Enterprise Zones: The Zombie Idea That Just Won’t Die

Editor’s Note: This essay is part of an Urban Affairs Forum’s Scholars Series on “What the Trump Administration Should Know About Cities.”  This essay comes to us from Timothy Weaver, who is an assistant professor in the Department of Political Science at Rockefeller College of Public Affairs & Policy, University at Albany.

The election of Donald J. Trump to the presidency has left many observers in profound shock and has caused great alarm in city halls across the nation. Not surprisingly, many analysts have emphasized the degree to which Trump’s approach to cities will involve a sharp break with the past. By contrast, I want to suggest here that, though change is indeed in the offing in some domains, in the final analysis the forthcoming urban policies introduced by Trump’s secretary of HUD, Ben Carson, will prove all too familiar. Rather than a brave new world, cities are likely to find themselves back in the 1980s, where cuts, privatization, deregulation, and pro-business strategies will be given a major fillip. It is important to note that such a state of affairs, while having most in common with the Reagan years, would prove less of a sea change from the Obama administration than many liberals would like to admit.

Among the specific policies promoted by Carson on the campaign trail that harken back to the 1980s are enterprise zones. Indeed, in fall 2015, Carson advanced a plan that would use revenue generated from the repatriation of U.S. companies’ profits “in enterprise zones that we’d set up in some of our major cities to create jobs for people who are unemployed and on welfare.”[1] Carson’s commitment to enterprise zones is the natural corollary to his penchant for tax cuts and deregulation, and his expectation that urban aliments could be treated with these neoliberal bromides.

First advanced by British planner, Sir Peter Hall, and enacted by Geoffrey Howe, Margaret Thatcher’s Chancellor of the Exchequer, enterprise zones are the classic “place-based articulation of neoliberalism.”[2] For at the heart of the enterprise zone idea is the claim that urban degradation results from burdensome taxation and regulation and that cities’ revival could be secured by eliminating or substantially reducing taxes and regulations on business. In the early 1980s, the British government introduced 11 zones, the most famous of which was in London’s dilapidated docks. Soon after, Docklands underwent a dramatic transformation and is now home to many of the UK’s major financial institutions.

The enterprise zone idea soon travelled over the Atlantic in the hands of Stuart Butler who promoted them from the Heritage Foundation. Another enthusiastic supporter was Ronald Reagan and Jack Kemp, who introduced enterprise zone bills in Congress and championed them as HUD secretary. However, due to Democratic intransigence in Congress, the GOP never managed to get a substantive enterprise zone bill to the president’s desk. Only later did a related “Empowerment Zone” bill get passed, which was a third-way variant of the original idea. Nevertheless, enterprise zones proliferated through the states during the 1980s and 1990s. While the state-level zones retained many of the core elements in the original vision, as Karen Mossberger notes, many of them were far less radical in practice.[3]

Numerous efforts have been made to assess the effectiveness of enterprise zones, both in the U.S. and the U.K. On the whole, scholars have reached the strikingly similar conclusion that the programs did not work as hoped. In general the zones have little or no impact on jobs, economic growth, or poverty. Moreover, in light of tax revenue forgone, they deplete revenues of state and local governments.[4]  Despite the limited, and in some cases negative, impact of enterprise zones, the policy has retained its popularity.  As with trickle-down economics more generally, the siren call of policies which promise to reduce taxes and regulations and increase well-being remains seductive and politically useful, especially to those on the right such as Ben Carson in the U.S. and Conservatives in the U.K.

In Britain, enterprise zones have come back from the dead after being snuffed out by the central government in the 1990s. Chancellor of the Exchequer George Osborne emulated his predecessor, Geoffrey Howe, almost identically, by introducing 25 new enterprise zones to stimulate urban prosperity.[5]  Much like Howe’s original vision, businesses in Osborne’s zones enjoy a 100% business rate (tax) discount for up to five years, “enhanced capital allowances,”  “radically simplified planning approaches,” and assistance in the availability of “superfast broadband.”[6] Thus, tax cuts and deregulation as a means to stimulate the economy are back in vogue.  As was widely reiterated at the time of the announcement, the experience of the 1980s enterprise zones suggested that they would “likely…be ineffective at stimulating sustainable economic growth in depressed areas.”[7] The Chancellor ploughed on, nevertheless.

The British government predicted that enterprise zones would create 54,000 additional jobs by 2015, an annual rate of 18,000.  However, consistent with the enterprise zone experience in the U.S. and beyond, the number of jobs created was set to fall well below expectations—by December 2013 (20 months into the program) just 4,649 jobs had been created.  This forced the Department for Communities and Local Government to admit that just 6,000-18,000 jobs in total will be created by 2015. As the House of Commons Public Accounts Committee noted, such results were “particularly underwhelming.”[8]  Moreover, due to lack of business interest in the scheme, the Office for Budget Responsibility, a statutory body that monitors government spending, reduced its forecast for the costs of tax relief in enterprise zones by 80 percent, from £30m in 2015-16 to just £6m.[9]

Enterprise zones do very little to revive urban areas. At best, they divert investment from one part of the city from another, resulting in no net gain for the city as a whole. At worst, they result in tax-giveaways to firms that would have been operating anyway, thereby generating a net loss to city revenues. As with climate change, the Trump administration should follow the evidence and change its stance. The enterprise zone is a zombie policy that staggers on despite its moribund performance. It’s time to perform the last rites and bury it once and for all.

Timothy Weaver is an assistant professor in the Department of Political Science. He is the author of Blazing the Neoliberal Trail: Urban Political Development in the United States and the United Kingdom (University of Pennsylvania Press, 2016). His research interests include urban policy and politics, urban political economy, American political development, the role of ideas, political institutions, British politics, race and class.

[1] http://www.cnbc.com/2015/10/07/dr-ben-carson-would-declare-a-6-month-tax-hiatus-for-profits-held-overseas.html

[2] Timothy P.R. Weaver, Blazing the Neoliberal Trail: Urban Political Development in the United States and the United Kingdom (Philadelphia: University of Pennsylvania Press, 2016).

[3] Karen Mossberger, The Politics of Ideas and the Spread of Enterprise Zones (Washington,

D.C.: Georgetown University Press, 2000).

[4] For the most comprehensive assessment of enterprise zones, see Alan H. Peters and Peter S. Fisher, State Enterprise Zone Programs: Have They Worked? (Kalamazoo, MI: W.E. Upjohn Institute for Employment Research, 2002.

[5] Richard Hall, “Osborne Hopes to Kick-Start Economy with Enterprise Zones,” The Independent, August 18, 2011, http://www.independent.co.uk/news/uk/politics/osborne-hopes-to-kickstart-economy-with-enterprise-zones-2339697.html.

[6] House of Commons, “Enterprise Zones,” Commons Library Standard Note, SN/EP/5942, 13 August 2014, 3, http://www.parliament.uk/business/publications/research/briefing-papers/SN05942/enterprise-zones.

[7] Andrew Sissons with Chris Brown, “Do Enterprise Zones Work?” The Work Foundation, February 2011, 3.

[8] House of Commons, “Enterprise Zones,” 6.

[9] Jim Pickard, “UK Chancellor’s Enterprise Zones Slow to Take Off,” Financial Times, April 2, 2014, http://www.ft.com/intl/cms/s/0/c01ddaa4-b5c1-11e3-81cb-00144feabdc0.html#axzz3LuJMFeCC.

The “What the Trump Administration Should Know” Scholars Series was developed and edited by Scott Minkoff (Forum Editor) and Jered Carr (UAR Managing Editor).

 

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s