Investors across the US are salivating at the tax incentives announced recently for investing in depressed “opportunity zones”. Such “place-based” policies recognise that even though nationwide unemployment is at lows not seen in decades in many industrial countries, there are a large number of communities that growth seems to have forgotten.
Many of these depressed communities are in semi-rural areas, but some are also found in thriving cities. Economy-wide stimulus measures such as low interest rates do little for such places, which have decoupled from the broader economy. Nevertheless, tax incentives for investment in these areas are, at best, partial measures. For them to work, we need to rethink the process of community revival.
That there are economically depressed communities is not news. What has changed is that the information technology revolution has now made a very good education or highly-developed skills prerequisites for well-paying jobs. It is much harder for young people to acquire them as social institutions collapse in communities hit by economic adversity, and the quality of local schools deteriorates. The most able people escape, leaving the rest even more deeply mired.
The praiseworthy objective of the opportunity zone initiative is to channel economic activity directly to these areas in an attempt to halt, and even reverse, the vicious cycle of hardship and social decline. Unfortunately, though, without adequate planning, even an investment creating good, well-paying jobs may be wrong. Too few people in the community may have the skills to get the jobs, while the influx of skilled outsiders can raise rents and property taxes, pushing out long-term residents. Amazon’s decision to build its new headquarters in Queens in New York, promising 25,000 jobs paying an average annual salary of $150,000, was the ideal outcome of place-based tax incentives. Yet, local politicians rejected it.
Clearly, there were many ways the community could have benefited from the Amazon investment. However, because the decision was negotiated by high-ranking company and city officials without taking the community into their confidence, these were left unexplored and unpublicised.
To revive a community, success stories suggest place-based policies have to dovetail with the wishes of local residents. The latter can identify hidden resources as well as critical impediments, which is why their involvement is important.
In Pilsen in Chicago, for example, locals understood that they first had to reduce crime if the neighbourhood was to become attractive to businesses. Community leaders lobbied the licensing authorities to close down seedy bars where criminals congregated, and encouraged locals to report criminal incidents to the police collectively (so that gangs could not target individual informants) and to come out on the streets after criminal incidents so as to “crowd out” further crime. Businesses and jobs are now pressing in.
While communities should lead efforts, none of this is to suggest that they can do it all on their own. The government can help declining areas hold on to talented people, for they are potential leaders. The college loans of those who return to live in these communities for a number of years could be forgiven, so that college becomes a route to upskilling locals, not a means of escape for the talented. And the top few students in every publicly-funded school could be given an automatic place in the state’s public university system. Distressed communities could also be offered their choice of professionals who apply to immigrate into the country — with a requirement of the initial visa being to spend a number of years in their area.
Funding is important. Untied government funds can be devolved to the local community giving it the equity to seed necessary projects. Private capital, drawn by opportunity zone incentives, can augment these funds. But it has to be built initially around the community’s own development plans.
The government can also offer its expertise where it is useful, and share best practice across communities. It can collect data on metrics such as the use of funds, the quality of local jobs and the flows of residents, and then publicise this, allowing residents to gauge the performance of leadership. And, of course, the government can provide for infrastructure such as broadband access or physical access such as highways, tying remote communities to larger national and global markets.
The growing tide of populism reflects a dissatisfaction of many distressed communities with their current predicament. Greater empowerment will give the people living in them a renewed sense of agency, helping them tackle their uncertain futures. If the tax incentives granted to opportunity zones support bottom-up policymaking, they can work well. But if they are just a boondoggle for investors, then we will have failed yet again to tackle one of our most pressing problems.
The writer is author of ‘The Third Pillar: How Markets and the State Leave the Community Behind’
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