The failure of the liberal welfare state can be seen in a superb Oscar-nominated short documentary produced by called . The film is ostensibly about the heroic efforts of one man to do something about the Black-white wealth chasm. The broader implication is my own takeaway. Arlo
Washington was a successful young Black barber in Little Rock. He observed the gaping disparity in wealth between his own community and the white parts of town. He appreciated that being a barber allowed him to run his own small business and to be reasonably secure financially. So he created a barber college in 2008 that has trained over 1,500 barbers to operate successful small businesses, too. But Washington quickly grasped that you can’t solve the Black-white wealth gap just with more barbers. What would help more would be a bank. So Washington got a charter for what became People Trust, the only community development bank in the state of Arkansas and the only one located in the Black community. Washington and his colleagues began making mortgage loans and small-business loans. But as People Trust’s reputation spread, the bank was soon inundated with people desperately seeking personal loans. They had medical bills they couldn’t pay and then got behind on their other bills. They had been laid off from jobs and had run out of resources to cover basic expenses. They had just been released from
prison without a penny. They didn’t really qualify for personal loans, which would only put them deeper in debt. So Washington raised some foundation money to underwrite small emergency grants as well as loans. Some of the most revealing and poignant moments in the film are exchanges like these: Washington is surely a hero. Here’s where the film leaves off and my own takeaway begins. The welfare state has mutated into a bureaucratic monster with little room for the simple human kindness and personal compassion of the kind displayed by Arlo Washington and his colleagues. If the same people went to a local welfare office with the same hard-luck story, they would be eyed with suspicion from the outset as potential scammers, and would be made to jump through all manner of eligibility hoops. To be a poor person in America reliant on means-tested programs—food stamps, Medicaid, TANF, housing vouchers, subsidized child care, etc.—is to spend half your waking hours dealing with different eligibility bureaucracies. The definitive book on the subject is Michael Lipsky’s classic, . As Lipsky points out, the few portals that offer help are overwhelmed by need. Workers in the welfare state, drawn to the
Job by compassion for the poor, become burned out and cynical as they try to ration aid. Eligibility tests drain energy from frontline workers as well as from clients. What’s the cure for this? Here, conservatives divide from progressives. The conservative remedy is voluntary organizations and especially churches. Black churches do play an essential role in helping the needy. Evangelical churches also produce loyal congregants, not just via a common theology but through a range of services and a sense of community. But voluntary and faith-based efforts, even if they solve the bureaucratic paper chase, will never solve the Black-white wealth gap. For starters, we need to make every possible social program universal, and to drastically simplify income tests where they are unavoidable. For instance,
New York City now provides free pre-K to everyone. You just need to demonstrate residency. The Biden universal child allowance that was in effect for a year was a refundable tax credit for all; you didn’t have to demonstrate poverty. In several cities and states, there are now universal, free school lunch programs, with no need to prove poverty (and endure the stigma attached to that). If there were universal health care in a single-payer system, that would be the end of Medicaid, as a separate means-tested program for the certified poor. This would leave a much smaller set of targeted programs such as food stamps, but even in these cases, eligibility could be drastically simplified. People could self-certify, with government spot checks for fraud. Where does this leave the Barber of Little Rock, and the personal touch? Here, community development financial institutions (CDFIs) occupy an important middle ground, but there is also a cautionary tale worth remembering. The original CDFI, before it was even a concept, was the South Shore Bank of Chicago. Another young inspirational citizen like Arlo Washington, named Ron Grzywinski, realized that small businesses and aspiring homeowners on Chicago’s mostly Black South Side were starved for credit. So in the early 1970s, he founded South Shore National Bank, later renamed ShoreBank. Over more than three decades, the bank demonstrated that with careful underwriting and counseling, businesses and homebuyers in poor Black neighborhoods could be sound credit risks, and that a committed local bank could make a big economic difference. ShoreBank qualified homebuyers for conventional mortgages and avoided risky speculative gimmicks like subprime.
Bill Clinton got wind of Grzywinski’s bank, and got legislation enacted to disseminate the model, which was named a community development financial institution. Today, there are more than 1,300 such banks. But Clinton also supported extensive financial deregulation. One of the casualties was the subprime boom and bust, and the related 2008 financial collapse. ShoreBank, despite never having made a subprime loan, was soon underwater because the value of the homes against which the bank wrote mortgages were worth less than the mortgages. President Obama used trillions of dollars to bail out the biggest Wall Street banks that had caused the collapse. But Obama, worried about the appearance of helping a bank in his old
Chicago neighborhood, refused a modest loan under the Treasury Department’s Troubled Asset Relief Program (TARP) to save ShoreBank, which went under. Wall Street banks were too big to fail. ShoreBank was too small to matter. It was one of Obama’s worst deeds. The CDFI model, at its best, bridges impersonal welfare-state approaches with warm-hearted personal help, of the sort personified by Arlo Washington and Ron Grzywinski. But it exists in a much larger policy context, which is either friendly to these efforts or hostile to them. The worst possible blend is the marriage of means-tested help for the poor and blank checks for Wall Street.