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Satellite cities of the future
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HABITATINTL. Vol. IO. No. 112.pp. 291-297. I%+6 Printed in Great Britain.
Pcrgamon Journals Ltd.
Satellite Cities of the Future* Free Activity Zones as Precursors of Urban Development JAMES E. BURKE?+ Bechtel Corporation, San Francisco,
USA
INTRODUCTION
In this paper the concept of free zone or free trade zone is extended from its traditional meaning, associated with investor incentives and development, to a broader perspective of local, regional and even national development that is stimulated by investments in economic activities in a loosely defined spatial area called a free activity zone. Investment focused in these special zones will result in economic development, even economic diversification, in the surrounding area during periods of economic growth. This is particularly relevant to the rapidly expanding economies of the East Asia region. Asia, with its slowly expanding (relative to other world regions) yet rapidly urbanising population, must plan for further industrialisation, economic diversification, job creation and urban development - particularly in the infrastructure and housing sectors. As economies evolve, there is a need to locate and develop major projects consistent with the demands of a modern international economy and to implement national and local goals for economic development. As countries have proceeded from agricultural and resource development to import substitution and, further, to export-oriented economies, their major metropolitan areas have played an important role. But as national economies shift towards the service sector, the latter will play an increasingly important role. While the traditional free trade zone is associated with manufacturing, the free activity zone is oriented towards a mix of activities with an emphasis on the service sector of the economy. It is my opinion that this new type of zone will emerge as an important factor in the future of urban development since many of its activities will be those formerly associated with urban centres. Further, free activity zones will become “kernels” for the development of satellite cities near metropolitan areas.
THE TRADITIONAL
CONCEPT
OF FREE TRADE ZONE
The traditional concept of free zone or free trade zone (FTZ) and its many variations (Jayawardena, 1983) emphasised the benefits to the investor (e.g. financial incentives, labour supply, etc.) and to the government (e.g. foreign *This is an edited version of a paper presented at the 9th EAROPH International Congress, 20-24 August 1984, in Hong Kong. tAddress for correspondence: Bechtel Group Inc., 50 Beale Street, San Francisco, California, USA. $Acknowledgements - The author wishes to acknowledge Jun Han, Ivan Ivanek, Richard Stauffer and Michael Wakelin, all of Bechtel Group Inc., for many discussions on this topic. The contents of this paper are solely the views of the author and do not represent the views of any other individual or corporation.
291
292
Jumes E. Burke
capital earnings, job creation, etc.). The result of this approach is that some zones have not been successful and that free trade zones, in general, have come under increasing criticism. The primary reason for the lack of success of some free trade zones appears to be insufficient feasibility analysis and planning. Common mistakes include the absence of a linkage to the local economy which could, for example, provide a significant proportion of the materials and parts required for value-added processing. In addition, markets may have been overestimated as no market penetration survey was undertaken. Some may have lacked a rigorous financial analysis that included a broad view of zone costs which provided a realistic picture of zone profitability. The failure to integrate the free trade zone into the regional development programme has resulted in some unnecessary infrastructure costs. A failure to understand the incentives necessary to attract firms is another factor; the importance of tax reduction may have been overestimated while the importance of programmes to attract and train labour and to provide amenities may have been underestimated. The development of free trade zones usually emphasises incentives such as the reduction of taxes and bureaucratic delays in order to attract industrial and commercial development. But this approach is just the means of accomplishing the government’s real goals: foreign investment, job creation, training, technology transfer, the development of the local economy and an overall improvement in the quality of life (health care, housing, etc.). In other words, the zone is a means of stimulating economic development and social welfare (government view) as well as a means of increasing profitability (investors’ view). Unlike other types of development programmes, the goals of the government and the investor, as well as those of local interests, must be satisfied in order for success to be achieved. Local government should participate in the decision-making where possible, and local plans and traditions should be taken into account. Local supplies or services should be used to the fullest possible extent. Local enthusiasm rather than local opposition may make the difference when the implementation of the zone enters a crucial phase. In developing countries, a traditional concept of a free zone, such as an export-processing zone, may still be an effective means of stimulating economic growth - but only if it is carefuly planned. However, as national economies grow, as they have done so rapidly in the East Asian region, even a free trade zone may not be effective. It must evolve first into higher technologies and second into the services sector. And this is where traditional free trade zone is likely to fail unless it is seen as a special type of free activity zone.
FREE ACTIVITY
ZONES AS STIMULI
OF FUTURE GROWTH
Quite often when we speak of free trade zones we mean something much broader that may be called a free activity zone. These are zones which emphasize: (a) activities to induce the flow of goods, people or information (including currency) into and out of the zone; (b) investment and long-term net benefits to both the host country (government) and the investors. Free activity zones include zones which give special incentives such as free trade zones or enterprise zones but also other types of development not usually thought of as zones such as airports, seaports and teleports (that ,is, large-scale communications centres). Consider the word “zone”. For many this evokes the image of a fenced area, or at least an area that is separated by some sort of physical barrier. This
Satellite Cities of the Future
293
character&es the traditional zone that encloses a manufacturing activity. Our surveys indicate that service-oriented firms simply will not elect to locate in a physically separated area if any alternative location is available. A service firm wants to have access to the zone, to the local market, and to the international market and does not want to be hindered by a physical barrier. Whether or not these desires can be met must be worked out on a case-by-case basis. Free activity zones such as airports and seaports have restricted areas which are for specific purposes. Much of the economic activity at these sites is outside the fenced area. However, if we recognise that some activities should be fenced and others should not, then the airport security fence, for example, could be extended to form contiguous security zones for some types of economic activities while other types of activities could occur outside the fence. Because the airport, the seaport and the teleport require secure areas and because they are centres of activity required by developed economies, they are likely to’ evolve into the successors of traditional free trade zones: free activity zones. If free activity zones are established so that complementary economic activities can occur without restriction, away from the congestion of the older urban centres, they will begin to evolve as cities in their own right. Meier (1974) argues that, in rapidly-growing metropolises, a large share of development that would ordinarily occur in the central business district will occur instead at the international airport. I agree that the airport - especially if planned as a free activity zone will develop rapidly in an expanding economy, and could be planned as the economic driving force of a satellite-city. Aside from the evolution of the word “zone”, other factors, such as technology and transportation economics, play an important role in the concept of a free activity zone. Ships, for example, are becoming larger and are stopping at fewer ports. And with containerised cargo the function of “transfer” has replaced that of “trans-shipment” in all but the smallest port. Aeroplanes are larger too. They now carry more freight than before and while freight capacity can be expanded at the expense of passenger capacity, the converse is not true. Therefore on most routes there is an unused capacity for airfreight. Airports that have a major imbalance in airfreight load factors between incoming and outward bound flights may find themselves targets for particular types of economic development. A well-planned free activity zone could encourage such development. One complaint that our planning group has come across in the last few years is that there are very few airports in the East Asian region where either equipment (for instance computers) can be flown in for repairs or technicians be flown out for on-site repairs on short notice. Such service-oriented businesses are just beginning in many Asian countries and the demand will be significantly higher in the years ahead. This is the type of service activity that could be supported in a free activity zone. Today one finds that telecommunication activities are restricted in the East Asian basin. Governments are reluctant to allow firms tq send coded information via international satellite communications networks (Hong Kong is, of course, an exception). Such communication is currently deemed essential for the operation of banks and other financial institutions. It will become increasingly important for firms in other economic sectors as well: the age of internationally-linked computer-aided design, engineering and manufacturing is upon us. Possible government response to these needs is to develop a free communication zone where firms may establish offices, earth stations, and computer facilities. The government could even build such a park and attract investors through shared hardware costs, a reliable power supply, security and a quick start-up time. The concept is like that of the original teleport on Staten Island in New York that will have 17 earth stations with access to 24 satellites. It
294
JumcJ E. Burke
will be linked to several remote locations in the New York City area, via a fibre optic cable network, but will also lease over 90,000 sq.m of office space in its first phase. The concept of the teleport is growing rapidly; there are plans to establish many more in the USA and an international teleport association has sprung up. There have also been advances in technology and reliability (as well as a deregulation in the communications industry) in the USA that have brought local area networks (LAN) closer to commonplace reality and have advanced the image of a “smart building” where workers conduct their business using electronic telemedia rather than the traditional media of paper. The free activity zone may take on the image of the “smart zone” where certain technologies are not only allowed but encouraged. This type of teleport zone can be made attractive for service industries, especially if it promotes compatible activities (near an airport for instance). It should also be attractive to governments interested in continued economic growth. The free activity zone can play several roles that may benefit the host government as well as other governments in the region. The zone will play a role: in increasing intra-regional trade; in technical innovation; in the implementation of economic policy; and finally it will play a role in urban development. ROLES IN INCREASING
INTRA-REGIONAL
TRADE
In our analysis of regional trade we have noted that the East Asian region has an unusually high proportion of external trade relative to its internal trade. As increasing wages drive up the purchasing power of regional consumers it can be expected that firms will begin fully to recognise, as many inside and outside the region already have, the vast potential of the regional market. Impediments to intra-regional trade might be realistically overcome through the free activity zone. The zone can serve as a “neutral ground” upon which geopolitical antagonists can conduct trade. The perceived need for correct diplomatic relations prior to the establishment of trade relations could, to some extent, be circumvented by operations in the free activity zone. Even among governments with similar ideologies there is limited trade due to a perceived need to be competitive rather than cooperative. If the focus between Asian nations is on economic differences then cooperation, based on real need, based on perceptions and expectations, can be rather than competition, established. The free activity zone provides a mechanism for cooperation to occur and to evolve in the future. THE ROLE OF TECHNICAL
INNOVATION
The technology of a successful free activity zone will improve over time due to competition caused by relatively low labour rates and new technology in other zones and in the local economy. Firms that do not adopt comparable technology will soon become outmoded. One reason that FTZs are successful over a long period of time is that the mix of firms has changed from low-technology labourintensive activities to high technology activities. This is why, for example, the export processing zones in Taiwan continue to be successful. But public entities can help themselves to remain technologically current. For example, the Port of San Francisco failed to see technological development in shipping. Oakland, across the bay, developed a container port and within a decade replaced San Francisco as the major Northern California port. Today, areas that do not develop their communications facilities could, in a similar fashion, face a lack of industrial development in the years ahead. In response to these challenges the
free activity zone could be a focal point for technological innovation in the years ahead.
ROLES IN THE IMPLEMENTATION OF ECONOMIC POLICY
The free activity zone can also play a leading role in restructuring a national economy. A government can implement policies, programmes or procedures on a trial basis. The free activity zone, with its separate administration, can become a testing ground for ideas too uncertain or controversial to risk implementing on a broader scale. The results of a programme can be seen and the reactions to it can be discerned before far-ranging decisions are made at the national level. In emerging economies some industrial and service sector activities are protected from foreign competition yet remain essentially undeveloped when compared to similar activities in an international setting. The free activity zone provides an opportunity to develop these sectors with competition on a limited scale under regulations attractive to foreign investors. If at a later date it is felt that certain sectors have become strong enough to compete in the international market place, the zone regulations could be ‘extended to the entire country. Thus, the free activity zone can be used to begin the restructuring of a national economy. The free activity zone may also be used to implement special “temporary” policies which will later be rescinded. In this role the zone is filling an economic niche either nationally or internationally. It might also develop special relationships with other similar zones. An example would be processing and transfer of petroleum products without affecting the national market and not under the control of the domestic regulations of the host country.
ROLES IN URBAN DEVELOPMENT
The criteria and activities of the free activity zones (including free trade zones) are those of an urban area and, in essence, define what a city should be. What some government planners seem to want when they plan a free zone are all of the benefits of a city without the economic and social costs. And these costs can be substantial. A zone employing 12,000 persons may cost US$50 million plus land and facilities, but it would cost between US$l-2 billion to develop the type of urban area that would be needed to attract skilled and semi-skilled workers and their families. The attraction of qualified managers and employees is the foremost problem in implementing a free activity zone. In the USA, as well as in other countries, firms base location decisions on the quality of the local and social and physical environment provided that the more obvious criteria (access to markets, modern infrastructure, etc.) are fulfilled. Free activity zones should be near major cities for a number of reasons. First, their functions (e.g. air or sea transportation) often serve a metropolitan area. Resource extraction facilities are quite often in remote areas and manufacturing facilities can be located where land and labour costs are low, provided that there is reasonable access (e.g. freeway) to international transportation facilities (e.g. airport). But when an economy begins to evolve into more sophisticated activities the proximity to local markets as well as the proximity to decisionmakers becomes increasingly important. Not only are skilled managers and workers to be found almost exclusively in major metropolitan areas, but so are the facilities (universities, technical schools, etc.) required to increase their numbers. Further, cultural and social amenities required to attract and keep these managers and workers are to be
found in and around the major cities of Asia. It is quite clear that the diverse and fascinating life of a city that has grown over a long period of time cannot be duplicated for any price. Finally there is the question of cost - not only of the urban requirements of the free activity zone, but that of lost opportunities to the metropolitan area, since investment in the free activity zone is done at the expense of urban capital improvements. The total investment in a country with a free activity zone programme may be greater - and the net investment in its cities could be less if the zones are not located near urban areas. For many reasons, including those cited above, there is the potential that the development of a free activity zone may be an inefficient social investment if it is not in or near the nation’s major cities. This is particularly true in a country whose service sector requires improvement or where scarce primary agricultural land is threatened by development of the zone. One solution that leads in the direction of efficient social investment is to develop a free activity zone as an activity centre of a satellite city with a strong transportation linkage to a major metropolitan area. An example of this type of development would be an airport city with free zone activities (warehousing, trade, and various types of services) linked via high speed transit to the urban core of a large city. The local urban development would be sufficient to meet immediate local needs but not to attempt to duplicate what would be available (and could not be duplicated) a reasonable distance away. Since face-to-face contact is an essential part of any service sector industry it IS important that the zone be linked directly to the various activity centres of the metropolitan area (e.g. financial; advertising; stock markets; insurance and professional services centres). Another means of promoting efficient social investment is to encourage shared uses of infrastructure. A free activity zone that can share infrastructure use and cost with the metropolitan area will provide benefits to those investing and working in the zone, to those living near the zone and to the government. This, of course, requires administrative coordination and demands good planning. But more than sectoral planning (e.g. for housing), planning based on the integration of all activity sectors, as well as the goals of government and the private sector, is required. REQUIREMENTS FOR SUCCESS It is important to consider the requirements for the successful implementation of a free activity zone. Good planning, of course, is a critical requirement. The zone should have linkages to its region and also be part of a national development strategy. Planning should include incentives which benefit both the government and the investing firms. The zone should also be planned in a phased approach, emphasising existing resources and minimising the risks associated with a large-scale investment (Burke, 1983). The need for project management should not be underestimated. The project should be well-defined and appropriate mechanisms for cost and schedule control should be in place. Since inter-agency disagreements are likely to hinder the implementation of the project, a new “supra-agency” may be required to ensure the development of the zone. The availability of financing will depend on the quality and management of the project. Potential project delay that can postpone or decrease the financial benefits from the zone is an important criterion on which projects are being evaluated today. Financing is available for projects that are well-planned and well-managed. Perhaps the most important factor for the success of any zone is the image of
Satellite Cities of the Future
297
success. This is an elusive yet important psychological factor that will motivate investors, and give to people government workers, attract international everywhere, including potential workers, a sense of opportunity wherever the name of the zone is mentioned. Of course the government can, and should, market the free activity zone through promotional programmes. But ultimately if the development of the zone is a something that benefits everyone, including the local population, then its image will spread by “word of mouth” and through the international media. Its success will be insured if it is adaptable to change. The changes that will affect the success of a free activity zone are only partially within the control of the host government. Changes in government policy, however, can be made to lessen the impact of changes in geopolitical forces and in international markets. But there are potential conflicts. The evolution of policies necessary for the success of the zone may work to the detriment of the region or the country, as a whole. Or policies may be changed to the detriment of zone tenants or workers. Free zone policy changes should be undertaken only when necessary and then in a gradual manner. Every effort should be made to ensure that there are no “losers”. But even for losers, the gradual shift in policy can help mitigate its impact. The extremes of policy implementation are that the policies of the zone would become national policies (e.g. the result of a successful experiment) or that the zone would be closed down. Both are unlikely if the zone is initially successful. The free activity zone is likely to remain but not without change. Firms will be replaced by other firms. Technology, markets and the skills of workers will change. But the zone will continue as long as it can be a successful vehicle for economic development.
REFERENCES of a Multi-Functional InA in the Pacific Area”, Burke, J.E., “Phasing Development: The Case of Cheju Island, pp. 191-203. Kim, E.W. and Park, Institute for Human Settlements, Seoul, 1983. Hoyee, B.S. and Pinder, Press, New York, 1980.
D.A.,
Trade
Zones”,
Cityport Industrialization and Regional Development. J. World Trade Law 17, 427444,
Jayawardena,
D.L.U.,
Meier,
Planning for an Urban World. MIT Press,
R.L.,
“Free
(Editors),
in: New Approach to Regional S.Y. (Editors). Korea Research
Cambridge,
1974.
1980.
Pergamon
HABITATINTL. Vol. IO. No. 112.pp. 291-297. I%+6 Printed in Great Britain.
Pcrgamon Journals Ltd.
Satellite Cities of the Future* Free Activity Zones as Precursors of Urban Development JAMES E. BURKE?+ Bechtel Corporation, San Francisco,
USA
INTRODUCTION
In this paper the concept of free zone or free trade zone is extended from its traditional meaning, associated with investor incentives and development, to a broader perspective of local, regional and even national development that is stimulated by investments in economic activities in a loosely defined spatial area called a free activity zone. Investment focused in these special zones will result in economic development, even economic diversification, in the surrounding area during periods of economic growth. This is particularly relevant to the rapidly expanding economies of the East Asia region. Asia, with its slowly expanding (relative to other world regions) yet rapidly urbanising population, must plan for further industrialisation, economic diversification, job creation and urban development - particularly in the infrastructure and housing sectors. As economies evolve, there is a need to locate and develop major projects consistent with the demands of a modern international economy and to implement national and local goals for economic development. As countries have proceeded from agricultural and resource development to import substitution and, further, to export-oriented economies, their major metropolitan areas have played an important role. But as national economies shift towards the service sector, the latter will play an increasingly important role. While the traditional free trade zone is associated with manufacturing, the free activity zone is oriented towards a mix of activities with an emphasis on the service sector of the economy. It is my opinion that this new type of zone will emerge as an important factor in the future of urban development since many of its activities will be those formerly associated with urban centres. Further, free activity zones will become “kernels” for the development of satellite cities near metropolitan areas.
THE TRADITIONAL
CONCEPT
OF FREE TRADE ZONE
The traditional concept of free zone or free trade zone (FTZ) and its many variations (Jayawardena, 1983) emphasised the benefits to the investor (e.g. financial incentives, labour supply, etc.) and to the government (e.g. foreign *This is an edited version of a paper presented at the 9th EAROPH International Congress, 20-24 August 1984, in Hong Kong. tAddress for correspondence: Bechtel Group Inc., 50 Beale Street, San Francisco, California, USA. $Acknowledgements - The author wishes to acknowledge Jun Han, Ivan Ivanek, Richard Stauffer and Michael Wakelin, all of Bechtel Group Inc., for many discussions on this topic. The contents of this paper are solely the views of the author and do not represent the views of any other individual or corporation.
291
292
Jumes E. Burke
capital earnings, job creation, etc.). The result of this approach is that some zones have not been successful and that free trade zones, in general, have come under increasing criticism. The primary reason for the lack of success of some free trade zones appears to be insufficient feasibility analysis and planning. Common mistakes include the absence of a linkage to the local economy which could, for example, provide a significant proportion of the materials and parts required for value-added processing. In addition, markets may have been overestimated as no market penetration survey was undertaken. Some may have lacked a rigorous financial analysis that included a broad view of zone costs which provided a realistic picture of zone profitability. The failure to integrate the free trade zone into the regional development programme has resulted in some unnecessary infrastructure costs. A failure to understand the incentives necessary to attract firms is another factor; the importance of tax reduction may have been overestimated while the importance of programmes to attract and train labour and to provide amenities may have been underestimated. The development of free trade zones usually emphasises incentives such as the reduction of taxes and bureaucratic delays in order to attract industrial and commercial development. But this approach is just the means of accomplishing the government’s real goals: foreign investment, job creation, training, technology transfer, the development of the local economy and an overall improvement in the quality of life (health care, housing, etc.). In other words, the zone is a means of stimulating economic development and social welfare (government view) as well as a means of increasing profitability (investors’ view). Unlike other types of development programmes, the goals of the government and the investor, as well as those of local interests, must be satisfied in order for success to be achieved. Local government should participate in the decision-making where possible, and local plans and traditions should be taken into account. Local supplies or services should be used to the fullest possible extent. Local enthusiasm rather than local opposition may make the difference when the implementation of the zone enters a crucial phase. In developing countries, a traditional concept of a free zone, such as an export-processing zone, may still be an effective means of stimulating economic growth - but only if it is carefuly planned. However, as national economies grow, as they have done so rapidly in the East Asian region, even a free trade zone may not be effective. It must evolve first into higher technologies and second into the services sector. And this is where traditional free trade zone is likely to fail unless it is seen as a special type of free activity zone.
FREE ACTIVITY
ZONES AS STIMULI
OF FUTURE GROWTH
Quite often when we speak of free trade zones we mean something much broader that may be called a free activity zone. These are zones which emphasize: (a) activities to induce the flow of goods, people or information (including currency) into and out of the zone; (b) investment and long-term net benefits to both the host country (government) and the investors. Free activity zones include zones which give special incentives such as free trade zones or enterprise zones but also other types of development not usually thought of as zones such as airports, seaports and teleports (that ,is, large-scale communications centres). Consider the word “zone”. For many this evokes the image of a fenced area, or at least an area that is separated by some sort of physical barrier. This
Satellite Cities of the Future
293
character&es the traditional zone that encloses a manufacturing activity. Our surveys indicate that service-oriented firms simply will not elect to locate in a physically separated area if any alternative location is available. A service firm wants to have access to the zone, to the local market, and to the international market and does not want to be hindered by a physical barrier. Whether or not these desires can be met must be worked out on a case-by-case basis. Free activity zones such as airports and seaports have restricted areas which are for specific purposes. Much of the economic activity at these sites is outside the fenced area. However, if we recognise that some activities should be fenced and others should not, then the airport security fence, for example, could be extended to form contiguous security zones for some types of economic activities while other types of activities could occur outside the fence. Because the airport, the seaport and the teleport require secure areas and because they are centres of activity required by developed economies, they are likely to’ evolve into the successors of traditional free trade zones: free activity zones. If free activity zones are established so that complementary economic activities can occur without restriction, away from the congestion of the older urban centres, they will begin to evolve as cities in their own right. Meier (1974) argues that, in rapidly-growing metropolises, a large share of development that would ordinarily occur in the central business district will occur instead at the international airport. I agree that the airport - especially if planned as a free activity zone will develop rapidly in an expanding economy, and could be planned as the economic driving force of a satellite-city. Aside from the evolution of the word “zone”, other factors, such as technology and transportation economics, play an important role in the concept of a free activity zone. Ships, for example, are becoming larger and are stopping at fewer ports. And with containerised cargo the function of “transfer” has replaced that of “trans-shipment” in all but the smallest port. Aeroplanes are larger too. They now carry more freight than before and while freight capacity can be expanded at the expense of passenger capacity, the converse is not true. Therefore on most routes there is an unused capacity for airfreight. Airports that have a major imbalance in airfreight load factors between incoming and outward bound flights may find themselves targets for particular types of economic development. A well-planned free activity zone could encourage such development. One complaint that our planning group has come across in the last few years is that there are very few airports in the East Asian region where either equipment (for instance computers) can be flown in for repairs or technicians be flown out for on-site repairs on short notice. Such service-oriented businesses are just beginning in many Asian countries and the demand will be significantly higher in the years ahead. This is the type of service activity that could be supported in a free activity zone. Today one finds that telecommunication activities are restricted in the East Asian basin. Governments are reluctant to allow firms tq send coded information via international satellite communications networks (Hong Kong is, of course, an exception). Such communication is currently deemed essential for the operation of banks and other financial institutions. It will become increasingly important for firms in other economic sectors as well: the age of internationally-linked computer-aided design, engineering and manufacturing is upon us. Possible government response to these needs is to develop a free communication zone where firms may establish offices, earth stations, and computer facilities. The government could even build such a park and attract investors through shared hardware costs, a reliable power supply, security and a quick start-up time. The concept is like that of the original teleport on Staten Island in New York that will have 17 earth stations with access to 24 satellites. It
294
JumcJ E. Burke
will be linked to several remote locations in the New York City area, via a fibre optic cable network, but will also lease over 90,000 sq.m of office space in its first phase. The concept of the teleport is growing rapidly; there are plans to establish many more in the USA and an international teleport association has sprung up. There have also been advances in technology and reliability (as well as a deregulation in the communications industry) in the USA that have brought local area networks (LAN) closer to commonplace reality and have advanced the image of a “smart building” where workers conduct their business using electronic telemedia rather than the traditional media of paper. The free activity zone may take on the image of the “smart zone” where certain technologies are not only allowed but encouraged. This type of teleport zone can be made attractive for service industries, especially if it promotes compatible activities (near an airport for instance). It should also be attractive to governments interested in continued economic growth. The free activity zone can play several roles that may benefit the host government as well as other governments in the region. The zone will play a role: in increasing intra-regional trade; in technical innovation; in the implementation of economic policy; and finally it will play a role in urban development. ROLES IN INCREASING
INTRA-REGIONAL
TRADE
In our analysis of regional trade we have noted that the East Asian region has an unusually high proportion of external trade relative to its internal trade. As increasing wages drive up the purchasing power of regional consumers it can be expected that firms will begin fully to recognise, as many inside and outside the region already have, the vast potential of the regional market. Impediments to intra-regional trade might be realistically overcome through the free activity zone. The zone can serve as a “neutral ground” upon which geopolitical antagonists can conduct trade. The perceived need for correct diplomatic relations prior to the establishment of trade relations could, to some extent, be circumvented by operations in the free activity zone. Even among governments with similar ideologies there is limited trade due to a perceived need to be competitive rather than cooperative. If the focus between Asian nations is on economic differences then cooperation, based on real need, based on perceptions and expectations, can be rather than competition, established. The free activity zone provides a mechanism for cooperation to occur and to evolve in the future. THE ROLE OF TECHNICAL
INNOVATION
The technology of a successful free activity zone will improve over time due to competition caused by relatively low labour rates and new technology in other zones and in the local economy. Firms that do not adopt comparable technology will soon become outmoded. One reason that FTZs are successful over a long period of time is that the mix of firms has changed from low-technology labourintensive activities to high technology activities. This is why, for example, the export processing zones in Taiwan continue to be successful. But public entities can help themselves to remain technologically current. For example, the Port of San Francisco failed to see technological development in shipping. Oakland, across the bay, developed a container port and within a decade replaced San Francisco as the major Northern California port. Today, areas that do not develop their communications facilities could, in a similar fashion, face a lack of industrial development in the years ahead. In response to these challenges the
free activity zone could be a focal point for technological innovation in the years ahead.
ROLES IN THE IMPLEMENTATION OF ECONOMIC POLICY
The free activity zone can also play a leading role in restructuring a national economy. A government can implement policies, programmes or procedures on a trial basis. The free activity zone, with its separate administration, can become a testing ground for ideas too uncertain or controversial to risk implementing on a broader scale. The results of a programme can be seen and the reactions to it can be discerned before far-ranging decisions are made at the national level. In emerging economies some industrial and service sector activities are protected from foreign competition yet remain essentially undeveloped when compared to similar activities in an international setting. The free activity zone provides an opportunity to develop these sectors with competition on a limited scale under regulations attractive to foreign investors. If at a later date it is felt that certain sectors have become strong enough to compete in the international market place, the zone regulations could be ‘extended to the entire country. Thus, the free activity zone can be used to begin the restructuring of a national economy. The free activity zone may also be used to implement special “temporary” policies which will later be rescinded. In this role the zone is filling an economic niche either nationally or internationally. It might also develop special relationships with other similar zones. An example would be processing and transfer of petroleum products without affecting the national market and not under the control of the domestic regulations of the host country.
ROLES IN URBAN DEVELOPMENT
The criteria and activities of the free activity zones (including free trade zones) are those of an urban area and, in essence, define what a city should be. What some government planners seem to want when they plan a free zone are all of the benefits of a city without the economic and social costs. And these costs can be substantial. A zone employing 12,000 persons may cost US$50 million plus land and facilities, but it would cost between US$l-2 billion to develop the type of urban area that would be needed to attract skilled and semi-skilled workers and their families. The attraction of qualified managers and employees is the foremost problem in implementing a free activity zone. In the USA, as well as in other countries, firms base location decisions on the quality of the local and social and physical environment provided that the more obvious criteria (access to markets, modern infrastructure, etc.) are fulfilled. Free activity zones should be near major cities for a number of reasons. First, their functions (e.g. air or sea transportation) often serve a metropolitan area. Resource extraction facilities are quite often in remote areas and manufacturing facilities can be located where land and labour costs are low, provided that there is reasonable access (e.g. freeway) to international transportation facilities (e.g. airport). But when an economy begins to evolve into more sophisticated activities the proximity to local markets as well as the proximity to decisionmakers becomes increasingly important. Not only are skilled managers and workers to be found almost exclusively in major metropolitan areas, but so are the facilities (universities, technical schools, etc.) required to increase their numbers. Further, cultural and social amenities required to attract and keep these managers and workers are to be
found in and around the major cities of Asia. It is quite clear that the diverse and fascinating life of a city that has grown over a long period of time cannot be duplicated for any price. Finally there is the question of cost - not only of the urban requirements of the free activity zone, but that of lost opportunities to the metropolitan area, since investment in the free activity zone is done at the expense of urban capital improvements. The total investment in a country with a free activity zone programme may be greater - and the net investment in its cities could be less if the zones are not located near urban areas. For many reasons, including those cited above, there is the potential that the development of a free activity zone may be an inefficient social investment if it is not in or near the nation’s major cities. This is particularly true in a country whose service sector requires improvement or where scarce primary agricultural land is threatened by development of the zone. One solution that leads in the direction of efficient social investment is to develop a free activity zone as an activity centre of a satellite city with a strong transportation linkage to a major metropolitan area. An example of this type of development would be an airport city with free zone activities (warehousing, trade, and various types of services) linked via high speed transit to the urban core of a large city. The local urban development would be sufficient to meet immediate local needs but not to attempt to duplicate what would be available (and could not be duplicated) a reasonable distance away. Since face-to-face contact is an essential part of any service sector industry it IS important that the zone be linked directly to the various activity centres of the metropolitan area (e.g. financial; advertising; stock markets; insurance and professional services centres). Another means of promoting efficient social investment is to encourage shared uses of infrastructure. A free activity zone that can share infrastructure use and cost with the metropolitan area will provide benefits to those investing and working in the zone, to those living near the zone and to the government. This, of course, requires administrative coordination and demands good planning. But more than sectoral planning (e.g. for housing), planning based on the integration of all activity sectors, as well as the goals of government and the private sector, is required. REQUIREMENTS FOR SUCCESS It is important to consider the requirements for the successful implementation of a free activity zone. Good planning, of course, is a critical requirement. The zone should have linkages to its region and also be part of a national development strategy. Planning should include incentives which benefit both the government and the investing firms. The zone should also be planned in a phased approach, emphasising existing resources and minimising the risks associated with a large-scale investment (Burke, 1983). The need for project management should not be underestimated. The project should be well-defined and appropriate mechanisms for cost and schedule control should be in place. Since inter-agency disagreements are likely to hinder the implementation of the project, a new “supra-agency” may be required to ensure the development of the zone. The availability of financing will depend on the quality and management of the project. Potential project delay that can postpone or decrease the financial benefits from the zone is an important criterion on which projects are being evaluated today. Financing is available for projects that are well-planned and well-managed. Perhaps the most important factor for the success of any zone is the image of
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success. This is an elusive yet important psychological factor that will motivate investors, and give to people government workers, attract international everywhere, including potential workers, a sense of opportunity wherever the name of the zone is mentioned. Of course the government can, and should, market the free activity zone through promotional programmes. But ultimately if the development of the zone is a something that benefits everyone, including the local population, then its image will spread by “word of mouth” and through the international media. Its success will be insured if it is adaptable to change. The changes that will affect the success of a free activity zone are only partially within the control of the host government. Changes in government policy, however, can be made to lessen the impact of changes in geopolitical forces and in international markets. But there are potential conflicts. The evolution of policies necessary for the success of the zone may work to the detriment of the region or the country, as a whole. Or policies may be changed to the detriment of zone tenants or workers. Free zone policy changes should be undertaken only when necessary and then in a gradual manner. Every effort should be made to ensure that there are no “losers”. But even for losers, the gradual shift in policy can help mitigate its impact. The extremes of policy implementation are that the policies of the zone would become national policies (e.g. the result of a successful experiment) or that the zone would be closed down. Both are unlikely if the zone is initially successful. The free activity zone is likely to remain but not without change. Firms will be replaced by other firms. Technology, markets and the skills of workers will change. But the zone will continue as long as it can be a successful vehicle for economic development.
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