As regular readers will know I tend to steer away from commenting extensively on the overall macroeconomic position. This reflects the fact that I know my limitations. Or, if you prefer David Ricardo to Dirty Harry, my comparative advantage is in the economics of cities and regions.
For what it's worth, I came away from yesterday depressed by both the economics and the politics. The economics is self explanatory (for anyone that was listening). In terms of politics, and at the danger of stating the obvious, it seems this crisis is capable of bringing out the worst in everyone. The Labour Party continue to imply that this is all Osborne's fault for pursuing austerity. But as Evan Davis argued so coherently on the Today Programme, is Ed Balls really claiming that a 1% extra stimulus last year would have had such a large effect on medium term growth rates? The OBR certainly doesn't appear to agree with this assessment (blaming revisions to forecasts on price inflation and the eurozone). On the other side, Osborne's absolute insistence that we are currently at the limit of bond market tolerance (with no wriggle room) certainly deserves closer scrutiny in the light of changed circumstances.
Turning to my more usual remit, what about the urban and regional elements of the statement? Here, my fundamental question remains one about priorities. In a world where it would be good to have growth coming from anywhere how much emphasis should the government place on 'regional rebalancing'? The (as yet untested) regional growth fund receives another 1bn to help the areas most affected by public sector job cuts. Why not focus on the people most affected by job cuts which helps focus on the fact that other areas might best be placed to generate new jobs for those people? On broadband we will see ten ‘super-connected cities’ across the UK. I think it's reasonable to ask whether (for example) Belfast should be a priority for this kind of investment? More generally, the national infrastructure plan will 'invest in all parts of the UK'. Again, does this make sense in terms of priorities? To take just one example (although one of my favourites) is now the moment to halve tolls on the Humber Bridge through a debt write down of £150m? At the same time, local transport projects only receive an extra £170m. And then there's the tricky issue of billions on HS2.
Even in better times, SERC argued that it might make sense to focus investments so that government was working with market forces at least within regions. A discussion around these issues appears more important than ever, if we want policy to be as effective as possible in helping those worst hit by the downturn. Of course, the politics of this are awful, so I am realistic about the likelihood of any serious discussion. That's a pity, because politics aside, it's possible (although unlikely) that the economics of this could be awful as well and you would hope that some free and frank debate might help figure out if this was the case.
CEP Urban and Spatial Programme Blog (formerly SERC)
Wednesday, 30 November 2011
Monday, 28 November 2011
Infrastructure Options
The government hopes to invest money (from the Chinese and others) in 'shovel-ready' infrastructure projects. The FT tells us that tomorrow's announcement will be 'long on good intentions, but short on signed contracts'. Translating intentions in to money will thus depend on the portfolio of projects that are shovel-ready. The quality of this portfolio will depend, in turn, on how effective DfT and others have been in generating project options.
Unfortunately, when Eddington looked at this issue, it was clear that the system in the UK was better at generating options for some types of schemes than for others. Indeed, if I remember correctly, for some types of intra-urban schemes, there were so few schemes on the books that it was hard to assess the spread of possible returns (these are the numbers that I have used in the past to make comparisons to HS2).
One concern here is the political difficulties about the location and nature of projects. Following Nick Clegg's LSE speech earlier this year, I discussed the new focus on infrastructure: "This will start with the regional growth fund, where round 2 will, we are told, prioritise infrastructure projects. I don't think this is necessarily a great place to start because much of the economic literature is generally sceptical about the role of infrastructure in boosting local economic activity in struggling areas. After all, as population in these places is historically declining, they likely have plenty of infrastructure relative to people. How is adding more going to help? [...] Delivering transport infrastructure investment on time and on budget (another commitment) is generally a good thing, although unrelated, as far as I can tell, to fiscal stimulus. After all, overspends and overruns still involve government expenditure. I would welcome a genuine move to prioritise transport projects in terms of bang-for-buck (how about dropping HS2 in favour of the kind of smaller high benefit schemes that Clegg highlighted in his speech today)? I might even welcome more infrastructure spending. But with net capital expenditure set to fall dramatically (even if plans are in line with Labour's projections) this prioritisation will take place within a significantly smaller pot.
These worries remain. At least, post-Eddington, DfT put a considerable amount of effort in to improving option generation. Let's just hope that work had some impact in generating the current portfolio so that we don't end up funding lots of schemes like the one discussed in detail here.
Unfortunately, when Eddington looked at this issue, it was clear that the system in the UK was better at generating options for some types of schemes than for others. Indeed, if I remember correctly, for some types of intra-urban schemes, there were so few schemes on the books that it was hard to assess the spread of possible returns (these are the numbers that I have used in the past to make comparisons to HS2).
One concern here is the political difficulties about the location and nature of projects. Following Nick Clegg's LSE speech earlier this year, I discussed the new focus on infrastructure: "This will start with the regional growth fund, where round 2 will, we are told, prioritise infrastructure projects. I don't think this is necessarily a great place to start because much of the economic literature is generally sceptical about the role of infrastructure in boosting local economic activity in struggling areas. After all, as population in these places is historically declining, they likely have plenty of infrastructure relative to people. How is adding more going to help? [...] Delivering transport infrastructure investment on time and on budget (another commitment) is generally a good thing, although unrelated, as far as I can tell, to fiscal stimulus. After all, overspends and overruns still involve government expenditure. I would welcome a genuine move to prioritise transport projects in terms of bang-for-buck (how about dropping HS2 in favour of the kind of smaller high benefit schemes that Clegg highlighted in his speech today)? I might even welcome more infrastructure spending. But with net capital expenditure set to fall dramatically (even if plans are in line with Labour's projections) this prioritisation will take place within a significantly smaller pot.
These worries remain. At least, post-Eddington, DfT put a considerable amount of effort in to improving option generation. Let's just hope that work had some impact in generating the current portfolio so that we don't end up funding lots of schemes like the one discussed in detail here.
Thursday, 24 November 2011
Immigration Up, Housing Starts Down
The latest immigration figures suggest that 2010 saw the highest net entry on record (252,000). Meanwhile housing starts are at their lowest level since the 1920s (at a little under 100,000). Indeed, those figures look set to worsen given the widely reported 454 affordable housings starts last quarter.
Coming so close to one another, these figures made me thing of Steve Nickell's lecture on immigration and housing from earlier in the year. In that lecture he suggested that we need to build around 150,000 houses per year to cope with the increase in demand that comes from real income growth and another 120,000 per year to cope with changing patterns of household formation. These kind of rates would be needed for price houses to real income ratios to stabilise even if net immigration was zero.
Somewhat ironic then that the (unlikely to be met) short term aim of government is to stimulate demand for new build in the hope that this creates employment in the construction industry, while in the long run the problem remains that the growth in demand will continue to exceed the expansion in supply.
Coming so close to one another, these figures made me thing of Steve Nickell's lecture on immigration and housing from earlier in the year. In that lecture he suggested that we need to build around 150,000 houses per year to cope with the increase in demand that comes from real income growth and another 120,000 per year to cope with changing patterns of household formation. These kind of rates would be needed for price houses to real income ratios to stabilise even if net immigration was zero.
Somewhat ironic then that the (unlikely to be met) short term aim of government is to stimulate demand for new build in the hope that this creates employment in the construction industry, while in the long run the problem remains that the growth in demand will continue to exceed the expansion in supply.
Tuesday, 22 November 2011
The economics of planning
Posted by Dr Max Nathan, SERC and LSE
Yesterday's launch of the Government's Housing Strategy - and some of the reaction to it - have turned the spotlight back on to the planning system. As Henry Overman points out here, planning factors are one of the three factors influencing levels of housebuilding.
Here [pdf] and here [pdf] are two new papers on the economics of planning, written by Henry and I. Versions were also submitted to the National Planning Policy Framework (NPPF) consultation last month. (For those outside the UK, the NPPF, subject of furious public debate during the summer, is part of Ministers' attempt to speed up the English planning system.)
The papers pull together SERC research on planning (paper 1) and assess the Government's proposals for planning reform (paper 2). Henry and I don't agree on all of this - I'm certainly more pro-brownfield than he is - but we both felt that important pieces have been missing from the recent public conversation.
Yesterday's launch of the Government's Housing Strategy - and some of the reaction to it - have turned the spotlight back on to the planning system. As Henry Overman points out here, planning factors are one of the three factors influencing levels of housebuilding.
Here [pdf] and here [pdf] are two new papers on the economics of planning, written by Henry and I. Versions were also submitted to the National Planning Policy Framework (NPPF) consultation last month. (For those outside the UK, the NPPF, subject of furious public debate during the summer, is part of Ministers' attempt to speed up the English planning system.)
The papers pull together SERC research on planning (paper 1) and assess the Government's proposals for planning reform (paper 2). Henry and I don't agree on all of this - I'm certainly more pro-brownfield than he is - but we both felt that important pieces have been missing from the recent public conversation.
*
The key messages are:
1) The job of planning is to balance environmental, social and economic welfare. This means tradeoffs, so all planning systems have costs and benefits.
2) Planning's economic effects, especially the costs of the status quo, have been underplayed in recent debates. We summarise evidence strongly showing current rules increase house prices and volatility, increase office rents, probably lower retail productivity and lower employment in small independent shops.
3) Paradoxically, land restrictions in the most popular areas have led to some truly unsustainable development - such as selling off school playing fields for housing. Similarly, brownfield-first policies have delivered some positive benefits for cities like Manchester, but aren't a panacea.
4) The draft NPPF needs to be much clearer about sustainable development, potential tradeoffs and how practical decisions might be made (for example, using the National Ecosystem Assessment).
5) We agree with the National Trust and others that there's a basic tension between Government's desire for localism and some important national objectives. Ministers need to be clearer about what trumps what, or (more in keeping with localism) provide stronger incentives to align interests.
6) The presumption in favour of sustainable development that is consistent with the plan should be retained. But local authorities need time to adjust to the new rules, and the Government should introduce the change gradually.
7) Current incentives to ramp up housebuilding, such as the New Homes Bonus, are probably too weak and need to be strengthened. And one-size land restriction policies (such as town centre and brownfield first) don't work well in practice. Rather, we suggest Whitehall sets the appropriate framework to try to encourage particular patterns of development but then allows local authorities to develop their own land use restriction policies.
Monday, 21 November 2011
Housing Strategy
Some initial commentary on the government's housing strategy suggests that there is little coherent vision. Unless you think that the government could be spending lots more money than it is on housing, I think this criticism is a little unfair.
The government has two problems. One is short term. (At least) three things are combining to make current building figures look very bad. First, the recession makes things very uncertain for housebuilders. Second, the debate around the National Planning Framework is reinforcing that uncertainty. Third, the lack of mortgage finance is compounding the problems stemming from this increased uncertainty. There's not much that can now be done about the first two of these (although I did suggest some time ago that the government might regret the haste with which it abolished regional plans in the absence of something to replace it). The new build indemnity scheme will do something to tackle the third problem of mortgage finance - at least for new build. This will have some positive effects on supply, but it is possible they might be quite limited. Not least, because developers with schemes that are not started may be better off exercising the option value of holding on to undeveloped land until the market outlook improves.
On schemes that are stalled, the government has announced a Get Britain Building investment fund. Apart from the more boring description, and the smaller amount of money available, its not clear that this is massively different from the labour government's 'kickstart' programme. As a results, and as with the new build indemnity, the effects are likely to be positive but limited.
Longer term, I think the fundamental problems remain and my take on this is little changed from earlier in the year. The government has a real problem and one that is mostly not of its own making. The under-supply of housing has been a long term problem which the previous government were unable to tackle effectively. Labour were slow to recognise that something needed to be done about the planning system. Once they realised there was a problem they introduced top-down regional plans that tried to force local authorities to build more housing. These were incredibly unpopular with local authorities in parts of the country that needed more housing and were quickly abolished by the coalition. The national planning framework intends to replace this top down system with more localism and a set of incentives to encourage development. For a number of reasons I think these reforms should be welcomed but worry about the short term as discussed above.
In addition to these short term issues, there is the longer term issue of what the government will do if its package of financial incentives are insufficient to encourage more development. With the new system yet to bed in it could be a number of years before the government is able to assess whether the system is working (the recession compounds the problems here). That brings us close to an election where a change in government could see a change in policy. Cue more uncertainty for developers. This suggests that the government might have been better going for stronger initial incentives (e.g. on NHB and local business rate retention) which could then have been scaled back.
Another area which Labour struggled with, was the insistence on high brownfield targets. I have discussed the problems with these targets before but they remain incredibly popular (see, for example, the recent National Trust proposals on the NPPF). There is a real danger here that the coalition will not be able to resist calls to strengthen constraints on building on greenfield land in the national planning framework. They have already committed to maintaining green belts, but there are many other categories of 'protected land' where policy remains uncertain.
So much for some of the problems on the supply side where, as I have said, many of the problems are long term and not of the government's making. As already discussed, I think the short run effect on the demand side will be limited. In the long run, I just don't think policies on the demand side will help and may well create more problems than they solve. Setting aside the big demand side issue (the fiscal stimulus) the government continues to spend money on policies that try to 'help people on to the housing ladder'. Such policies to boost demand exacerbate the price problems caused by supply constraints and only help those lucky enough to get assistance from a scheme. This will always be at the expense of someone similar who doesn't benefit from the scheme and does nothing much to address the fundamental problem. The politics of this are tricky because it allows the government to say they are 'doing something to help' but the money would be much better spent on increasing incentives on the supply side. The government should certainly resist calls for further measures on the demand side.
In short, today's announcements might do something (although likely not much) to help in the short run but the longer run problems remain. Worse for the government, those long run problems (particularly around uncertainty and the resulting option values for developers) may well dampen any response to the short run policies.
The government has two problems. One is short term. (At least) three things are combining to make current building figures look very bad. First, the recession makes things very uncertain for housebuilders. Second, the debate around the National Planning Framework is reinforcing that uncertainty. Third, the lack of mortgage finance is compounding the problems stemming from this increased uncertainty. There's not much that can now be done about the first two of these (although I did suggest some time ago that the government might regret the haste with which it abolished regional plans in the absence of something to replace it). The new build indemnity scheme will do something to tackle the third problem of mortgage finance - at least for new build. This will have some positive effects on supply, but it is possible they might be quite limited. Not least, because developers with schemes that are not started may be better off exercising the option value of holding on to undeveloped land until the market outlook improves.
On schemes that are stalled, the government has announced a Get Britain Building investment fund. Apart from the more boring description, and the smaller amount of money available, its not clear that this is massively different from the labour government's 'kickstart' programme. As a results, and as with the new build indemnity, the effects are likely to be positive but limited.
Longer term, I think the fundamental problems remain and my take on this is little changed from earlier in the year. The government has a real problem and one that is mostly not of its own making. The under-supply of housing has been a long term problem which the previous government were unable to tackle effectively. Labour were slow to recognise that something needed to be done about the planning system. Once they realised there was a problem they introduced top-down regional plans that tried to force local authorities to build more housing. These were incredibly unpopular with local authorities in parts of the country that needed more housing and were quickly abolished by the coalition. The national planning framework intends to replace this top down system with more localism and a set of incentives to encourage development. For a number of reasons I think these reforms should be welcomed but worry about the short term as discussed above.
In addition to these short term issues, there is the longer term issue of what the government will do if its package of financial incentives are insufficient to encourage more development. With the new system yet to bed in it could be a number of years before the government is able to assess whether the system is working (the recession compounds the problems here). That brings us close to an election where a change in government could see a change in policy. Cue more uncertainty for developers. This suggests that the government might have been better going for stronger initial incentives (e.g. on NHB and local business rate retention) which could then have been scaled back.
Another area which Labour struggled with, was the insistence on high brownfield targets. I have discussed the problems with these targets before but they remain incredibly popular (see, for example, the recent National Trust proposals on the NPPF). There is a real danger here that the coalition will not be able to resist calls to strengthen constraints on building on greenfield land in the national planning framework. They have already committed to maintaining green belts, but there are many other categories of 'protected land' where policy remains uncertain.
So much for some of the problems on the supply side where, as I have said, many of the problems are long term and not of the government's making. As already discussed, I think the short run effect on the demand side will be limited. In the long run, I just don't think policies on the demand side will help and may well create more problems than they solve. Setting aside the big demand side issue (the fiscal stimulus) the government continues to spend money on policies that try to 'help people on to the housing ladder'. Such policies to boost demand exacerbate the price problems caused by supply constraints and only help those lucky enough to get assistance from a scheme. This will always be at the expense of someone similar who doesn't benefit from the scheme and does nothing much to address the fundamental problem. The politics of this are tricky because it allows the government to say they are 'doing something to help' but the money would be much better spent on increasing incentives on the supply side. The government should certainly resist calls for further measures on the demand side.
In short, today's announcements might do something (although likely not much) to help in the short run but the longer run problems remain. Worse for the government, those long run problems (particularly around uncertainty and the resulting option values for developers) may well dampen any response to the short run policies.
Thursday, 17 November 2011
De-industrial revolution
BIS have launched their 'Make it in Great Britain' campaign highlighting the best in British Manufacturing (presumably with a view to getting more of it). Aditya Chakrabortty also had an interesting piece on the Guardian yesterday on the de-industrial revolution asking why Britain doesn't make anything anymore. Both of these things had me reflecting on what, if anything, policy can do about this.
Let's start with what caused the decline in British manufacturing. The economists explanation of this is pretty simple - Britain's comparative advantage lies in services rather than manufacturing so as the world globalised, we shifted towards services away from manufacturing. Of course, comparative advantages are generally created, rather than god-given, so it's reasonable to ask whether there are things policy could do to change this. For example, two popular prescriptions are that we could introduce more apprenticeships or different ways of funding businesses. In short, we could be more like the Germans. Unfortunately, these kinds of explanations muddle cause and effect. Who says that these parts of the system haven't developed in response to the fact that manufacturing in Germany got big because of some other comparative advantage - e.g. the fact that Germany is more centrally located in the EU than the UK (which makes it a better place to manufacture heavy machine parts that need shipping around). In short, we have no idea if replicating bits of the German system would make any difference.
Similar problems apply for calls to spend 'more on innovation'. We already have an R&D tax credit and various other BIS run schemes that try to do exactly that. Perhaps we should 'invest more in manufacturing'? Trouble is, the Regional Selective Assistance scheme has been making big investments directly in manufacturing firms since the 1970s. In short, even if the government had the money, spending more of it wouldn't necessarily shift our comparative advantage that much. At the end of the day, the UK is relatively good at services for many reasons.
Of course, there is always the argument that the structure of our economy is 'distorted' because of what happens in the financial sector. I have some sympathy with these arguments and have considered them in more detail in a previous post. But even if we removed some of these distortions - e.g. by changing the pay structure in financial services - why think that the rebalancing is towards manufacturing over other service activities that the UK is good at?
The issues are further complicated by the fact that the debate often assumes that these changes would benefit lower skilled workers or declining places. Both of these assumptions are highly questionable. Even if we did manage to improve our manufacturing share, lower skilled workers would still be hit by the double whammy of competition from China and technological change. For a long while, research suggest that the latter had actually been far more important than the former in explaining the widening pay gap. More recent evidence suggests that intense competition from China may now also play a role, especially for the lowest paid. Unless people are seriously willing to consider much more trade protection (or some sort of ban on technologies) then 'more manufacturing' is likely to be able to do relatively little for the lower skilled. If restrictions on trade are out, we either need to increase skill levels, or get the lower skilled to provide non-traded goods. But when economists say 'non-traded' goods they often mean services (cleaners, builders etc) so that doesn't necessarily equate to more manufacturing either. Of course, in non-traded goods lower skilled workers often face intense competition from immigrants, but suggestions of restrictions there run in to both political and practical difficulties (lots of this competition is from EU workers). Again, evidence on the magnitudes of these effects on wages and employment are mixed, although moving towards finding larger effects in periods when immigration has been larger.
Similar arguments apply to whether a move towards manufacturing would help declining places. Who knows where these new manufacturing jobs would be created. In addition, here, I share Aditya Chakrabortty's intense scepticism about calls to change the skill composition of places (get more high tech jobs) as a means of indirectly helping the lower skilled.
It should be clear that I do not think this is an area where there are any easy answers. My gut feeling is that there is no reason to think that the UK is going to generate lots of additional manufacturing jobs anytime soon. In fact, I worry that this continued focus on the structural composition of the UK economy is a considerable distraction from the tasks at hand. In the short term this is all about finding sources of demand. The longer run issue may be even trickier. How do we improve the labour market outcomes for lower skilled workers? 'More manufacturing' is simply not an answer to this question.
Let's start with what caused the decline in British manufacturing. The economists explanation of this is pretty simple - Britain's comparative advantage lies in services rather than manufacturing so as the world globalised, we shifted towards services away from manufacturing. Of course, comparative advantages are generally created, rather than god-given, so it's reasonable to ask whether there are things policy could do to change this. For example, two popular prescriptions are that we could introduce more apprenticeships or different ways of funding businesses. In short, we could be more like the Germans. Unfortunately, these kinds of explanations muddle cause and effect. Who says that these parts of the system haven't developed in response to the fact that manufacturing in Germany got big because of some other comparative advantage - e.g. the fact that Germany is more centrally located in the EU than the UK (which makes it a better place to manufacture heavy machine parts that need shipping around). In short, we have no idea if replicating bits of the German system would make any difference.
Similar problems apply for calls to spend 'more on innovation'. We already have an R&D tax credit and various other BIS run schemes that try to do exactly that. Perhaps we should 'invest more in manufacturing'? Trouble is, the Regional Selective Assistance scheme has been making big investments directly in manufacturing firms since the 1970s. In short, even if the government had the money, spending more of it wouldn't necessarily shift our comparative advantage that much. At the end of the day, the UK is relatively good at services for many reasons.
Of course, there is always the argument that the structure of our economy is 'distorted' because of what happens in the financial sector. I have some sympathy with these arguments and have considered them in more detail in a previous post. But even if we removed some of these distortions - e.g. by changing the pay structure in financial services - why think that the rebalancing is towards manufacturing over other service activities that the UK is good at?
The issues are further complicated by the fact that the debate often assumes that these changes would benefit lower skilled workers or declining places. Both of these assumptions are highly questionable. Even if we did manage to improve our manufacturing share, lower skilled workers would still be hit by the double whammy of competition from China and technological change. For a long while, research suggest that the latter had actually been far more important than the former in explaining the widening pay gap. More recent evidence suggests that intense competition from China may now also play a role, especially for the lowest paid. Unless people are seriously willing to consider much more trade protection (or some sort of ban on technologies) then 'more manufacturing' is likely to be able to do relatively little for the lower skilled. If restrictions on trade are out, we either need to increase skill levels, or get the lower skilled to provide non-traded goods. But when economists say 'non-traded' goods they often mean services (cleaners, builders etc) so that doesn't necessarily equate to more manufacturing either. Of course, in non-traded goods lower skilled workers often face intense competition from immigrants, but suggestions of restrictions there run in to both political and practical difficulties (lots of this competition is from EU workers). Again, evidence on the magnitudes of these effects on wages and employment are mixed, although moving towards finding larger effects in periods when immigration has been larger.
Similar arguments apply to whether a move towards manufacturing would help declining places. Who knows where these new manufacturing jobs would be created. In addition, here, I share Aditya Chakrabortty's intense scepticism about calls to change the skill composition of places (get more high tech jobs) as a means of indirectly helping the lower skilled.
It should be clear that I do not think this is an area where there are any easy answers. My gut feeling is that there is no reason to think that the UK is going to generate lots of additional manufacturing jobs anytime soon. In fact, I worry that this continued focus on the structural composition of the UK economy is a considerable distraction from the tasks at hand. In the short term this is all about finding sources of demand. The longer run issue may be even trickier. How do we improve the labour market outcomes for lower skilled workers? 'More manufacturing' is simply not an answer to this question.
Tuesday, 15 November 2011
Displacement Zones
Back from the Urban Economics Association sessions that are organised as part of the annual NARSC meetings. As well as the session on cities and the public sector that I described last week, there were also a couple of great sessions on policy evaluation of Enterprise Zones. Covering US, French and UK experience, one common theme was that these schemes appear to need to be expensive to have much impact and, even then, the impact comes mainly in the form of displacement from nearby areas.
Matt Freedman (Cornell) looked at the effect of the New Market Tax Credit in the US. This scheme mostly provided support for commercial development and involved billions of dollars of expenditure, mostly spent on commercial development. Matt's paper gets at the effect by comparing eligible to non-eligible areas (what's known as a discontinuity design). My take on Matt's results is that the scheme (at least around the threshold) had no effect on home values, median income, unemployment rate or employment. There does seem to be some effect in reducing the poverty rate, but household turnover is up so this may well just be a composition effect. It's also not clear where this effect is coming from given the absence of effects on employment or house prices (which might conceivably drive this effect)
Matt's paper didn't explicitly consider the issue of displacement, but this is considered by Andrew Hanson and Shawn Rohlin. Their paper looks at areas just outside successful enterprise zones and compares them to areas just outside unsuccessful zones and find substantial evidence of displacement (areas just outside unsuccessful zones do relatively better because they don't experience the displacement). In preliminary work, Elias Einio and I show that the only effect of the UK Local Enterprise Growth Initiative was to move employment from an area approximately 1km outside the boundary of the scheme to 1km inside the boundary. Aside from this displacement we can (so far) detect no other net effects.
Florian Mayneris and co-authors look at the French EZ scheme which spends a big amount of money (something over 300 euro's per person if I remember correctly). They find that this scheme can have a significant effect on firms tendencies to locate inside scheme boundary, but no effect at the level of the municipality as a whole. That is, the scheme shuffles firms from the non-eligible to the eligible part of the municipality.
Of course, policy makers may want to claim that all this displacement of jobs is what they are trying to achieve -but it is certainly not consistent with the rhetoric that is usually used (which usually talks about 'creation' rather than displacement).
One final thought, the French paper is part of a series of four projects due to report early 2012 to help inform the French government's decision whether or not to renew the scheme. The problem? The scheme was already extended for five years in 2011. Another depressing example of evidence based policy making in action?
Matt Freedman (Cornell) looked at the effect of the New Market Tax Credit in the US. This scheme mostly provided support for commercial development and involved billions of dollars of expenditure, mostly spent on commercial development. Matt's paper gets at the effect by comparing eligible to non-eligible areas (what's known as a discontinuity design). My take on Matt's results is that the scheme (at least around the threshold) had no effect on home values, median income, unemployment rate or employment. There does seem to be some effect in reducing the poverty rate, but household turnover is up so this may well just be a composition effect. It's also not clear where this effect is coming from given the absence of effects on employment or house prices (which might conceivably drive this effect)
Matt's paper didn't explicitly consider the issue of displacement, but this is considered by Andrew Hanson and Shawn Rohlin. Their paper looks at areas just outside successful enterprise zones and compares them to areas just outside unsuccessful zones and find substantial evidence of displacement (areas just outside unsuccessful zones do relatively better because they don't experience the displacement). In preliminary work, Elias Einio and I show that the only effect of the UK Local Enterprise Growth Initiative was to move employment from an area approximately 1km outside the boundary of the scheme to 1km inside the boundary. Aside from this displacement we can (so far) detect no other net effects.
Florian Mayneris and co-authors look at the French EZ scheme which spends a big amount of money (something over 300 euro's per person if I remember correctly). They find that this scheme can have a significant effect on firms tendencies to locate inside scheme boundary, but no effect at the level of the municipality as a whole. That is, the scheme shuffles firms from the non-eligible to the eligible part of the municipality.
Of course, policy makers may want to claim that all this displacement of jobs is what they are trying to achieve -but it is certainly not consistent with the rhetoric that is usually used (which usually talks about 'creation' rather than displacement).
One final thought, the French paper is part of a series of four projects due to report early 2012 to help inform the French government's decision whether or not to renew the scheme. The problem? The scheme was already extended for five years in 2011. Another depressing example of evidence based policy making in action?
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