Clinton enters twilight zone of inner-city aid

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FOR MORE than a decade, the US has tried and failed to enact a national programme of enterprise zones to regenerate blighted areas. Now President Clinton is trying again, announcing a modest programme to stimulate jobs and development in 110 of the country's most depressed areas at an initial cost of between dollars 5bn and dollars 6bn.

It is just the sort of 'new Democrat' policy promised by Mr Clinton during his election campaign, embracing programmes conceived and supported by opposition Republicans but equally attractive to Democrats. But whether it will turn out to be a failed policy from the Reagan-Thatcher era or a new beginning is very much open to question.

The US experience with enterprise zones has been chequered. As early as the 1970s, with images of racial and civil unrest still fresh, a group of conservative Republicans led by Jack Kemp borrowed an idea from the British and proposed a national system of enterprise zones. To their surprise, liberal Democrats warmly embraced the programme as the answer to inner-city deprivation. The Carter Administration briefly considered the programme but rejected it.

It was not until the advent of Ronald Reagan, who supported the project with ideological zeal, that its British perpetrator, Peter Hall, actually received due US recognition. The Reagan team made the zones the centrepiece of US urban policy. The programme was sold as the means of getting government off the backs of business and of spawning a new generation of inner-city entrepreneurs.

Curiously, despite liberal Democratic support, they were unable to convince Congress, largely due to the opposition of some big power brokers, notably Dan Rostenkowski of the House Ways and Means Committee. Then - in response to the Los Angeles riots - President Bush convinced Congress to support a programme that he later vetoed, because it contained some tax increases.

However, in anticipation of a national programme in the 1980s that promised large federal subsidies, 37 states adopted projects, according to Franklin James, a professor at the University of Colorado. He says that the history of these zones has been very mixed. None have lived up to the expectation of a 'miracle cure' for urban blight and joblessness. Indeed, most studies of US zones criticise them as expensive tax subsidy programmes that have failed to stimulate job opportunities. In one of the most successful programmes in New Jersey, it was found that many of the firms lured there by tax incentives had failed to employ any of the local residents who were supposed to benefit. The daily movement in and out of the zone of better-educated suburbanites was in itself a source of friction.

According to Professor James, the costs per job of New Jersey's programme were between dollars 8,000 and dollars 13,000, modest in comparison to Mr Hall's estimate of costs per job in British zones - between dollars 30,000 and dollars 60,000. However, the New Jersey estimate was only for the first year, and firms will receive tax subsidies for many years. This is not to suggest there were no good results. Some zones, by attracting business and spawning redevelopment, became the catalyst for large areas of urban regeneration.

The Clinton Administration, seeking to learn from past mistakes, has proposed the most ambitious programme so far. It imposes tough conditions on projects reminiscent of International Monetary Fund terms for programmes in developing countries. Of course, the emphasis is different. The IMF assesses macroeconomic results, while enterprise zones are microeconomic projects. But the analogy still holds.

Under the Clinton proposal, an Enterprise Board comprised of Cabinet departments and other agencies would review each project and provide 'one-stop shopping' for local officials seeking everything from federal housing support to job training and crime fighting. Projects deemed not up to the mark would be either rejected or sent back to the drawing board. Initially, the board would select 10 'empowerment zones' (six urban, three rural and one native American reservation) to be eligible for big development and wage-creation tax credits.

Companies would get a dollars 5,000 tax credit for the first dollars 20,000 in wages earned by a worker living in the zone. The idea is to focus the biggest resources on a small number of zones to learn what actually works.

The danger, of course, is that with so many bureaucrats involved, the zones could be turned into expensive 'Christmas trees' of federal goodies doled out by mayors, governors and congressmen without regard for longer-term benefits.

Another concern is the kind of support that is likely to be offered. Much like newly liberated capitalists in Russia, people living and working in the zones will require strong technical support to succeed. They might also benefit from the kind of 'Marshall Plan of the Mind' approach that the BBC has undertaken in special programming for Russia. The point being that tax incentives alone will not do the job. The most promising approach appears to be a relatively contained federal programme aimed at stimulating investments by states and cities that are much closer to local needs.