Can private sector rescue America's slums?

For two decades, they have been the strategy of choice for many urban fixiteers from Wall Street to Main Street: empowerment and enterprise zones.

For metropolitan problem areas both big and small, the idea was simple - pencil in an "E" zone and hold your breath.

The political equivalent of singing "Won't You Come Home, Bill Bailey," the zones are ways for government to woo businesses to the inner city by guaranteeing loans, giving tax credits, and reducing interest rates - a post-Great Society experiment in tapping the private sector to rescue slum America.

As President Clinton this week touts yet another initiative to eradicate urban and rural blight, the long history of trying to spur more capitalism in the inner city is coming under the microscope - and the views are decidedly mixed.

To be sure, such efforts have brought millions of dollars and thousands of jobs to threadbare neighborhoods from Watts in Los Angeles to tiny Thief River Falls in the hickory woods of northern Minnesota.

But many of the businesses that set up operations have since shuttered their doors, and others never ventured to open them to begin with - the result of political infighting, problems with the stability of local work forces, and more traditional concerns like crime.

Yet now, in the "golden" economy of the '90s and with 20 years of often painful lessons, experts say cities are getting better at making the experiments in neo-urban renewal work.

"Instead of cajoling the government and business sector to make goodwill investments, cities are promoting their communities in terms corporations understand as consumer markets just waiting to be tapped," says Chris Walker, a senior research associate at the Urban Institute in Washington, who tracks the success of empowerment zones and urban redevelopment. "It is a tactic that is working well from New York to Chicago to Los Angeles."

Indeed, some business owners who have located in inner cities are now becoming ambassadors of sorts, trumpeting the competitive advantages and investment opportunities of such ventures.

Listen to Lowell Gray. Nine years ago, he started Shore.Net, an Internet service provider, in the economically depressed city of Lynn, Mass. Local officials put in a lot of time helping him get set up. The federal and state government gave him tax breaks and low-cost financing.

He found convenient transportation and a willing work force. The result: His firm today sits in the No. 2 slot of the 100 fastest-growing inner-city firms. "As the company has grown, being in Lynn has always proven to be a positive," says Mr. Gray.

Lessons from Watts

In Watts, where Mr. Clinton visited yesterday, the results haven't always been so Horatio Alger. Community leaders recently held a symposium to address why federal empowerment zones - set up amid national fanfare in 1992 after the costliest riots in US history - met with limited success here.

A centralized bank that was supposed to spur minority business and a Community Redevelopment Agency both were slow to meet goals. A combination of mismanagement, political differences, and over-expectation hobbled the organization that was supposed to be the centerpiece of riot recovery. A nonprofit corporation failed to attract needed corporate interest.

"All these good intentions ran into the real world," says Jack Kyser of the Los Angeles Economic Redevelopment Agency.

To leaders here, the lessons are a window into limited successes elsewhere and what must be done to fine-tune the process.

For his so-called opportunity tour, Clinton's stated goal is to "mobilize a broad array of private-sector investments in our untapped domestic markets." California-based Bank of America has said it would invest $500 million in inner cities across the country through a new fund to spur urban rebuilding. But community officials here say well-intentioned promises of largess are not enough.

"We found that there was not a systematic approach, but rather a white-knight complex," says Dr. Clyde Oden, chairman of WATTS Health Systems Inc. "Money was talked about but never flowed. It was pledged but could never be tracked. A band-aid approach of suffusing money from above substituted for real, underlying change below."

What is needed, says Mark Ridley-Thomas, a Los Angeles councilman who represents the district, is an understanding that more than federal money and help must be forthcoming. Such programs must be met with a motivated community that understands its long-term values, and has commitments to a neighborhood with schools, churches, parks, and local-run businesses.

"Deals cannot be legislated," says Mr. Ridley-Thomas. "It has more to do with spirit and capacity for all sides - corporations, government, communities - to follow through with political will."

Such thinking is replacing older models of urban renewal, says Jan Rosenberg a professor of sociology at Long Island University's Brooklyn Campus.

"I'm convinced ... that we're in a new situation finally, and that corporate America is seeing the economic potential of the inner cities," she says. "That's really the goal, to have sustainable activity that draws people in to invest, to work, to shop, to make things, provide services, and so on. It's product driven, and not just social-service driven."

City officials here echo similar sentiments. They say they now realize that it is the promise of business success - not goodwill gestures - that will get top businesses to return to South Central. As a result, they're touting the area's 1 million population with $1 billion in annual income.

"In my 20 years of dealing with businesses here, I have found that they are not interested in anything but the bottom line," says Jose Legaspi, a leading real estate broker.

Build from within

Other long-term lessons from America's brush with enterprise zones is that a viable work force must be found from within the area, and investment must be made in existing businesses with a long-term stake in the community, rather than just outside corporations.

"We have found that those who have a personal stake in their neighborhood are most willing to make it work," says Mark Whitlock, a black activist.

"The reason South Central is finally turning around at this late date is because Hispanic and Asian entrepreneurs have flooded the local economy with viable businesses," adds Alan Heslop, a demographer.

Other key empowerment-zone cities - Atlanta, Baltimore, Detroit, Chicago, New York - have experienced similar problems with bureaucratic sloth, political infighting, and corporate hesitancy. But experts agree that a key ingredient in making them work is patience and a commitment to the community.

"I would say that of course all these empowerment and enterprise zones are not unwelcome," says Wayne Bradshaw, president of Family Savings Bank in South Central. "It just needs to be understood that they cannot be oversold - as they often are - as silver bullet panaceas. They are relatively small yet are presented as the saviour of entire regions."

ENTERPRISE-ZONE POTENTIAL In city districts where household income and employment levels are lower than in their surrounding metropolitan areas:

*There is $85 billion worth of retail opportunity, which is 7 percent of the entire US market.

*As much as 60 percent of residents' shopping needs cannot be served locally.

*Businesses have invested almost $10 billion in enterprise zones across the US over the past 15 years.

*Activity inside enterprise zones has produced more than 120,000 new jobs and preserved at least 50,000 threatened jobs. Sources: Initiative for a Competitive Inner City, US Department of Commerce

INNER-CITY BALANCE SHEET For businesses, setting up shop in blighted inner cities offers a number of competitive advantages, but may also come with some disadvantages.

ADVANTAGES *Strategic locations/proximity to customers

*Low land costs

*Availability of labor

*Growth opportunities through integration with regional economy

DISADVANTAGES *Crime and perception of crime in the area

*Lack of space for expansion

*Uneven job readiness among entry-level workers Source: Initiative for a Competitive Inner City