Enterprise Zones - Do they actually work?

It's one of the ways the UK Government intends to re balance the English economy and promote sustained economic growth. It's been suggested that Wales follow suit, with huffing and puffing that the Welsh Government are dragging their heels.

Does this blast from the Thatcherite past really cut the mustard? Did it ever?

The Enterprise Zone Concept

It's pretty simple.

Land is set aside (currently there are as many as 30 proposed enterprise zones in England) by bidding local authorities - for example, prime development land, part of an industrial estate or an area in need of regeneration. Planning conditions would be relaxed/the process sped up, high-speed broadband would be made available and business rates would be reformed or discounted.

The plan is to create as many as 30,000 jobs. That's that many in the grand scheme of things when you consider unemployment has risen by 38,000 in the UK in the three months to June alone.

The intention is that these 30,000 new jobs would be highly-skilled, blue chip jobs by growing "British" companies. Effectively, these enterprise zones would act as a petri dish for the up and coming companies in growth industries.

What many fear - not without foundation - is that all that will happen is that jobs will simply move from London and the South East to the new zones to take advantage of the relaxed restrictions. In effect, there'll be no net jobs created, just a shift which might have a (negligible) positive impact with regard spreading wealth out from the London/South East England bubble.

If they build it, will they come from Wales?

One of the fears expressed by those finger wagging at the Welsh Government is that Welsh companies could be enticed across the border to one of these enterprise zones if a similar policy isn't enacted in Wales. A major enterprise zone is planned for Bristol, as well as Hereford, the Black Country and Birmingham.

I'd question the viability of any business that moves based on cheaper business rates, fast broadband or relaxed planning rules. I doubt any company is seriously going to set up in one of these zones based on any of these factors. It comes down to more fundamental issues:

Regional skills, access to markets and access to influence (power).

The profiles of Bristol and Cardiff are very similar, with Cardiff coming out of top in many respects such as : numbers of graduates, cheaper office space, and lower cost of living. Bristol however has a superior airport, two better regarded universities, a wealthier hinterland and is closer to London.

Cardiff's ace however, is what the business community is criticising – the Welsh Government.

Bristol has a local council with minimal economic powers and a distant "national" government that has to juggle several large cities. Cardiff has an ambitious local council and is home to a national government that (mind-boggling bureaucracy aside) has always been flexible towards business assistance. The only problem is who's in charge of the Welsh Government and Welsh economy at the moment - at both ends of the M4.

• All of the Welsh parties were committed to some kind of business rate reform in the May election.
• The Welsh planning system is due to be reformed off the back of the Economic Renewal Plan, and the Welsh Government's legislative programme.
• Cardiff has plans for a "Central Business District" of its own, with the previous Welsh Government and Cardiff Council committing a combined £60million towards the project (and it's fair to say that even this isn't enough). That sum dwarfs the £10m that Wales would receive via Barnett formula consequentials for enterprise zones.

These are many of the highlighted benefits of the enterprise zones, of which a large chunk would apply across all of Wales.

Prof.Dylan Jones Evans made a characteristically good case for enterprise zones back in June as a way to promote growth sectors in some parts of Wales. However, as I pointed out in a post a few weeks ago about Cardiff and Swansea, both cities are gradually specialising their respective economies without the need for enterprise zones and with Welsh Government and private sector support.

I wouldn't be packing the bags for Hereford just yet.

The track record of enterprise zones

The idea isn't a new or radical one.

The United States also set up "Urban Enterprise Zones" in the 1980's. Globally, there are numerous examples of "free trade zones" or "special economic zones".

Enterprise zones have worked in the past. Most of Wales' large industrial estates, like Treforest and Bridgend, were set up in the post-war era and the still remain large centres of employment.

In the 1980s, the then Conservative government followed the same tact. Centre for Cities research suggests that these 1980s enterprise zones were far too expensive, with every job created costing £26,000. A few enterprise zones ended up as shopping centres, like Dudley. They didn't create the kind of jobs that were expected, or in the numbers needed, to make an impact on unemployment. The obvious exception to this is the London Docklands, which became a global centre of financial services.

The question we should be asking is how would we measure success?

• Is it the number of business births on EZ's?
• The number of jobs moved from London and SE England?
• The number of completely new jobs created on EZ's?
• The value added of EZ businesses?
• The types of jobs created on EZ's?

The UK Government haven't made it clear what would qualify as a successful enterprise zone.

Skepticism isn't limited to amateur commentators like myself. After this year's budge,t the Institute of Fiscal Studies are quoted as finding that the 1980s precedent "was not encouraging as the extra firms and jobs created were mainly due to firms relocating from nearby areas."

Different options for Wales?

Here's a few of my own ideas:

• Use some existing industrial estate units as incubators for university and FE College spin-out companies, with discounted rents, business mentoring and focused government support. Treforest estate for example could be used by Glamorgan University, UWIC and Cardiff University.
• Extra Welsh Government assistance/funding for IP protection via Finance Wales.
• Properly investigate a Welsh stock exchange.
• Have some sort of national "high growth company" strategy, focusing on business franchises, businesses rapidly seeking expansion both within the UK and abroad, high value added exporters and high-value mergers between Welsh companies.
• Encourage and assist employee takeovers/cooperatives of companies outsourcing/relocating outside of the EU.
• The long term replacement of business rates with a tax based on ability to pay, not ratable values of property (i.e. Local sales tax, local income tax).