I agree with the argument that government interference with business is always misguided but this article is so poorly argued and so full of holes I am almost tempted to reconsider my view.

If you really want to create jobs, enterprise and wealth the tax burden on ALL businesses needs to be reduced.

I know very few around here will believe that but…….

They didn’t work before and there is no reason to suggest that they’re going to work now. This is another attempt to remove workers rights.

It may or may not be the case that enterprise zones are a good idea, but this post is twaddle.

The author prefers grants for fixed capital investment. It is not obvious how grants differ from cold hard cash lavish gifts to corporate interests etc. The author complains that economic activity directed towards enterprise zones merely diverts economic activity from elsewhere. Firstly, diverting economic activity towards high unemployment regions is a perfectly sensible (and left wing) idea, secondly this point applies to all forms of industrial policy, including grants for fixed capital handed out by a real Green investment bank. The author complains that tax breaks cost the exchequer because firms locate there to cut their tax bills. Yes, that’s known as spending money to encourage investment and divert economic activity towards high unemployment areas: see also, grants for fixed capital, which last time I looked, also cost money. The “cost per job” via tax-breaks is cited as if it is self-evidently too high – but without giving a “cost per job” from a real Green investment bank planning walkable mixed-use communities. Incidentally, lots of left wingers (myself included) think that the government should be spending more/cutting less to boost employment during the current recession. You might want to check out some cost per job calculations from fiscal stimulus. I could go on.

(in what sense is a business park “parasitic”?)

Tell you what removes workers rights more, is no bloody work.

Tend to agree that EZs are a bad idea, but also with Luis @3 that the reasoning in this article doesn’t convince. Like Luis, I’m wary of of an argument against redistribution to the regions/areas of high unemployment – isn’t that what HSR is supposed to be about (though it wont work like that)? – and Luis us right that 23k for the creation of a FTE job is pretty standard – it’s around that figure that the Regional Devt Agencies have been working to for years.

However, I agree that investment in more deprived areas would be much better going into the development of public infrastructure which facilitates (the right kind of) business development, rather than straight into tax breaks for big sheds on the edge of town). The key argument against the EZs here should be about deadweight – that money is going out to firms that they would spend anyway if the investment conditions were appropriate, including for example convenient public transport infstastructures/bike routes.

This deadweight argument (which will also appear big time when the Regional Growth Fund successful applications are revealved by Clegg next week) can and should be boiled down to a simple political narrative – the Tories tell poor people that hand outs are not good for them in the long run, but that’s exactly their preferred way to stimulate business. Instead we should argue that govt should create the conditions in which businesses help themselves to grow (either through a Green/state investment bank or through the existing lending routes that the the govt could do with acting to free up).

The other main thing undercooked in the article (though that may be because of the editing) is the relationship between EZs and the repatriation of business rates and the way this will lead to collapsev in local service infrastructures at just the same time as Enterprise Zones and their new businesses (post tax-break) are supposed to be supporting them. This is contradictory (but I suspect wilfully contradictory) government policy. Here’s my tuppence on that http://thoughcowardsflinch.com/2011/03/17/so-you-think-the-cuts-are-bad/

I don’t know if enterprise zones are a good idea or not but, as others have said, this piece is fill of holes. I’m no more informed or convinced now than I was previously. The only thing it’s achieved is to convince me that Gary Dunion is not someone whose opinion I want to take on economic matters.

The author wants to give money to business in return for those businesses accepting the author’s view of what an urban landscape should look like.

The government plans (hopes, wishes on a prayer) that giving money to businesses will create jobs in areas of high unemployment.

If giving money to business to locate will not work, neither of these will work. If giving money to business to locate has only a slim chance of working (or marginal effect) then the simpler policy has a greater chance of fulfilling its aim. In this case the government’s.

So the author’s argument fails on both counts.

I would rather they made the whole country an enterprise zone. Displacement and shuffling around is an obvious point but as Luis and Paul says that need not be a bad thing. It is important that an EZ should have some sort of provisions for the employment of local workers from the depressed area to make a real impact. It is unrealistic to expect an EZ to be a miracle cure for an economically depressed region. The region will be economically depressed for multiple reasons and not because the private sector decided collectively to punish them. Poor demographics and low skill base means the private sector are reluctant to invest and the lack of investment and opportunities leads to a deterioration in the demographics as young people with skills move away from the area. Even if an EZ is something of a sugar pill it could help to arrest that decline.

Cost per job may not be that accurate because there could be lots of savings from other spending that is not often counted in the calculation.

I can’t believe anyone would defend the UK planning system. It is the worst in the world and nothing but a NIMBY and BANANA charter for obsessives. Moreover, the Work Foundation study you cite says relaxation of planning regulations is effective. I like the Ed. Davey and Tim Leunig plans for land auctions as a way of bringing land into use for house building and it could be extended to other use.

By Edward Davey and Tim Leunig

Published: July 24 2007 19:08 | Last updated: July 24 2007 19:08

“The politics of British house prices have changed. For years, rising house prices were an electoral asset. No longer. Many homeowners who once welcomed this situation now face having to pay for their children’s houses. For the middle classes, rising house prices have become an affordability crisis.

No one wants falling house prices. What we want instead are house prices increasing more slowly than earnings, making housing more affordable over time. Given rising household numbers and incomes, only more housebuilding can deliver that goal. The government now understands this. After a decade of pitifully low levels, it has announced new housebuilding targets.

If only it were that easy. The government has missed such targets for years. There is no reason to think that Britain will build 240,000 houses next year. It may even fail to hit the previous target of 190,000 houses. The reason is simple: central government has created a planning system that gives local authorities no incentive to grant planning permission. Local people generally oppose new housing and the gains councils make from “section 106” payments – made by developers to help offset the cost of local infrastructure created by a new project – are tiny.

The government has proposed a planning supplement to give councils a “modest” proportion of the rise in land values from development. Yet when this was tried before, it failed. When one company owns the land continuously its value is hard to ascertain. Further, landowners can sit on the land until the planning supplement is abolished. This policy could mean less, not more, housebuilding. No wonder Monday’s green paper promises not to introduce the supplement until at least 2009 and then only if government is unable to come up with a better plan.

So what incentives would encourage landowners to offer land and persuade local authorities and communities that development works? Gordon Brown, prime minister, and Yvette Cooper, housing minister, should look to auctions, which proved so profitable in the sale of 3G mobile phone licences.

We propose a two-stage land auction system to replace the way planning permission is granted. It aims to encourage more land to come to market and give communities new incentives to accept more homes.

In stage one, the council asks any local landowners to submit sealed-bid letters stating the price at which they are willing to sell their land. Without existing planning permission – which would make the land more valuable – many landowners would be delighted to sell for five times current value. The landowners’ price would be binding , giving the council a call option for, say, one year.

In stage two, the council, in consultation with the local community, decides which land, if any, should be granted planning permission. It then auctions the call options to developers, thus capturing almost all of the increase in the land-value created by allowing development. With agricultural land averaging £10,000 and residential land about £3.2m a hectare, the council could potentially reap a profit of £3.1m a hectare from, in effect, selling its planning permission. Similar margins are available in urban areas. The council can spend these profits in any way, from subsidies for affordable housing, better local services to lower council tax.

Four things stand out. First, the council makes far more from this than from a planning supplement, giving it greater incentives to allow housebuilding. Second, the higher house prices are in an area, the greater the council’s incentive to act. (We will also get houses where people want them, not where Whitehall bureaucrats think they should be.) Third, higher densities of housing increase the council’s potential return per hectare, giving an incentive to avoid sprawl. Fourth, it is democratic: councils that prefer no development to better local services or lower council taxes can make that choice.

This scheme goes with the market, it is localist and will deliver far more houses than any other proposal. It has received favourable reviews from the Barker review and the Town and Country Planning Association. There is also the prospect of cross-party consensus, with some leading Conservatives backing it. If Mr Brown is serious about reaching across the party divide, this plan can help him prove that. The era of top-down targets is over. The era of effective local incentives has arrived.

Mr Davey is a member of parliament and chief of staff to the leader of the Liberal Democrats. Mr Leunig is lecturer in economic history at the LSE and was a member of the academic advisory panel for the Barker Review of Land Use Planning”

Paul: the Tories tell poor people that hand outs are not good for them in the long run, but that’s exactly their preferred way to stimulate business.

This is spot on.

As for the article – I don’t see why some are getting so heated up about it.

The first point about EZ being a sop to businesses with little to show for it is spot on.

The second half is about the kind of society the author wants to see. I agree with that vision. The Thatcher years showed that the social impact of those policies was ruinous for many communities. If you have alternatives – offer them.

But the idea that govts should not think about how they want communities to be structured is rubbish. Of course they should – that is their job.

Paul: the Tories tell poor people that hand outs are not good for them in the long run, but that’s exactly their preferred way to stimulate business.

This is spot on.

aye carumba! what do you think a “fixed-capital grants managed by a real Green Investment Bank” is, if not a “hand out”

there’s some terribly confused thinking going on here.

There are two ways to give “hand outs” to businesses, one way is tax breaks and the other way is some variant of subsidies/grants/soft loans/price controls etc. it really is very silly to pretend that the first is a Tory shock doctrine “sop to business” whilst the others are lovely left-wing “pro-growth, pro-employment” policies we should all support.

of course there is room to debate whether some policy instruments are better than others (i.e. tax breaks, grants, soft loans, public investment in complementary inputs) but there is a deeper question here about how effective any of these instruments are – there’s a danger of real inconsistency here, making arguments against Tory-style industrial policy that are in fact arguments against industrial policy in general and then turning round and expounding on the virtues of left-wing style industrial policy.

it’s quite possible to “think about how we want communities to be structured” and then use tax breaks as your instrument to achieve this grand design. At the moment one thing we want our communities to have is more jobs and for the life of me I cannot see how using tax breaks to attract businesses to set up shop in certain areas is “ruinous” for those areas

those tempted to get too carried away about the potential for wise and benign governments to plan communities might benefits from reading this:

http://en.wikipedia.org/wiki/Le_Corbusier#Forays_into_urbanism

for avoidance of doubt, nothing I have written constitutes an argument that tax breaks are the optimal instrument of industrial policy.

aye carumba! what do you think a “fixed-capital grants managed by a real Green Investment Bank” is, if not a “hand out”

aye carumba! I think you miss the point. I have nothing against targeted hand-outs. As long as we’re clear that’s what they are. The point is the govt hates them in certain circumstances, but is happy to push business subsidies. Thought good capitalists would be against that?

I cannot see how using tax breaks to attract businesses to set up shop in certain areas is “ruinous” for those areas

Perhaps you missed the first point of the OP which showed that there was no demonstrable big job in job creation?

Unless you have contradicting evidence Luis, I’m not even clear what tree you’re barking up.

@4 Very droll

Sunny I am not sure its worth my while carrying on here, seeing as I have already made these points once and you have chosen to ignore them.

1. the OP objects to tax breaks on the basis that they are hand outs to businesses, then proposes hands outs to business (grants)
2. the OP complains EPZs merely moves jobs from one place to another rather than creating net new employment, and then proposes grants to business that would suffer from exactly the same problem and ignore the fact that moving jobs from one place to another is the bloody point.
3. the OP complains about the high cost per job created, then helps itself to the implicit assumption that “targeted” handouts by a “green investment bank” would fare any better on that score. and the point I made about the cost per job involved in fiscal policy in general, or would you be objecting to Obama’s stimulus plans on the basis cost per job figures are too high?
4. the OP objects to EPZs on basis they are a cost to the exchequer as if left-wing forms of industrial policy would not be (although I know you like to help yourself to the magic spending fairy the ensures when the good guys are in charge everything would pay for itself).

again, as I have said already, these arguments apply to all forms of industrial policy, including your preferred “targeted handouts”.

probability of you acknowledging these points: zero.

correction – moving jobs from one place to another is not the point if the movement involves going from one side of Swansea to the other, which did happen with Thatcher’s EPZ.

I have nothing against targeted hand-outs. As long as we’re clear that’s what they are

isn’t it perfectly clear that an EPZ is a targeted hand-out?

I failed to respond to your point about ‘good capitalists’ supposedly being against hand-outs of any sort. Yes, purist “free marketeers” should object to interventionist industrial policy of this sort, if they are to be consistent. Worstall, can you oblige by turning up and explaining why EPZs are a bad idea?

(Personally I reckon sensible capitalists are not purist free marketeers and ought to recognize the need for a welfare state and for some limited industrial policy)

So that’s a fairly good argument for making the whole country an enterprise zone then?