sidies, they did not have to skimp. And Shorebank’s managers screened applicants carefully with an eye to minimizing drug and crime problems. Parkways, as the p ro jec t was dubbed, now looks more like an expensive condominium complex than a low-income housing project. Elsewhere in South Shore, City Lands had rehabbed another 480 units. It will soon break ground on an eight-acre shopping center on 71st Street, which will provide the large stores and parking necessary to compete with the malls. The Neighborhood Institute (TNI) has rehabbed another 275 units, while offering remedial education and job training for people who are on welfare or unemployed. It runs a small business incubator, -which gives inexpensive space and intensive management assistance to small businesses, and it plans two other incubators in the neighborhood. Finally, it provides training for entrepreneurs—including welfare mothers—who run or want to run their own businesses. It is harder to gauge the effectiveness of TNI’s training and business development efforts than that of Shorebank’s housing work, because trained employees are far less visible than renovated buildings. But TNI has placed more than 2,700 of its trainees in jobs, counseled more than 1,000 entrepreneurs, and assisted roughly 70 start-up firms. Though it depends more heavily on public money than do the other Shorebank companies (because it is trying to help the neighborhood’s poorest people), it is still forced to search for people who are capable of succeeding in the marketplace. Its training contracts with the city and state are based on performance, which means buildings serve as gatekeepers to the community, evicting drug users and criminals. Crime is way down, and the black middle class is staying. Under pressure from the community, the police have finally cleared out the El Rukns gang (descendants of the no torious B lackstone Rangers), whose presence kept one corner of the neighborhood from blossoming. The gang’s headquarters building is being demolished, and TNI hopes to do a massive, Parkways-style development in the area. South Shore is doing so well that Shorebank has targeted a second Chicago neighborhood, Austin, on the city’s equally poor west side. City Lands and TNI have 600 units of housing rehabilitation under way there, and Shorebank’s entry has touched o ff a small speculative boom, encouraging other developers to begin work on another 1,400 units. Shorebank has convinced the Illinois Housing Authority, a prestigious business group called Chicago United, and the Federal National Mortgage Association to target the The peoplewhohavebought and renovatedapartment buildingsserveasgatekeeperstothe community. / it doesn’t get paid until it has successfully placed a trainee in a job. And its incubator will fail unless it stays relatively full of businesses that pay their rent. Overall, TNI earns a full 90 percent of its $1.7 million operating budget —from tra in ing contracts, fees earned in developing and managing buildings, and rents. Financially, 1988 was Shorebank’s best year ever. In a neighborhood where 70 percent of loan recipients (through 1980) had never before borrowed from a financial institution, the bank earned a $1.7 million profit— about average for a bank of its size. Virtually no real estate loans went bad, and even the commercial loans performed well. As a community, South Shore not only has stabilized, it is improving markedly. The people who have bought and renovated apartment Austin neighborhood. The Housing Authority provides rehab subsidies, Chicago United will focus primarily on job training and education, and FNMA will provide $5 million for lowdown-payment mortgages. Shorebank’s managers do not claim that their model would work in the very worst ghettos. But the worst ghettos, which get the most attention, are actually less representative of America’s typical poor neighborhood than are South Shore and Austin. (Actually, Shorebank’s success may make the worst ghettos worse. The drug dealers and pimps who are cleared out by South Shore’s landlords have to go somewhere, so South Shore’s gain is some poorer neighborhood’s loss. This is unfortunate, but if urban black America is to rescue itself it is probably inevitable. The culture of crime, drug abuse, and poverty can engulf community after community if we let it. The first step toward eliminating it is to confine it.) For most poor neighborhoods, Shorebank's success offers great hope and teaches important lessons. First, it demonstrates the necessity of changing the marketplace in a poor community, rather than simply spending more money. In many poor communities, the only inflow of capital is government transfer payments. In South Shore, money is coming in for investment. Second, Shorebank demonstrates the psychological power of a bank. Unlike government programs, banks inspire confidence. They have the credibility needed to convince other financial institutions to invest. And they send an unmistakable signal to a community’s residents: people with money have confidence in the future of this neighborhood. Also, residents view a bank not as a program designed to do something for them, but as a source of credit they can use to do something for themselves. If the government can be convinced to subsidize programs like Shorebank, keeping them free from the government’s taint will be a critical challenge. Virtuallynoreal estate loanswent bad, andeventhe commercial loansperformedwell. Shorebankdemonstrates the psychological power of abank. F ina lly , Shorebank demonstrates the power of combining the investment methods of the private sector with the social goals of the public sector. The subsidy provided by Shorebank’s equity investors has allowed it to invest where normal banks could not. But Shorebank is still at risk in the marketplace; to survive it must make investments that result in successful individuals, businesses, or buildings. If it doesn’t— if Grzywinski and his colleagues don’t get some return on their investments —they’ll soon be unemployed (and, more important in their particular case, they’ll have seen their dream die). Shorebank is creating a slightly different version of the model in rural Arkansas, in partnership with the Winthrop Rockefeller Foundation. Others are trying to replicate the Chicago model in New York, Washington, and Omaha. But none of the three has been able to raise the $5 million to $10 million they need to get started. This is where government must step in (plans are also underway for a similar bank in the Twin Cities; see sidebar). If we want to see more Shorebanks, we need a source of capital. (We also need an institute to train the people who will run them, but that’s another story.) Without government as an investor, the most drafnatic inner-city success story of our time will remain the exception, not the rule. This is not to say the model will be easy to copy, even with government help. Shorebank’s success depends, to an unknown degree, on the extraordinary qualities of the people who run it. Moreover, an important part of that success lies in the program’s very insulation from the deadening hand of government bureaucracy. If government is willing to provide equity investments to private development banks (and, perhaps, 14 Clinton St. Quarterly—Fall, 1989
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