Los Angeles Business Journal

Faulty Connection

OP-ED: Tech companies are not guaranteed to click with all depressed communities. By Kofi Sefa-Boakye Monday, August 5, 2013

Gov. Jerry Brown scored a legislative victory last month when the general Assembly overwhelmingly approved his bill to wrest control of the enterprise zone program from local jurisdictions and place it under state oversight.

Similar to arguments marshaled to justify dissolution of redevelopment agencies, proponents of the new legislation argued that the locally controlled enterprise zones have outlived their significance and efficiency because they have not fostered anticipated job creation in depressed neighborhoods and the jobs that were generated would have happened without the economic incentive program.

Backed by a coalition of labor unions, Silicon Valley tech companies and pharmaceutical firms, Brown’s legislation would redirect economic incentives under the new program to lure job-producing manufacturing and biotech research firms into depressed communities.

While this author does not question the presumed inefficiencies in the program, diverting enterprise zone funds to attract high-tech and manufacturing firms into depressed areas might not deliver desired outcomes for several reasons. While tax incentives remain a crucial policy to attract businesses, it is only one side of the business-attraction model. The presumption that the success of Silicon Valley and biotech firms in Northern California could be instantly duplicated in any location with minimal tweaks to development is off-base.

A flood of scholarly research over the years has demonstrated that not all geographical areas are suitable candidates for high-tech firms. High-tech firms succeed in locations not just because they can fit anywhere but because such firms exploit an area’s unique strengths, weaknesses, assets and opportunities. Therefore, concentrating enterprise zone benefits to high-tech firms with the exclusion of other types of businesses suitable in other depressed communities smacks of a reductionist approach to addressing unemployment issues in stagnant urban economies.

Not spontaneous

Truth be told, the Silicon Valley phenomenon was not a spontaneous happenstance; its success was preconditioned on the extraordinary confluence of high-skilled human capital, informal organizational behavior, establishment of technology cluster and available financial firms merging together at just the right time at a specific location. Today, the graveyard of the high-tech industry is littered with dead bodies from failed Silicon-inspired experiments in Detroit (Automation Alley) and in Okanagan, British Columbia, Canada (Silicon Vineyard). Given that all municipalities are not symmetric and one size does not fit all, what happens to other disadvantaged communities that lack critical amenities conducive to high-tech business?

Granted, the former enterprise zone program, according to the California Budget Project, cost the state $4.8 billion in lost revenues. However, what the study failed to comment on was that the loss of revenues emanating from the program might have been compensated by the use of enterprise zone funds to attract retail/commercial outlets that have contributed to the economic revitalization of certain depressed neighborhoods in Los Angeles County. In the absence of such incentives, Wal-Mart, McDonald’s, FedEx, Starbucks and Wells Fargo would not have moved into such areas as Highland Park, Eagle Rock, Chinatown, Boyle Heights and unincorporated areas of East Los Angeles.

The city of Compton owes its economic revival to utilization of several intervention programs, including enterprise zones, to unveil its $80 million Gateway Towne, a vibrant retail center comprising Target, Home Depot, Best Buy, 24-Hour Fitness and Staples, among others. The benefits of the program have generated employment, sales and property tax revenues essential for the economic revitalization of a former underutilized urban area.

Kofi Sefa-Boakye is director of the successor agency to the Compton Community Redevelopment Agency.