Mises Wire

Disney’s Corporate Welfare Is Modern Mercantilism

Florida’s government is poised to revoke the longstanding special favors that the state granted the Walt Disney Company nearly five decades ago. As of Thursday afternoon, both the House and the Senate in Florida have voted to end the megacorp’s special district, which has long enabled Disney to engage in activities prohibited to other private groups and individuals in the state. The governor is expected to sign the legislation.

The impending change in status comes after senior Disney representatives repeatedly criticized the Florida GOP—currently the ruling party in the state—for legislation unrelated to Disney’s business dealings. Perhaps not surprisingly, this caused numerous GOP officials to question why Disney was receiving special privileges denied even to Disney’s direct competitors. In the past, Disney’s special status was shielded from political dangers, as Disney has famously showered politicians in the state with gifts, campaign cash, and other types of special favors that normal people would identify as bribes. Indeed, many of the same elected officials who are now voting to repeal Disney’s special status have accepted such “gifts” in the past. But for whatever reason, the political landscape has changed enough in recent years that it appears to many policy makers that it is now more politically rewarding to punish Disney rather than cater to its whims.

The situation has led to some strange political rhetoric and bedfellows. The GOP is now being accused of being “antibusiness,” while dissenting Democrats appear to have suddenly become laissez-faire capitalists, pontificating on the virtues of low taxes and leaving corporations alone to manage their own affairs.

Ultimately, the Florida-Disney relationship has nothing to do with efficiency or private property, and absolutely no one at the state capitol has ever regarded the Disney model as a model to be made available to business owners in general. The real core of the Disney arrangement is one in which a powerful corporation and the state engage in a mutually beneficial political relationship. It’s an old model. The kings of old also granted special monopolies and favors to special interests in order to solidify what we today call “public-private partnerships.” These arrangements help to win over key allies for the regime among the wealthy elites.

Choosing a Single Corporation to Favor over Others

To get a sense of how this works, let’s first look more closely at what privileges Disney enjoys in Florida. The special district, called Reedy Creek, was established in 1967 and allows the Disney corporation to function with no local government oversight on its San Francisco–sized property outside Orlando. The special status means Disney can issue tax-exempt bonds and build on the land without having to deal with any local government obstacles to development such as zoning laws. Supporters of the global conglomerate often describe this situation as some sort of favor to the taxpayers. For example, CNBC frames the special district as an arrangement “established by the Florida legislature so Disney could develop the infrastructure for Walt Disney World at no cost to Florida taxpayers.” In reality, of course, this infrastructure exists—and only exists—to funnel paying customers into Disney’s theme parks. It would be absurd, however, to expect taxpayers to pay for this sort of development under any circumstances. Ensuring private construction of infrastructure does not require a special state law written for Disney.

In the case of Disney, it is significant that this public-private partnership excludes Disney’s competition and applies to a single corporation. It’s not as if other private owners can access similar benefits simply by creating jobs or doing what Disney does. Such benefits are reserved for Disney and Disney alone. Disney, of course, is fine with this arrangement and would surely lobby—and likely already has lobbied—to prevent any of its competitors from enjoying similar status. At least one GOP legislator has noted this in defending the new bill, pointing out that Universal, SeaWorld, and Legoland have not been granted—nor are they likely to be granted—their own special districts. And these three parks are just the existing competitors, who could muster up the capital necessary to compete with Disney on an uneven playing field designed to favor Disney. It’s impossible to know how many other entertainment venues and private owners might have also existed had Disney not sucked all the air out of the local market with its special deal.

Consequently, Universal has operated at a disadvantage for its entire existence in Orlando. Unlike Disney, Universal must deal with local ordinances, local zoning laws, and can’t enjoy the benefits of tax-free bonds.

For example:

Reedy Creek’s control of its own zoning and building codes is the most important advantage Disney has among tourist destinations in Central Florida.

Take Universal Studios Florida, for example. Planning for USF began in the early 1980s, but it wasn’t until around 1986 that the plans for the park were officially announced. In what must have been a remarkable coincidence, Disney announced plans for their own movie-themed park in 1987.

But despite Universal having a sizable head start on Disney, Disney-MGM Studios (now Disney’s Hollywood Studios) opened first in 1989. Universal Studios Florida didn’t open its doors until 1990.

It’s possible, of course, that Disney’s plans proceeded more quickly than Universal’s due to better internal management. But it’s also quite plausible—even likely—that Disney was able to push through its development at a much faster speed than its competitors due to its special legal status.

Expanding the Use of Special Districts, and Limiting State Power

One strategy in addressing this problem is to end Disney’s monopoly on this kind of special district. Rather than the situation being a “Disney only” benefit, legislators could simply turn the Disney exemption into one that applies to a wide array of theme parks, entertainment districts, resorts, and other Disney competitors. This would lessen the extent to which Disney’s privileges are simply a means of favoring a single corporation known for greasing the palms of legislators. 

As it currently stands, however, the Disney deal is on the same political and moral level as a law that might provide relatives of politicians with special privileges. Imagine, for example, a law declaring that “siblings and first cousins of state legislators shall be exempt from state taxes and regulations.” In a certain naive sense, this represents cuts in taxation and the regulatory burden. But it’s also clear that this sort of thing is more about political patronage than it is about lessening taxes or regulations. Ultimately, because a tax-exempt enterprise is more likely to be profitable than a taxed one, such an arrangement ensures more resources flow to friends of the regime rather than to opponents of the regime. That’s good for the regime.

A second strategy lies in removing the state government from the process altogether. Once the anti-Disney deal is settled, an appropriate next step would be to simply make state law silent on the matter and throw the process into the hands of local property owners (such as Disney and Universal), and the local governments. County commissioners will still be free to corrupt themselves on these matters, but then at least the rest of the state won’t be a party to Disney’s cronyism. (Florida governance is far too centralized as is, in any case.) 

A Form of Modern Mercantilism

It’s important to constrain state power in these areas because using tax exemptions and regulatory exemptions as political tools is a time-honored method of enhancing state power. This is why mercantilism—the economic philosophy of absolutism—was built on special tax deals and on monopoly powers granted to selected corporations.1 Such deals are a way of consolidating support from powerful interests. This was long the case in the cozy relationship between the state government and Disney. The fact Disney has managed to alienate its partner—the state government—means little for ordinary taxpayers. Rather, the dispute falls in the same category as the palace intrigues of old, in which some favorite of the monarch falls out of favor and his exemptions from select royal mandates—exemptions never available to ordinary people—are canceled.

In modern times, deals like the Disney deal are just corporate welfare schemes in the form of “economic development” policies, favored by governments for decades. These policies favor certain large, powerful businesses but won’t extend the same favors to smaller businesses and competitors. Then, the corporate shills and their friends in the legislature or city council take credit for “jobs created” as if the economy would not have grown had the laws not been written to favor a select few. These deals use phrases like “low taxes” and “free markets” but really have nothing to do with laissez-faire or free markets. They’re about sweetheart deals for the politically well connected.

[Read More: “Why Politicians Love the Amazon Deal“ by Ryan McMaken]

Naturally, taken totally in isolation, it’s never good to raise taxes or enhance government control over a private enterprise, which Disney—for the most part—still is. But there’s an unseen factor here as well. The unseen is how much private enterprise has been prevented, stifled, and shunted aside by laws written to favor a single corporation. Just as the mercantilist private corporations of old—such as the East India Company—stifled private business in America and helped fuel the American Revolution, today’s beneficiaries of modern mercantilism do the same. How much would the public benefit from other competitors in the Orlando area? How much less might have consumers paid for tickets at Disney parks had Disney not been able to legislatively keep competitors out of the marketplace? We’ll never know. 

  • 1James R. Edwards defines mercantilism as a system “in which the Crowns systematically franchised various industries and lines of trade out as exclusive monopolies and cartels to favored individuals and producer groups in exchange for bribes and payments, using the police powers of the state to protect them from both internal and external (foreign producer) competition.”
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