Freeman

ARTICLE

A Reviewers Notebook: Enterprise Zones

JANUARY 01, 1982 by JOHN CHAMBERLAIN

The idea of establishing Enterprise Zones, small free trade enclaves with special tax concessions, in the slum areas of our decaying central cities, was brought to America by a British economist, Stuart M. Butler, who works for the Heritage Foundation in Washington, D.C. In a generous foreword to his book on the subject, Enterprise Zones: Greenlining the Inner Cities (Universe Books, 381 Park Ave. South, New York, NY 10016, 175 pp., $12.95), Mr. Butler credits the concept to the collaborative thinking of Professor Peter Hall, a former President of the socialist Fabian Society, and Sir Geoffrey Howe, a Conservative Member of Parliament.

For a Fabian “planner” to take part in advocating the creation of miniature Hong Kongs and Singapores in British cities that are more or less dominated by interventionist trade unions may seem passing strange. The British Trades Union Congress doesn’t like Professor Hall’s defection at all—it has predicted that “rogue employers” would capitalize on special tax concessions in Glasgow, Liverpool, Manchester and the Isle of Dogs docking area in London to reproduce Hong Kong’s “horrors.” But Hall is willing to take a calculated risk: “unorthodox ideas,” he says, are sometimes called for. As for Sir Geoffrey Howe, the Conservative, he doesn’t regard the Enterprise Zone idea as any risk at all.

Stuart Butler, while he remains fearful that the British will mess up a good idea, thinks the Enterprise Zone is just the thing for America. He has a thorough grasp of what has happened to change demographic patterns in this country. Our northeastern and Great Lakes cities have suffered as industries and people have moved to the Sun Belt. Skilled and educated people, in search of more pleasant life styles, have emigrated to the suburbs. Port areas and railheads, while still important, cannot compete with interstate highways as a locale for new busi nesses. Fate has singled out special cities for special blows—Buffalo was by-passed by the opening of the St. Lawrence Seaway, and Detroit is suffering from being a one-industry town that has lost much of its automobile market to the Japanese.

Urban Blight

Our political efforts to halt urban decay have been markedly unsuccessful. The zoning that eliminates small shops from public housing areas has deprived city blocks of the variety needed to keep them alive. As Jane Jacobs has pointed out, crime doesn’t flourish in mixed neighborhoods, where there are always watchful people on the streets and porches. But when “planning” segregates shopping and residential areas, the mugger and the rapist flourish. And when rent control is piled on top of everything, the whole housing picture deteriorates. Landlords can’t afford to improve slum properties, and new builders are discouraged.

To end the blight, Mr. Butler suggests that municipal, state and federal governments get together to allow islands of free competition to grow in such places as New York City’s South Bronx. A general package of federal tax and regulatory concessions (suspension of the minimum wage, modifications of Social Security and the like) would be offered provided the city agreed on matching concessions of its own. The tax concessions would combine with the plentiful existence of old buildings to lure small enterprises to semi-abandoned areas. There would be employment for local people, and the welfare rolls would shrink.

On paper, the Enterprise Zone theory sounds good. In England, bigger companies have shown more interest in it than small innovative firms. The danger is that a big established company would be interested in shifting its location to an Enterprise Zone just to get away from taxes it has been paying elsewhere. This would not result in any net increase in employment. Mr. Butler doesn’t think this sort of thing would necessarily happen in America, where there are plenty of inexpensive “make-do” old buildings still standing in slums where new ideas could be hatched without raising capital for construction costs. New businesses need old edifices, says Mr. Butler. Tax incentives could be geared to favor new small companies over mature companies that would merely be trying to relocate.

Jack Kemp Espouses

Congressman Jack Kemp was quick to catch on to the Enterprise Zone idea. Significantly, he comes from the Buffalo region of New York State, which has lost its importance as a grain terminal now that ships sail past it to the Atlantic by way of the St. Lawrence Seaway. Kemp is a Republican, but he found no difficulty in getting a Democrat, Congressman Robert Garcia of the Bronx, to join him in introducing an Enterprise Zone bill that has had the favorable attention of the White House.

The Kemp support of the Enterprise Zone concept is attended with a bit of irony. For Kemp, more than anyone else in Congress, is committed to the idea that the whole United States should be one large Enterprise Zone. Kemp has thought of the 5-10-10 Kemp-Roth tax cuts as a mere beginning. If the annual income tax of thousands of businessmen could be made sufficiently low to leave them with something tangible to put into expanding their companies, the Enterprise Zone would not be able to compete with the rest of the country in job-making.

It could be, of course, that Jack Kemp, as an old professional quarterback, knows the value of having alternative game plans. His advocacy of a return to the gold standard indicates that he doesn’t believe tax cuts in themselves will solve our problems. The Enterprise Zone, with Kemp, could be a stop-gap proposition.

The trouble, is that it is the sort of idea that Congress, with more pressing problems on its mind (not to mention the imminence of coming elections), can find very little time to debate. The big picture seemingly calls for an eternity spent on fighting over budget cuts and the need for displaying “compassion.” The talk is always of orphans and indigent old ladies who might suffer if a tax rate is changed and an “entitlement” cut. There is no attempt to look at things in dynamic terms. If Congress could hurry up and enact the legislation needed to create an Enterprise Zone in the South Bronx, Newark or Detroit, the need to worry about “safety nets” and “entitlements” could diminish.

Maybe the Enterprise Zone idea would come to little anyway. But it would be good to test the virtues which Stuart Butler claims for it. If it were to succeed even in one little area, it would stand as an example for the whole country. The whole nation would be that much closer to becoming one big Hong Kong.

ASSOCIATED ISSUE

January 1982

comments powered by Disqus

EMAIL UPDATES

* indicates required
Sign me up for...

CURRENT ISSUE

July/August 2014

The United States' corporate tax burden is the highest in the world, but innovators will always find a way to duck away from Uncle Sam's reach. Doug Bandow explains how those with the means are renouncing their citizenship in increasing numbers, while J. Dayne Girard describes the innovative use of freeports to shield wealth from the myriad taxes and duties imposed on it as it moves around the world. Of course the politicians brand all of these people unpatriotic, hoping you won't think too hard about the difference between the usual crony-capitalist suspects and the global creative elite that have done so much to improve our lives. In a special tech section, Joseph Diedrich, Thomas Bogle, and Matthew McCaffrey look at various ways these innovators add value to our lives--even in ways they probably never expected.
Download Free PDF

PAST ISSUES

SUBSCRIBE

RENEW YOUR SUBSCRIPTION