant theme is the use of urban renewal tools and tax subsidies (including EEZ) — and their absolute, total failure. From the conclusion:

The overarching irony, in Saint Louis and elsewhere, is that efforts to save the city from such practices and patterns almost always made things worse. In setting after setting, both the diagnosis (blight) and its prescription (urban renewal) were shaped by — and compromised by — the same assumptions and expectations and prejudices that had created the condition in the first place.

I can already visualize Callaway residents saying, “But we’re not Saint Louis.” You are correct, you are not; so do not follow a path that will make your city repeat Saint Louis’ mistakes. It is one thing for Saint Louis to try these projects and have them fail. It would be even worse for a place such as Callaway to follow that example already knowing that the entire process has failed. At least the trailblazer who takes the wrong path has an excuse.
Tools such as EEZs fail because politicians cannot see the future better than markets can. Callaway County should focus on low taxes for all businesses, not special incentives for a few. It does not need an EEZ.

David Stokes is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.