In recent years, the political and economic landscape in the United States has brought about a subtle but significant policy proposal. This proposal involves special jurisdictions in a quest to help struggling businesses that have been affected by the COVID-19 pandemic or by poor economic infrastructure in their respective communities.  

As part of President Trump’s economic plan, states throughout the United States (in addition to the federal level) have instituted a plan to give tax breaks to businesses to try to revitalize the economy.  Mississippi is no exception as it has adopted various special economic zones with the express intent of prioritizing the investment and development of state infrastructure. In cities such as Vicksburg, this reform has reportedly saved jobs and helped stabilize the hurting economy. 

These Opportunity Zones are designated to “encourage long-term investments in low-income and rural communities through Qualified Opportunity Funds.” Currently, there are about 100 Opportunity Zones in Mississippi. This will last as a program until 2027 per the Tax Cuts and Jobs Act of 2017. 

They operate on the basis that investors can earn tax relief through investments designated by the Opportunity Zone. Such benefits increase as the time the investment is held increases. These zones have been placed in strategic areas throughout Mississippi and particularly target low-income and rural communities.

As a matter of policy, this appears to generally makes sense on paper. It goes without saying that to get more money into struggling areas, it is important to have opportunities for capital investment. This has been done in the past by incentivizing businesses with generous tax breaks rather than just having federal or state grants to keep those areas from downing. In doing so, the principle of choice by the consumer remains intact, by allowing the private sector to direct capital to where it is most needed.  

In addition, such a policy has been propounded as a way to help fix economic decisions in the reality of business rather than the theory of bureaucracy. Opportunity zones can help promote economic growth in those hurting communities.

Tom Bell of the Foundation for Economic Education describes this principle perfectly and rightly suggests that, “it also bears noting that [these special jurisdictions] escape the charge that they can thrive only thanks to top-down subsidies. These days, special jurisdictions happen only if and when private investors fund them. That sort of objective oversight helps to ensure that special jurisdictions, far from floating on clouds of theory, have a solid grounding in the real world.” 

In recognition of this fact that these geographic zones are entirely dependent on private investment, it is important that they do not offer only fiscal incentives. Otherwise, some have rightly pointed out that Opportunity Zones could potentially lead to crony capitalism. It is important that Opportunity Zones be coupled with tangible evaluations for success by local community members in order to avoid this.

As Lotta Moberg points out, the focus of the zones must encompass whole regions and offer not just tax breaks but thorough deregulation as well that will assist in directing those investments. This was done in Hong Kong, and it not only liberalized the economy, but incentivized state officials to provide further reform. Ultimately, it confirmed one of Friedman’s primary predictions: “Privately created and managed special jurisdictions tend to outperform public ones.”

As a general principle, the people of Mississippi and businesses ought to welcome the concept of free-market zones as opportunities to fix their own communities that are struggling economically. However, rather than simply placing a tax break incentive to fix the problem, the mindset behind Opportunity Zones needs to have a broader application as state governments seek direct investments from the private sector.  

Ultimately, government incentives are not the answer to expanding investment. Rather than focus on specific regions, policies should lower taxes and regulation across the board. Free market investments that are not restrained by government action are much better solutions to building communities. Opportunity Zones may carry potential in some contexts, but ultimately it is broader freedoms for the free market that have the best chance at growing communities.