Power in Name Only

Quietly, almost with embarrassment, the Clinton administration last week designated poorer parts of Los Angeles as “empowerment zones”--a 1990s’ name for “enterprise zone” programs offering tax breaks and subsidies to businesses in neglected areas--six years after the 1992 riots. Together with the federally backed Community Development Bank, which the administration hastily invented for Los Angeles when the city was shockingly shut out of earlier urban-aid programs, the zone is billed as a multimillion-dollar effort that will revitalize struggling communities.

It almost certainly won’t. At best, empowerment zones and similar tax-subsidy programs generate only the most limited results. Worse still, they divert energy from curing the political pathologies that drain jobs from larger urban areas.

The Community Development Bank is a case in point. Launched in early 1995 with $430 million in promised federal funds and grand political rhetoric, it did virtually nothing for two years, making just 13 loans affecting, at most, 200 jobs. Even if the bank’s performance improves dramatically, it cannot possibly amount to more than a blip in the economy of the neglected area--18,000 companies, $54 billion in annual revenues and 376,000 employees--it serves.

Empowerment zones won’t add much. Los Angeles’ $600-million incentive program won’t even kick off until 1999 and will be phased in over several years. Nationwide, the administration seeks just $1.7 billion for urban empowerment zones, just a fraction of the $6.8 billion it wants to fight the speculative threat of global warming.

Perhaps, it’s just as well. Of the six major empowerment zones created since 1994, only two--Detroit and Baltimore--show any signs of life, and even there experts can’t agree if tax subsidies, or something else, deserves the credit. Over the last 20 years, 34 states and 106 smaller communities set up empowerment and similar programs, but the vast majority of the companies in the designated areas ignored the effort either because they didn’t care or the oversight burdens were too onerous. Successes are modest. A recent survey of more than 350 zones showed that, on average, they “created” just 460 jobs over two years.

A University of Louisville study of one of the nation’s oldest programs, a 46-square-mile zone in Louisville’s West End, found that, since 1983, the zone actually lost jobs and population and property values stagnated, even though similar areas with no incentives prospered. Reports abound of abashed local bureaucrats seeking reimbursement when companies squander tax savings on luxuries, fail to create promised jobs or leave the zone once tax benefits are realized. All too often, empowerment and similar tax breaks go to the wrong companies for the wrong purposes without accountability.

Planners concede there’s no consistent way of measuring the job-creating effects and costs of tax subsidies, including the vexing question of whether the money would have been better spent in other ways. Small wonder that a 1996 review of years of empowerment-zone programs concluded that they “have not lived up to the broad panacea-like imagery conjured up by early federal proposals and rhetoric.”

So why do politicians still hawk such wares?

One reason is that tax subsidies offer one of the last opportunities for political patronage. One of the most frequently cited reasons for the lack of success to date is that local officials carve up empowerment programs to suit political, not economic, priorities.

More troubling is that empowerment zones help political leaders ignore the reality that big-city governance is simply incompatible with America’s increasingly decentralized, entrepreneurial economy. To an unmatched degree, urban areas are dominated by special-interest groups and political philosophies that subject even the most routine functions--building permits, sewer hookups, parking--to seemingly unbounded discretionary review. In a fast-moving world in which uncertainty can be fatal, more and more companies prefer to do business in smaller, responsive urban areas or in self-consciously pro-development suburban and rural communities.

The trend away from cities is unmistakable. For the first time in history, non-metropolitan job growth is more than double the rate in U.S. major cities. Average incomes in places like Newark, Detroit, Cleveland, Buffalo or St. Louis are now half the level of their surrounding regions. Detroit, touted as an empowerment-zone success, has a 30% poverty rate compared with 6% in its affluent, booming, suburban ring.

While many blame demographics for such results, big-city governance is the major culprit. Smaller cities like Vernon, Huntington Park, Santa Fe Springs or Commerce are hardly wealthy white enclaves poaching business from a less desirable Los Angeles. They succeed, in some cases, spectacularly, because they clearly set overall land-use, environmental and community goals and administer them in a relatively predictable, fair and efficient way.

Tax subsidies will do little to revitalize crumbling areas like South Los Angeles, for example, until antiquated zoning laws are changed to allow lot sizes or building configurations consistent with what the economy demands. But rezoning strips local officials of the power to review each project on a discretionary basis and extort whatever concessions the urban special interests they serve might want. Rather than tolerate such risks, most businesses, especially smaller companies, go elsewhere.

Older urban areas also face unique environmental challenges since nearly all their land is contaminated by previous, long-defunct users. Unlike pristine suburban or rural sites, an inner-city project has to cope with Byzantine environmental liability rules that can cripple new businesses even if they had nothing to do with problems from decades ago.

Government officials counter with “brownfield” environmental policies that would permit inner-city, contaminated-site cleanup and reuse. Yet, even the most basic principles of such efforts, especially the need to scale the amount of cleanup necessary to end uses rather than a pre-industrial “state of nature,” are mired in ideological controversy. Facing the prospect of rabid environmental opposition that can delay projects for years, inner-city sites that are natural industrial or commercial centers languish in decay.

Political caprice not only thwarts revitalization, it tragically generates the inequality liberal urban elites say they most want to cure. Since only the most wealthy or politically connected can hope to navigate through big-city bureaucracies, urban economies become increasingly stratified between a small pool of high-paying jobs and devastated middle and lower classes.

New York, home of one of the original empowerment zones, loudly proclaims its comeback. But while it may be party time for a privileged few on Wall Street, the city’s manufacturing-job base--the lifeline for aspiring working-class families--continues to fall from 610,000 in 1980 to just 250,000 today. According to the Center for Budget and Policy Priorities, the city has the nation’s largest disparity between its wealthiest and poorest citizens. Its regressive business-development approach has also opened the country’s widest gap between middle- and upper-class incomes.

Given the administration’s promise to “reinvent government,” it would be natural for it to champion an urban policy that reverses the painful economic decline of U.S. cities by pushing local leaders to define goals and pursue them with clear, predictable, non-discretionary rules--the secret development strategy of communities as politically diverse as Santa Monica, Glendale or Fountain Valley. Tragically, because this would mean curbing traditional, heavily Democratic urban power brokers, truly effective revitalization programs are dismissed in favor of political expediency.

Years ago, a well-known Swedish economist advised development officials in his country that “it is not by . . . subsidizing tree planting in a desert created by politicians that the government can promote . . . industry, but by refraining from measures that create a desert environment.” Unfortunately, empowerment zones, like all urban programs that ignore the more fundamental problems that cripple urban economies, simply churn the dust.