Urban Enterprise Zone

In the United States, Urban Enterprise Zones (UEZs), also known as Enterprise Zones, are intended to encourage development in blighted neighborhoods through tax and regulatory relief to entrepreneurs and investors who launch businesses in the area. UEZs are areas where companies can locate free of certain local, state, and federal taxes and restrictions. In other countries, a region that offers this type of special economic incentive is often referred to as a Special Economic Zone.

Overview of purpose of enterprise zones

The enterprise zone concept evolved from a combination of theories, policies and social forces. The philosophy is most closely associated with the theory of supply side economics and the assumption that employers will respond positively to tax incentives and reduced government regulation. The enterprise zone philosophy suggests that by encouraging the production of goods, investment will improve; therefore, the supply of goods and services and the providing of job opportunities will increase accordingly.

Origin

In July, 1967, Senator Robert Kennedy introduced legislation in the United States known as the "Urban Employment Opportunities Development Act of 1967." (S. 2088) (113 Cong. Rec. 18443-18457, July 12, 1967). The purpose of the bill was to provide federal tax credits, accelerated depreciation schedules and job-training programs as incentives for employers to locate industry in urban poverty centers. Kennedy was killed in June 1968 and the bill never passed Congress.

The enterprise zone concept was introduced in the United Kingdom during the mid-1970s by centre-left geographer/economist Sir Peter Hall (Hall 1991), then a professor at University of Reading and the University of California, Berkeley, as a way to revive Britain's declining industrial cities. His plan included removing taxes and regulatory barriers from distressed business communities. A series of Demonstration Zones were established in the most depressed parts of that nation's cities. "Professor Hall’s enterprise zone concept called for reduced governmental regulation within economically depressed urban communities as a means of stimulating economic growth within those areas. With reduced regulation, lower taxes, and other financial incentives for businesses, economic activity would increase due to the reduced cost of operating businesses within those areas." (Hyman 1998: 146).

In the UK, enterprise zones were introduced by the Thatcher Government in 1979. They were urban areas (usually the "worst" areas of job loss and capital flight) granted freedom from normal planning controls with a ten-year relief from local rates. Eleven enterprise zones were established in 1980 and a further thirteen in 1982. They varied from inner cities to areas of post-industrial dereliction. A notable example of an enterprise zone in this era was the Dudley Enterprise Zone in the West Midlands, developed on a mix of disused farmland and industrial land. This scheme began with industrial estates in the early 1980s but is now dominated by the Merry Hill Shopping Centre which was developed between 1985 and 1989.

The concept was re-introduced in the United States by Stuart Butler of the Heritage Foundation in 1979. Enterprise Zones caught the attention of then-Rep. Jack Kemp, R-N.Y., who co-sponsored legislation in Congress (with then-Democratic Rep. Robert García of the South Bronx) based on Butler’s idea. Originally sponsored only at the federal level, UEZs have become increasingly popular with state governments as well. Louisiana was the first state to adopt such legislation, in 1981, and was followed by seven other states in 1982 and seven more in 1983.

Examples of urban enterprise zones

In New Jersey, for example, a municipality may request that the New Jersey Urban Enterprise Zone Authority designate part of a city, usually about 30%, as a UEZ. UEZs are usually located in the industrial and/or commercial portions of a city, within a continuous boundary. A 50% reduction in the general Sales tax rate (from 7% to 3½% as of July 15, 2006) and hiring incentives, are designed to reinvigorate the business climate within the Zone. These incentives have led to the construction of numerous malls and big-box retailers in parts of the development zone located near major highways, such as the Elizabeth Center and Jersey Gardens Outlet Center in the largely industrial city of Elizabeth along the New Jersey Turnpike. More than thirty of New Jersey's 566 municipalities now participate in the program.

Critical assessment

Asia

The general critique of enterprise zones is whether the system of tax-breaks and easing of planning regulations (as has occurred in Asia, notably in free trade zones of Singapore and Hong Kong where Hall was looking for inspiration in the 1970s) can transition successfully into sustainable economic growth as the zone is wound down, or whether by special pleading or inertia, breaks and incentives remain in place to stop 'capital flight'. A persistence of low-wage jobs, rapid turnover of firms, little inward investment, or persistent subsidy to enterprise, would not indicate a successful transition.

United Kingdom

In the UK, a government-commissioned evaluation in 1987 found that from 1981 to 1986 the enterprise zones had cost nearly £300 million, but 2,800 firms were established in them, employing over 63,000 people. Taking local transfers into account (a notable example being the Merry Hill Shopping Centre in the West Midlands, which largely consisted of stores which had relocated from the nearby town of Dudley), only 13,000 net jobs had been created; a possible reason why the government began to prefer urban development corporations as its main vehicle for urban renewal. However, a notable success has been the London Docklands, largely derelict and with unsatisfactory transport infrastructure thirty years ago when a zone was first established, now a financial and media powerhouse.

On Wednesday 23 March 2011. Chancellor George Osborne announced that 21 new Enterprise Zones will be created in England. The first of the new zones will be based in Leeds, Liverpool, Sheffield and Greater Manchester, and The West of England. The North East of England will see one based in the Tees Valley. The Midlands, Nottinghamshire, The Black Country and Derbyshire will benefit, and a suitable area in London has been selected by the Mayor of London, Boris Johnson, in the form of the Royal Docks in the borough of Newham. Other authorities have been asked to tender applications for the remaining zones.

United States

The Evansville, Indiana Enterprise Zone Program was established in 1984 as one of Indiana's first five enterprise zones. A study published in 1989 by Barry M. Rubin and Margaret G. Wilder examined the 2.1 mi.² area using the technique of shift-share analysis to determine whether the zone was having a measurable impact on local economic development. (The choice to use the shift-share analysis method with the larger metropolitan area as the reference region allowed Rubin & Wilder to go a step further than previous studies and exclude "external effects" that might be stimulating or depressing regional economic growth and development.) The study found that the Evansville zone did provide significant employment growth that could not be accounted for by external effects or the industrial composition of the zone itself. The zone was also found to be extremely cost-effective in its job creation.

See also

• Special Economic Zone

Further reading

• Peter Hall. 1991. The British Enterprise Zones. in Roy E. Green (ed). Enterprise Zones: New Directions in Economic Development. Sage.
• Hyman, W. 1998. EMPOWERMENT ZONES, ENTERPRISE COMMUNITIES, BLACK BUSINESS, AND UNEMPLOYMENT. Washington University Journal of Urban and Contemporary Law. 53: 143-170.

External links

• New Jersey Department of Taxation
• [2]
• Enterprise Zones: Historical Perspective and General Background
• Race, Entrepreneurship, and the Inner City by John Sibley Butler
• Enterprise Zones: A Review of the Economic Theory and Empirical Evidence
• Imperial Valley Enterprise Zone