SEZs: The Way Forward for Metropolitan Areas in COVID-Induced Economic Recessions
Nowhere is the ongoing global recession more visible to the naked eye than in the deserted downtown cores of the world’s metropolitan areas. Western cities, especially North American ones, have largely developed around downtown cores and regional economic clusters, leaving office-dependent boroughs particularly vulnerable to the economic effects of extensive lockdowns and work-from-home mandates. Downtown Montreal represents a prime example of how the dire crisis affects restaurants and enterprises that depend almost exclusively on the business brought in by the employees of the surrounding office towers.
In mid-September of this year, before the re-imposition of the ongoing lockdown, an estimated 50,000 people flocked to Montreal’s downtown core every day – a far cry from the typical 600,000 individuals who normally commute, work, dine, and shop downtown each day. This dramatic 92% drop in transient workforce traffic represents millions in losses for local businesses, a decline that will result in closures and further lost livelihoods. It is now clearer than ever that a sustainable economic recovery cannot begin until the pandemic ends; in the meantime, municipal governments must scramble to keep what remains of their downtown economies.
An issue that stands out when discussing post-COVID city cores is the very real possibility of indefinite work-from-home arrangements between many firms and their employees, as well as the decentralization of what we know as the “office.” Bringing firms, their employees, and permanent residents downtown is key to saving our cities from economic desertification. To achieve this, our elected officials will have to think outside of the box. Policy innovations remain key in our cities’ economic revival, and a Special Economic Zone is no stranger to innovative growth stratagems.
The principle behind a Special Economic Zone (SEZ) has proven to be successful through innovative public policies, and SEZs are much more common than one might think. SEZs are areas in a country, province, or region that face different economic regulations and incentives designed to attract investments and capital that other localities in proximity are not entitled to. They range from decidedly small and basic zones (such as industrial parks) to cities, all the way to entire provinces (such as the Hainan province in China). In 2015, the World Bank released a list of criteria that it deemed necessary for the success of an SEZ. These include a clearly geographically delimited area, a single administrative structure, sound physical infrastructure, clear goals and vigorous benchmarking, technology learning, innovation, and a strong and pragmatic political commitment from local and state leadership. Without respecting these guidelines, many SEZs from across the globe have ended in failure. With these criteria in mind, however, municipalities are only limited by the imagination and commitment of local governments seeking to innovate their way out of the COVID-induced economic crisis with the creation of SEZs.
While the idea of SEZs may seem conceptually simple, the execution of creating SEZs proves much more difficult in practice. As a Vice President of the New York City Economic Development Corporation, Brian Ker is uniquely qualified to assess what policies local governments can implement within a Special Economic Zone to reinvigorate urban economies, using Montreal as a blueprint.
As a first policy change, Ker suggests implementing initiatives that attract more permanent residents into our city cores to counter-balance the loss of a transient workforce. With three universities downtown, Ker considers Montreal as particularly well-positioned in leveraging young permanent residents to revitalize its downtown core. In the medium term, he suggests that vacated hotels can easily transition into permanent living arrangements, as long as local zoning and urbanism laws can adapt to ease such a transition. As well, Ker points to incentives put in place after 9/11 to stem New York City’s downtown exodus as ideal blueprints for bolstering Montreal’s downtown economy. After 9/11, policy-makers put in place a local rent subsidy programme in downtown New York, drawing tenants in with the promise of paying up to 50% of their rent for six months. Any variant of this policy implemented by Montreal officials to target and attract potential new tenants to the downtown Special Economic Zone stands out as a valuable revitalization tool.
In addition to providing subsidies to bring residents downtown, Ker also suggests that governments must change their behaviour to create successful SEZs. While flexibility and agility are rarely adjectives that we associate with local, provincial, and federal governments, the creation of a SEZ requires flexible and adapted policies. In the case of Montreal, Ker suggests that the boundaries of the downtown borough of Ville-Marie necessitate redrawing to better encompass the urban core. He also argues that the downtown borough’s council should be entirely elected by its citizens (as is the case with every other part of the city) instead of being partially nominated by the Mayor of Montreal. The main reasoning behind Ker’s argument for an elected council is that a locally elected body would better understand the realities of the downtown core and would ease the administration of a SEZ.
Finally, Ker believes that for a successful downtown SEZ in Montreal, the government must attract firms and their employees to Montreal’s urban core. Targeting the workforce itself, payroll tax abatements for employees physically working in downtown offices, as well as broad employee subsidies in various employment sectors can stimulate the physical presence of the workforce in downtown Montreal.
In addition, offices themselves present a major concern in the development of a Special Economic Zone. A post-pandemic work environment will require a complete revamping of the physical layout of office spaces, as well as of their central heating, ventilation, and air conditioning (HVAC) systems. Renovation subsidies tailored for these specific changes call for consideration as tools to be leveraged. Finally, the elimination of red tape in the development of downtown construction projects (such as the Mount Royal height limit on downtown buildings), as well as the increased taxation of vacant lots based on permissible density, exemplify tools that can be used to stimulate local development in SEZs.
It is now more apparent than ever that policy innovation within our urban cores is critical to the rapid and sustainable revitalization of our deserted cities. The potential tools and incentives that can be incorporated within the development of a Special Economic Zone are various and wide-ranging. Done correctly, our elected officials can spearhead the creation of a new and healthier downtown Montreal, serving to innovate and to mitigate the effects of the COVID-induced recession. However, such a consequential policy may end up doing more harm than good if poorly handled by those in charge. If government officials fail at increasing bureaucratic efficiency, offer tax incentives containing fiscal loopholes that are exploitable in bad faith, or fail to aim at the right targets, urban SEZs can easily end up becoming yet another unsuccessful attempt at implementing a wealth-generating and growth-inducing urban revitalization strategy.