Enterprise Zones are a 1980s solution to a 21st century problem
Authors: Chris Brown
28 February 2011
Evidence and experience has shown us that Enterprise Zones have failed to deliver long term improvements to social conditions, employment and economic growth in the areas they have been implemented. With each new job created costing up £50,000 through the creation of temporary economic activity, our report ‘Do Enterprise Zones Work?’ has underlined the expensive, archaic and artificial nature of this economic strategy.
The Coalition Government has dropped heavy hints that a new wave of these Enterprise Zones is to be announced in next month’s budget. It seems like a great idea on the surface: Identify areas that are struggling both socially and economically, and give businesses a range of incentives to locate themselves there.
However, up to 80% of jobs created are in fact displaced from nearby locations, while the benefits typically last for only around 3 years of their 10 year remit. We can update them all we like, but Enterprise Zones are unlikely to prove a successful economic strategy in the 21st Century.
The evidence from the UK’s experience in the 1980s suggests that Enterprise Zones led to few long - term improvements. Moreover, in the U.S.A. where Enterprise Zones have also been implemented and continue today, there is more evidence that they are an ineffective policy. In California, they have a net cost of up to $300m per annum, and have little discernible impact – and now California is looking into to scrapping them.
There are some positive aspects of Enterprise Zones: for instance, fast-track planning helps businesses to invest quickly without significant cost to the taxpayer. But why confine these incentives to Enterprise Zones? Diluting good policies like these into a shaky policy framework like Enterprise Zones seems counterproductive, and might even hinder growth if they put other, more competitive, parts of the UK at a disadvantage.
So what should we be doing instead of Enterprise Zones? Rather than looking for quick fixes, we need to focus relentlessly on making our towns and cities more competitive. This means making targeted investments in skills, infrastructure and innovation – the same investments that would be cut to pay for Enterprise Zones. Such policies would be far more conducive to encouraging longer term growth and prosperity. The benefits of investing in local competitiveness are just as likely to stimulate growth and improvement in an area but also provide genuine and lasting improvements at a considerably reduced cost.
Any attempt to re-introduce or re-design them will not constitute a pragmatic or cost-effective programme. Moreover, a central government-driven policy is likely to fly in the face of the government’s localism agenda.
The Coalition Government needs a long term strategy that can help struggling places while boosting the UK economy. Without such a strategy, Enterprise Zones will be little more than a quick-fix, slogan strategy at substantial expense to the UK tax payer.
All blog posts for this author