Enterprise Zone

Enterprise zones (EZs) relate to a special policy meant to attract investment and to encourage economic growth in distressed areas. Grounded in a free-market economic principle, this policy consists of mainly fiscal incentives for companies operating within a designated area. EZs are located in declining urban and rural regions with high unemployment, poverty, vacant land, and deteriorated infrastructure. In the United Kingdom (UK), EZs are linked with the regeneration of former industrial sites, whereas in the United States, enterprise zones are often linked to inner-city economic downturns. EZs marked the shift from the Keynesian economic model, which favors an active government and controlled growth, to the need for economic revitalization by any means. The concept has seen resurgance during the recent economic crisis, despite evaluative research questioning the effectiveness of enterprise zones.

The concept of enterprise zones is attributed to British urban planning professor Peter Hall, who, inspired by Asian freeports, saw in EZs an “extremely last-ditch solution” to be tried “only on a very small scale” following the collapse of the UK manufacturing industry. Margaret Thatcher's administration initiated Many EZs as a quick fix for abandoned industrial areas. In the United States, Stuart Butler, the director of a conservative think tank, is credited for the concept. During the Ronald Reagan and George H. W. Bush administrations, more than 40 states developed EZs according to their own legislation. However, not until 1993 was the first federal program legislation enacted. Initially, the liberal and Democrat members of Congress were skeptical about the feasibility of private-sector growth tackling poverty and complex social issues. There was also a concern that the policy would provide rationale for eliminating other urban aid programs. Evaluations, such as a 2005 review of EZs by the Minnesota House of Representatives, validated this concern.

The rationale behind the EZ program is that a free market is a solution for overcoming concentrated poverty or for reviving the local economy in abandoned industrial areas. The underlying assumption is that high costs are the main barrier to economic activity in disadvantaged areas. Declining areas pose transportation problems; have poor capital, low-skilled workers, and high criminality; and raise safety concerns and costly environmental problems. Research such as that by Wilton Hyman shows that small enterprises provide the highest economic advantage because, unlike larger companies, they are more likely to (1) find existing infrastructure sufficient, (2) create the largest number of new jobs, (3) hire local unskilled labor, and (4) risk operating in marginal neighborhoods.

Across the United States, the enterprise zone program provides a large variety of incentives and eligibility criteria. Generally, companies benefit from cost-saving mechanisms (e.g., hiring-tax credits, loans at below-market interest rates, and reduced sales taxes) and, in some cases, less government regulation. Companies (and individuals) are eligible if they have an office location or manufacturing facility within the boundaries of an EZ, and if they hire employees from an EZ or have equipment operating there. In California, for instance, the hiring-tax credit can amount to 50 percent of the entire salary of an employee.

...