Richard Taub
University of Chicago
Chicago, Illinois

Interviewed by Lynn Adler and Jim Mayer
Producers of Faith, Hope and Capital

LA: Richard, could you start by describing briefly the kinds of changes that took place in South Shore in the sixties?

RT: To 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.

But, as 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; we’re not going to give them insurance"

Mayor Daly 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.

LA: In your book you mention past efforts to change conditions in distressed communities. Could you briefly characterize those efforts and why they did not succeed?

RT: Well, 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 school, "…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 positive consequences.

So, over 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--

LA: Now, 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.

RT: Well that’s 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, "Let’s 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."

So, you 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.

LA: Why 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.

RT: Well, 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 it–but 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.

Now, one 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 said, red-lined.

LA: Just 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.

RT: There's 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.

That means you really go out there and start looking for tenants. Maybe not with the same care you used to take, because you’ve 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.

The consequence 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.

But, it's 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.

LA: Would you say that Shore Bank has been successful in its effort?

RT: Shore 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.

LA: Would you say that the South Shore approach would work in some of the more distressed communities?

RT: Well, 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.

It becomes a different issue when you're in a very homogeneously, severely-impacted community. Then it’s 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.

But, the 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.

LA: But, basically, credit by itself is not enough.

RT: My 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.

LA: Would you say that it is important that Shore Bank's work was accomplished with relatively little government money?

RT: Yes, 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 dealing with.

Secondly, 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, you’ve already spent four times what your original rehab job was going to cost.

That's generally 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? He’s a bad credit risk." The other part is, you're going to be out there on the edge. You’re 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 agencies.

LA: Do you think Shore Bank's approaches have had an impact on other banks in the South Side?

RT: Not 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."

LA: We were talking about the difference between micro-lending and larger loan fund credit union bank lending.

RT: It's 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, it’s 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.

Now, micro-lending 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.

LA: Would you say that the South Shore story was the story of poverty alleviation or poverty prevention?

RT: I 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 jobs–and 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.

JM: You've 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?

RT: No, 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 matter.

JM: An 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?

RT: What 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.

JM: When you look at what is a healthy community, what are you looking at?

RT: Well, 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 graffiti counts.

And then, 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.

In South 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.

JM: Was 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?

RT: The 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.

Now, clearly, 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.

There was 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.

LA: I 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.

RT: Well, 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?

JM: One little technical issue that you touched on is the comprehensive effort that's required. Can you talk a little bit about that?

RT: Yes. 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.