Arizona governor's move on Nike subsidies is cronyism at its worst

There is a new hero, at the moment, for conservatives and Republicans in the nation in the form of Arizona Governor Doug Ducey.

Ducey’s move to rescind $1M of incentives Nike is receiving for a planned factory in the Phoenix-area garnered him praise – although it should be pointed out Nike will still get a smorgasbord of kickbacks from the city of Goodyear. Most accolades include the refrain, “Ducey is right – but the incentives should not have been offered in the first place – however, Nike definitely doesn’t deserve the money because they’re offended by colonial America.” The sportswear and equipment company has also been accused of shunning the United States before Independence Day.

It would be nice if the focus was more on the fact Nike was (and still is) getting government support and lead to a bigger discussion about the role of cronyism in the country – instead of whether Nike is unamerican for their decision.

The rage towards Nike isn’t surprising since the brand is engrained in the NBA, American and international football, golf, and everyday life. Ducey’s move to remove the handouts is being justified under the guise of patriotism or American values thus, allowing him to skate on any criticism of offering them in the first place.

Ducey cannot be allowed to escape criticism – nor should the other politicians looking to coax Nike into either restarting the Betsy Ross flag shoes or moving to a “safe state” where their decision will be honored. Cities and states should not act like sports teams looking to lure free agents with lavish gifts and luxurious contracts.

“Subsidies like these are always distortionary, and fans of limited government should fear politicians with the power to pick winners and losers, for any reason,” Coalition to Reduce Spending President Jonathan Bydlak told me when asked about Ducey and Nike. “Companies’ actions should be regulated in the most effective way we know how — by supply and demand in the marketplace.”

The justification towards subsidies tends to be the notion the government cash towards a business enterprise will increase production and discourage unemployment. There’s also the claim subsidies are justified because other cities, states, and countries to do it (see the Ex-Im Bank).

Mercatus Institute published findings of a survey this past week – after Ducey pulled Nike’s subsidies – showing business leaders tend to favor subsidies because it gives them a leg up on the competition.

“Business leaders who believe they work for privileged firms or for more privilege-dependent firms are more inclined to favor greater government involvement in economic matters and to believe regulations benefit both consumers and the broader economy,” wrote study authors Matthew Mitchell, Tamara Winter, and Scott Eastman. “They are also more likely to believe that competition is limited by government, which they may view as a good thing, given their belief that competition is unfair to industry.”

The fact business leaders think competition is unfair is obviously disturbing and not something free market advocates should champion. Free markets mean zero government involvement. It means letting anyone come up with a business and produce items for others to buy – including sneakers and sportswear.

“It wastes resources, throttles growth, encourages corruption, and violates standard notions of justice,” Mitchell, Winter, and Eastman opined in their analysis of the survey. “The results of this survey suggest it may also affect culture. Those who work for favored firms may be less inclined to support free and competitive markets, more inclined to support government intervention in the economy, and more likely to believe that favoritism is a legitimate and worthwhile government pursuit.“

There’s a two-fold answer as to why Ducey deserves scorn for his decision to yank the Nike subsidies.

For one, it’s a political decision being used to score points with Republicans who are justified in their rage towards Nike – if it turns out they actually did listen to Colin Kaepernick’s suggestion the Betsy Ross flag is some sort of symbol of slavery (Nike is claiming it was done because the “wrong flag” was used). Ducey is virtue signaling, much like the other governors who want to lure Nike to their states. It’s possible he actually wouldn’t give two rips about Nike if they decided to offer, then remove the Confederate flag after some complaint. He would probably be annoyed, but not to the level of yanking subsidies, if Nike offered the Arizona flag then pulled it because other state flags weren’t being used.

The second reason could be more disturbing. Ducey is using the power of government to punish a business for not adhering to his own beliefs. It’s akin to San Antonio’s decision to not give Chick-fil-A a contract at San Antonio International Airport due to the (wrong) belief the fast food chain is anti-LGBTQ. They are giving the idea businesses have to have certain beliefs to do business in a city or state.

“It’s not so much a precedent as an illustration of how these programs actually work,” Bydlak told me when I asked if Ducey were setting a dangerous precedent. “They allow powerful politicians to play games with the free market.”

Perhaps it would be best for Ducey to honor the current agreement with Nike – then press the legislature to shut down the Arizona Commerce Authority. This way no other subsidies will be offered any other company in the future. The alternative would be to end all other Arizona Commerce Authority subsidies immediately – which could also be seen as palatable.

Politicians should not be playing the market like puppet masters. What Arizona and the rest of the U.S. should do is just stop offering subsidies to all businesses. Lower taxes and regulations should be why businesses decide to plant themselves in a city or state, not whether they get a handout from the government. That’s what this discussion should be about. Instead, it’s about a perceived lack of patriotism in a country which supposedly values free speech and differences of opinion.