by Lynn Adler and Jim Mayer
Producers of Faith, Hope and Capital
could you start by describing briefly the kinds of changes that took
place in South Shore in the sixties?
begin with, South Shore had been a kind of middle-class to upper-middle-class
bedroom community--white people, mainly, people who worked downtown
in businesses. Beginning in the 60s, African-Americans began moving
into the community. As is the case in many other such communities, as
the African Americans moved in, the whites began to move out. That's
a little bit of a simplification, because the first African-Americans
who moved in tended to be quite well-off people. There was an early
phase in which the white residents of South Shore, or some group of
them, made a real effort to have an integrated community and to keep
the community attractive to all people. They persuaded the real Mayor
Daly, the original Mayor Daly, to build a new high school. They tried
to get the country club-- there was a big country club in South Shore--to
take a broader diversity of members. So, there is a real attempt made
to make it an attractive, integrated community.
is often the case, the community reached what sociologists call a tipping
point. As the numbers of African-Americans grew and the whites began
to leave, landlords did a certain amount of disinvesting; they stopped
taking care of their buildings. Then, it got harder and harder to get
mortgages for new housing, harder and harder to get insurance. That
whole package of events is what people call "red lining" --a practice
in which you draw a red line around a community, on the map, and you
say, "We're not going to lend these people money anymore; were
not going to give them insurance"
used to have an expert who would tell him when a community was "finished",
which meant that it had racially tipped. At a certain point, they decided
South Shore had racially tipped and so they wrote off South Shore.
your book you mention past efforts to change conditions in distressed
communities. Could you briefly characterize those efforts and why they
did not succeed?
the early efforts to deal with distressed communities around the country
really focused on organizing. There developed a cadre of community organizers
who felt that their issue was, to quote Sol Alinsky, a founder of that
to rub raw the wounds of discontent" and get people to
make demands. People organized and they marched and demonstrated and
picketed and things of that sort. There are two problems with that as
an approach. One is that it scared the daylights out of the people who
had power, and the second one is that it produced exaggerated expectations,
which were hard to deliver for the people who were demonstrating. Often
there was a governmental response, but it was usually a kind of quick
and superficial payoff. For example, you could get basketballs and basketball
hoops, or you could get improved athletic equipment. But there was no
lasting institutional structure put in place, which would have ongoing
time, there was a shift more and more into real estate development.
Government agencies began to provide money to encourage that as an activity.
The founders of the South Shore bank made the decision to raise private
money and to do this as a real honest-to-God for-profit development
bank. Now, in some ways that was a really courageous act because, at
that time, the notion was that you couldn't lend money in these communities,
that to do so was to just pour it down the drain. And what these people
did was to demonstrate that you could go into a community, buy a bank--they
bought a bank that was in dramatic decline--
I know here was quite a lot of money that went into communities during
those early efforts, and I know you mentioned money sort of disappearing
without a trace.
thats the same story, really. It's just simply that providing
money is basically providing Band-Aids; providing money is for more
amusements or short-term welfare relief of some kind or other. When
the money stops, there's nothing there. So the question is how you build
something that is lasting, ongoing, that is self-propelling, and that
doesn't depend on external largess for its ongoing activities. The brilliance
of Ron Grzwinsky, Mary Houghton, Jim Fletcher, and Milton Davis, the
people who founded the South Shore Bank, was to say, "Lets create
an institution that generates wealth and that uses that wealth in the
community, and that furthermore, by investing in the community, strengthens
that very institution."
have a spiral, but it's an upward spiral, rather than a downward spiral,
which was the image everybody had. Take the old South Shore bank--whites
moved out, they took deposits with them, the experts say this bank can
no longer survive, so, you better leave. But the founders of the South
Shore Bank said no; let's put more resources in; let's spend them in
the community; let's grow the bank and let's strengthen the community.
And that's very courageous, and it's particularly courageous lending
for multiple family housing. South Shore at that time was completely
red-lined for multiple family housing, and if you make a loan to a multifamily
house, it's almost like an uncollateralized loan if prices are going
down. That is, you can't take the house and make any money back. So
what you really have to do is make a lot of loans, get the whole neighborhood
stronger. That takes a certain amount of courage and it ran very much
against the conventional wisdom of that time.
don't we talk in a little bit more detail about the strategy of the
new South Shore Bank to halt the decline of the neighborhood.
initially the strategy was two-pronged. There was an effort to focus
on starting business and encourage business growth, and that was based
on the experience of the founders. They had been in the Hyde Park community,
which is about five miles away, and they had had great success lending
money to businesses. Now, what they didn't realize at the time was that
many of their great successes were loaning to franchisees. This was
the time when the big franchise companies had started to set up minority
business--initially they had resisted having minority-owned franchises.
So, it seemed to the people in the Hyde Park Bank, boy this is easy,
everybody says you can't do itbut we're lending money, we're making
millionaires. Let's go and do this in an inner-city bank. Well, the
business development part turned out to be much harder than they thought.
So, the second prong of the effort, lending money for housing, became
more and more important and it was that part that really caught on.
There was a demand; there were lots of people who wanted to buy small
multifamily dwellings, fix them up, rent part out to a relative or someone
they knew and trusted. Often these were people with other jobs, and
this became a big opportunity.
problem in a neighborhood like this is that you have this disinvestment
by landlords who no longer live in the community, and there are these
large, ugly buildings that become increasingly under-maintained. They
become abandoned; they have broken windows. So, one of the great innovations
of the South Shore Bank group was to start a separate for-profit real
estate development company, which is called City Lands. What City Lands
had to do in that situation was buy up these buildings, fix them up,
using, in many cases, subsidy money to do so, and then put them back
on the market. Then, all the other people who own smaller buildings
on the block, or nearby, who were, until now, feeling very depressed
and discouraged, say, hey they did it and it paid off, I can do it and
have it pay off. This is a nice looking block. So, then you begin to
get a flow of local investors. The nice part about this is they have
a place to go and get the money. They can go to the South Shore Bank
to get the loans to do that kind of rehab. Without the South Shore bank
they probably couldn't have gotten loans because the area was, as I
a little aside about the City Land's buildings. When we were out there
yesterday, several of the folks were saying City Lands--they sort of
come in and do the rehab and then they're gone, and nobody's sort of
minding the shop.
a real problem that has not really been solved about the management
of buildings that were rehabbed under these big subsidy programs. The
major subsidy these days, for building low-income housing, is the low-income
housing tax credit. The way those deals are done, bonds have to be sold
on a national market, and there's not a lot of money left for maintenance,
and there's not a lot of room for mistakes. So, one has to say, for
example, we're going to have ninety percent occupancy guaranteed in
order to both pay for maintenance and to pay off the income flow for
those bonds. Well, you can't guarantee ninety percent occupancy. And,
in these times, where urban communities are very disorganized and there
are crime problems and things of that sort, it's very hard to maintain
those buildings and pay off the bonds at the same time.
you really go out there and start looking for tenants. Maybe not with
the same care you used to take, because youve got to keep those
buildings full. The other problem is that in many of those subsidy programs
HUD has increasingly said, "You have to house the hardest-to-house.
So, they've made it harder to rent your housing to people who have good
jobs and whole intact families. So, they force landlords using those
subsidies to take in large numbers of people, who, if you had your druthers,
you might not take in.
is that, under these circumstances some of these buildings become under-maintained.
And, maintenance and good, tough management is a continuing battle that
all the companies that are involved in this process face. City Lands
usually does better than many, but it has bad patches. It gets harder
and harder to maintain these buildings. People get burned out and it
gets harder to find resources. Then they really get to be pretty bad,
and somebody says "We've got to fix this up, we're having a harder time
filling up the buildings, and we've got to really work." So, they hire
new people and they work zealously, things come back up to standard.
very hard if you have a population living in your housing that's low
income, has lots of problems, especially in this era of drugs, particularly
crack, it is an endless problem of supervision, seeing what's going
on, paying close attention, which is very expensive to provide. We hired
interviewers in the Austin neighborhood to interview people right after
they moved into a whole bunch of rehabilitated Shore Bank housing, and
then they went back, six or seven years later to interview the same
people to see how their lives were going. One of the things that they
noted, was that when they did the first interview, those buildings beautiful,
but they don't look nearly so beautiful now. No serious problems, but
the maintenance issues were really very severe, and the cost of maintenance
turned out to be much higher than those syndicated deals allowed for.
you say that Shore Bank has been successful in its effort?
Bank has been unambiguously successful in its effort in South Shore.
I think there's more ambiguity about how successful it has been in the
Austin neighborhood. There's no doubt that at some crucial place the
South Shore community was turned around in some way that mattered. The
Austin community is a more complicated, much larger, and a more difficult
place, and there's ambiguity there about what's going on. The other
issue that one has to remember is that this is not a process that one
day it's finished and you walk away from it. The way in which American
Society works, the way in which people make investment decisions, the
way racial prejudice plays out American society--these are continuous
fights, and the flow of resources is always an issue, always a challenge.
It is still true that in American cities the white, middle class and
the black middle class is moving out and moving to the suburbs, so you're
really in a situation where one is continually fighting a kind of uphill
fight. You can't just say one day, well, we did that, and now we're
going to do something else.
you say that the South Shore approach would work in some of the more
I don't think so. Different people will give you different arguments
about that. But, the South Shore approach worked particularly well in
South Shore because the housing was not all that deteriorated, the economic
position was very heterogeneous, there were lots of people who had good
jobs, made good money, not big money. There's a small part of the community
where there are expensive houses, where people make big money. But for
the rest, there is a large group of people in South Shore who have jobs
as school teachers, hospital nurses, bus drivers, postmen, jobs like
that. So these are people who have orderly, reliable lives and pay their
debts, pay their bills, and have regular predictable income. There are
also in South Shore very desperately poor people, but it's that heterogeneity
that makes it work.
a different issue when you're in a very homogeneously, severely-impacted
community. Then its difficult to find people who are going to
invest and spend money and be able to handle that money well and run
businesses and stay in the process and not have to worry about being
shot or attacked every time they walk out on the corner.
other thing I think you have to remember is that there are no magic
bullets in this business. Everything is a multipronged effort. There
really are problems with the schools; there are problems with crime;
there are problems with jobs. There is the fact that most jobs in big
cities have moved out to the suburbs. There are different kinds of jobs
in cities than there used to be. There used to be industrial jobs, and
now there are jobs that require a different set of skills. All of those
are real issues. A strategy of investing in a community gives that community
a chance if there are other things also in place. But, if none of those
things are in place, then it's a very difficult uphill battle.
basically, credit by itself is not enough.
position is that credit is very important. It frees people up; it gives
them the opportunity to take their lives in their own hands and do something
with it. But, on a community-wide basis, more than credit is necessary.
you say that it is important that Shore Bank's work was accomplished
with relatively little government money?
I think that is very crucial for several reasons. One is that the process
of doing this takes a long time. In the South Shore community, it's
really eight years before I feel that my measurements show that things
have really changed in a way that is measurable and credible-- believable.
Most government programs can't wait that long, so what generally happens
is whatever the fad of the year or the month is, that's what you're
government programs tend to get loaded down with bureaucratic nonsense.
There's a government program--my favorite program in Chicago is a government
program--which would lend you money to rehabilitate your house. But,
the first thing you had to do was get your house up to code. Now, the
problem is that none of these old houses are close to code. The building
trades developed the code. So, you have to have an outlet every 36 inches
and it has got to be above the baseboard, not in the baseboard. You
have to have a special kind of pipe, and in fact all your wiring must
go through pipe. It cannot be flexible wiring at all. So, by the time
a building inspector comes to get you up to code, youve already
spent four times what your original rehab job was going to cost.
true for government. They have layers of rules and restrictions and
regulations. A bank can say, look, we're in the business of lending
money and getting these buildings rehabilitated. We will respond to
what we see as the needs, we will do our evaluations, and we will make
those loans. Similarly, very often what government will do is start
setting up restrictions for who you give credit to.
One of the
great achievements of a private, for-profit bank--if it's not racially
prejudiced--is it says: "I know some of these people. I don't really
care what their balance sheet looks like by itself. They're going to
succeed. They've succeeded in the past, they're people with character
and drive and intelligence." Well, under many of these government programs
you can't do that, especially if some senator or congressman comes and
says: "Why did you lend money to that person? Hes a bad credit
risk." The other part is, you're going to be out there on the edge.
Youre going to fail sometimes. If you have a good stable capital
base you can absorb some of those failures. You don't say--oops we failed
so let's stop, and that's a danger with large, bureaucratic, governmental
you think Shore Bank's approaches have had an impact on other banks
in the South Side?
as a development agent. This is a controversial question, in a way.
When the South Shore Bank was started the hope of the founders was that
everybody would see what a great idea this was, and there would be large
numbers of replications. The first totally independent replication,
I think, is now in Louisville, Kentucky, so it has not been replicated.
Bankers will often tell you they make development loans, but it turns
out-- when you look closely at what they do--they don't. On the other
hand, what the South Shore Bank had demonstrated is you can make money
in the inner city. So, now many other banks have opened branches in
communities that they left some time ago. And they now perceive that
these are money-making places. In addition, they're under some pressure
from the government, and the Community Reinvestment Act, to show that
they're involved in these minority communities.
By and large,
replicating what the South Shore Bank does is a complicated story because
you have to remember that it's not just about lending money there. There
is the City Lands corporation, a for-profit real estate development
company, which is crucial for the process, was crucial at South Shore
because no private developer would take on those big, ugly, run down
buildings. Similarly, there is the Neighborhood Institute, which has
tried to deal with the other kinds of community-based social problems
and tried to help organize the community and tried to generate jobs
and things of that sort. So, you're really dealing with a more complicated
story than saying: "Hey, I'm going to open a bank on this corner, and
I'm going to lend money out better than I used to."
were talking about the difference between micro-lending and larger loan
fund credit union bank lending.
very useful to make a distinction between micro-lending, which is usually
making very small loans to very poor people to start very small, usually
service-oriented businesses, and business lending more generally. Now,
micro lending, it seems to me, is very useful for helping people make
their own lives better. For example, it is a very desirable and worthwhile
activity for someone who's struggling to be able to purchase a sewing
machine and become a seamstress and in that way improve her family income.
She may be able to stay home and work and look after her children at
the same time. However, its not an activity that generates a lot
of economic growth. Micro-borrowers usually don't have employees. Their
businesses don't generate more wealth in the community. So, it is business
lending that's going to lead, or real estate development, which leads
to lots of investment and reinvestment--that has, if you will, what
the economists call "multipliers" that produce more jobs, more opportunities,
additional reinvestment. So business lending is more likely to have
a lasting developmental growth impact.
as I've seen it and observed it, turns out, actually to be, in this
country, not the best program for the very poor. The issue is that it
still requires confidence, skills, and a whole array of things to be
able to run even a little business. But, micro-lending makes the lives
of the working poor, or people who've had job experience, incredibly
better. My favorite example is somebody, a woman, who has a husband
who makes $12,000 a year. He has a real, 9-5, 40 hour a week job. They
have two children. She is able, by becoming a dressmaker, to add $8,000
to the family income. So, now they have $20,000 a year. It's a completely
different life. Those are the kinds of things that the micro-lending
does. But, they don't represent a motor that pulls the growth machine
ahead. For that you need to invest in businesses that have growth, that
will take on new employees, and will begin to generate fresh wealth
or bring new wealth into the community.
you say that the South Shore story was the story of poverty alleviation
or poverty prevention?
would say that it's a story of development. The South Shore community
was on its way down economically. It was stabilized, and then it improved
itself economically. So, that's a case where, in fact, wealth was generated,
and there was a real genuine development agenda. Now, the South Shore
story is still limited by the fact that most of that development did
happen in real estate. The business development side is not a central
piece in the South Shore Bank achievement. There are now Shore Bank
subsidiaries around the country, and also, as Shore bank spreads over
Chicago, the question will be--will they be more successful at this?
That's going to an increasing issue. The South Shore Community was a
bedroom community for lots of people who had jobs. As the South Shore
Bank increases its area of interest and concern in Chicago, clearly
job generation--connecting people to jobsand business growth,
are going to play a larger and increasingly important role in their
activities. On that one the jury is still out. There are exciting ideas.
There are real innovations. But, if this were an easy task someone would
have done it a long time ago.
mentioned red-lining as a term that people are familiar with. Is there
any doubt that red-lining is a real thing? Without going into extensive
proofs, is there any doubt that red-lining really did happen, particularly
in the 60s and 70s?
not any. If one interviewed the people who got mortgages in South Shore
from the South Shore Bank in the early years, they will tell you that
they couldn't get mortgages anywhere else, and that they really tried.
There were just areas of the city, of every city, not just Chicago,
that were absolutely shut down. Whether they actually did make a circle
with a red line on a map somewhere and say, "Stay out of here," is not
necessarily an established fact. But, there is no doubt that there have
been loads of studies that have demonstrated that credit for housing
was not available in these areas, or for starting businesses for that
issue that has come up is that one key to stabilizing some of these
communities is getting rid of what people call the "riff raff". What
happens to the riff raff?
happens to the riff raff, is a terrible question. One has this sense
of the old image of the wandering Jew, driven from community to community,
unable to stop anywhere. And that's why there's no magic bullet. What
one can say, as a general rule is, why can't people who have lower income
have nice lives? And having nice lives means getting rid of people who
make those lives not nice--who stand on street corners and make cat
calls and drink out of brown paper bags, are scary and threatening and
burglarize and all the rest of that, and have drive-by shootings and
whatever. So, it is perfectly reasonable to chase them away and to allow
people, especially minority people who are low or moderate income, to
have decent, unthreatened lives, like the rest of us, relatively speaking.
But, that's another problem. That's about job training; that's about
job growth; that's about improving the educational system; it's about
finding good after-school activities and programs for kids who are hanging
around. And there's got to be a solution to that too. And the South
Shore Bank's solution is not a solution to it.
you look at what is a healthy community, what are you looking at?
a whole series of things. One does, of course, look at the quality of
buildings and one looks at what's happening to housing and building
prices. One looks at the condition of shopping strips. One looks at
litter. We actually go out and count litter. We have a list of what
you look for. For example, is it bigger than a piece of newspaper, or
smaller? Is it the size of a mattress? We look at graffiti, and we make
beyond that, you can go to look and see where kids are playing. Is there
adult supervision? Are people involved in the process? Are there people
standing on street corners creating difficulties? What kinds of activities
are available for youth in the community? And then you have, of course,
income figures for a community, employment figures. And, finally, there
are survey items that are useful to ask-- do people think that are in
control of their lives? Do they that they can make their world a better
place, and do they think it's getting to be a better place? So it's
a whole array of things, from the grossest physical to how to people
feel about where they are.
Shore, over some period of time, one could see an improvement in the
housing stock, and one could also see a dramatic change in attitudes,
where people said, this neighborhood is getting better and we can make
it better. That's unusual and desirable.
there failure on the part of the organizers to press economic issues?
Was that really a divide, that they didn't have an economic strategy,
and that South Shore did have an economic strategy?
organizers often thought about economic issues and economic questions.
They tended to focus on things like how high rents were, and how well
landlords behaved. They didn't have a theory that was about an economic
motor that would improve the general position of the community. It was
very much more--are we getting the resources that we need with a focus
on the kinds of things that I associate very much more with social welfare.
There was no underlying economic theory there about--we need these resources
to generate growth.
that's a distinction for the South Shore Bank. Where in this process--remember
that there is a time when the foundations and the government put a tremendous
amount of money into housing redevelopment. They go from community organizing
to community development corporations, and these community development
corporations have spent billions of dollars on housing. Is that an economic
issue or an economic theory? I don't know.
an article in the paper last week about Newark. Newark has got one of
the most successful community development corporations in the entire
United States--the New Community. Yet, Newark has continued to go downhill
at a tremendous rate. So, I would say they had an economic idea that
if people had better housing a lot of other things would get better.
It was probably not a good idea by itself. I mean, it made those people's
lives better, given what their housing was like before. But, again,
it doesn't generate resources.
can say that personally, on the west side, where we were organizing,
we didn't really have an economic strategy. We had a strategy to get
rid of the slumlords, and take over the buildings.
I go nuts because we've got a school of social service administration
over here. And they're concerned about real issues like healthcare and
benefits and a lot of other stuff. But, in my view those are all Band-Aids.
In the end, if you don't connect people to jobs and to wealth, you're
never achieving anything long term, and that's the key question you
have to ask again and again--are you creating those kinds of opportunities?
little technical issue that you touched on is the comprehensive effort
that's required. Can you talk a little bit about that?
Everyone has a fantasy that there's a perpetual motion machine. If you
just get it started, then it will just produce the wealth, that it will
take care of itself, it will solve all problems. It's a little bit like,
in the 1960s, the theory of economic development propounded by Walt
Rostow. It was about the take off, and once you get a place taking off
then, whoop, everything goes. Well, it does turn out that, for a long
time, there are going to be additional resources that have to be spent.
Even in these for-profit banks there are subsidies; there are investors
that get a smaller rate of return than is the market price. These investors
are often foundations and groups like that. So, there will always have
to be subsidy here. The question is, how much subsidy? What is the proportion
of wealth-generating activity to the proportion of subsidy? What you
hope is that the proportion of wealth-generating activity grows, and
the proportion of subsidy declines. But, anybody who thinks the subsidy
part is going to vanish is just whistling Dixie.