Monthly Memos

Neighborhood Development: A Modest Proposal

Charles I. Mundale
Executive Director of MCCR

February 1994

The South Shore Bank in Chicago has demonstrated virtually beyond dispute that community-development banking can make things happen. The bank is credited with turning around an entire neighborhood that was clearly headed for slumland. Given this spectacular success in Chicago and the dire warnings about neighborhood deterioration and concentrated poverty in Minneapolis and St. Paul, it would seem that the Twin Cities should be looking for a way to replicate the South Shore success. Before coming to that conclusion, however, we must ponder a troubling question: Why hasn't the success been repeated in Chicago?

For one thing, as the sturdy folks behind the South Shore experiment will tell you, it's very difficult. To succeed, the bank itself had to become a landlord, buying and renovating strategically located apartment and commercial buildings. Eventually, it even had to set up its own social service subsidiary, because the social, as well as the physical, infrastructure required investment.

Besides these daunting challenges, community development banks face a chronic--even more fundamental -- problem: low returns. Ordinary investors want a bigger bang for their bucks, and extraordinary investors, such as the foundations and visionary individuals at South Shore, are rare by definition.

Ergo, a modest proposal:

Suppose our corporations elected to dedicate X percent of their pretax earnings to equity investments in community development banks and also place Y percent of their cash deposits in them. (Foundations could/should do likewise.) As banks, such enterprises are subject to audits and all the related financial controls. Thus, there would be assurance that the money was being prudently invested. In other words, the program would apply capitalist principles and practices to solve a problem that seems inherent in capitalism.

For capitalism, itself, makes no provision for people and properties left behind by the market. The answer to this problem in 19th-century England and the U.S. was personal charity, but that proved so woefully inadequate that it incited socialist and communist reactions. Hoping to find a middle way, we resorted to government programs. Now, we are largely -- and often rightly -- suspicious of government programs.

Nonetheless, any program to help those left behind requires the setting aside -- in some way -- of capital. Community-development banks offer a way to do it through the economic system rather than through the political system. They replace the inefficiencies of bureaucracy with the disciplines of a for-profit business.

Before those economic disciplines, however, must come the kind of vision and will that made things happen in South Shore.

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