Private investment for public good?

September 24, 2007

Two years after Hurricane Katrina devastated the Gulf Coast, New Orleans remains the US’s largest long-term rehabilitation and rebuilding project. More than 1,800 people lost their lives in the storm, and hundreds of thousands lost their homes and were forced to move away. Katrina is estimated to have caused $81.2bn in damage, making it the costliest natural disaster in US history. The political and administrative mismanagement and confusion of those early days seems barely to have improved. But has the private sector performed any better?

Many US (and international) companies took immediate action to help the victims, making an unprecedented level of donations of both cash and products. Wal-Mart employees opened up their stores and gave out food, water and clothing to victims in the area. CEO Lee Scott provided $3m of supplies and contributed $17m in cash to the relief efforts. Thanks to the company’s crisis management process, Wal-Mart was able to re-open 113 of its 126 stores in the region just 18 days after the storm.

But once this ‘crisis response’ was made, how have companies contributed to rebuilding the city? The oil industry, once the driver of the New Orleans economy, had long since shifted most operations to Houston, attracted by more generous tax incentives. In January 2006 Shell bucked this trend by announcing it would return its 1,000 workers to New Orleans, even though the company had considered consolidating these jobs at its US HQ in Houston. But after asking employees, Shell decided remaining in New Orleans was ‘the right thing to do’ for both the city and its employees. The company bought $32m in residential properties in the area — 120 houses and condominiums in all — to lease to its employees.

But Shell is an exception. In general, big business has failed to return to the city. Of the 23 publicly traded companies that were based in the city before the storm, only half remain.

Businesses have been put off by the continuing lack of public services, the high crime rate, and Louisiana’s reputation for corruption. But the biggest problem is the slow pace of government help for rebuilding homes. Corporate residents are taking their own initiatives to house employees and customers. The Home Depot’s second phase of hurricane response focuses on matching customer contributions up to $1m to support the construction and refurbishment of affordable housing for displaced families.

Beyond New Orleans, a common US phenomenon is ‘urban sprawl’ – growth that leaves areas of urban decay and poor transport services. As the economy shifts from traditional manufacturing to high-tech, US businesses increasingly need skilled workers from a strong educational system.

So over the past five years businesses in cities across the US have been forming new ‘regional business civic organisations’ – evolving from more traditional business associations, such as chambers of commerce, boards of trade or councils of CEOs. Unlike their predecessors’ focus on issues such as lowering taxes, networking and easing regulatory policy, the new organisations focus on helping find solutions to regional problems such as poor transportation, workforce housing, downtown development and urban schools. The companies recognise the benefit of operating in a region that has an efficient transportation system, affordable workforce housing, high quality schools and vibrant urban centres.

Recently the UK government has looked to a 15-year-old US housing regeneration project. At its launch in the early 90’s, HOPE VIwas a dramatic turnaround in public housing policy and one of the most ambitious urban redevelopment efforts in US history. The aim was to replace severely distressed public housing projects, occupied exclusively by poor families, with redesigned mixed-income housing. HOPE VI uses incentives and tax breaks to encourage regeneration. Private sector developers are required to attract a range of incomes into the development. The theory is that the companies deliver the right buildings (investing for a return), and the government focuses on the necessary social and economic policies, like support for working people, in particular through tax credits.

The private sector is encouraged to invest further than just providing housing, into areas like modernising schools and rebuilding amenities. At the Murphy Park housing programme in St Louis, Missouri, the developer raised $5m to modernise the school and lobbied for educational improvements to encourage people into the surrounding new housing development.

These examples show how the UK can learn from the American experience. Successful regeneration needs to provide not only employment and housing, but investment in education and
skills as well as social and cultural amenities.

Michelle Dow is a director at the New York office of The Corporate Citizenship Company.