In 1967, two brilliant books offered analyses of the festering problem of economically depleted, disinvested Black urban neighborhoods. The first to appear, Stokely Carmichael and Charles V. Hamilton’s Black Power: The Politics of Liberation in America,is recognized to this day as a quintessential expression of the Black Power ethos. The second, Martin Luther King, Jr.’s Where Do We Go from Here: Chaos or Community, is cast as representing an older civil rights tradition. In fact, the two volumes agreed on the preconditions for reviving structurally disinvested poor communities. Their points of agreement remain essential guides to non-exploitative forms of neighborhood revival.
King, Carmichael, and Hamilton’s insights about how to revive or reinvest in depleted communities can be summarized in three core principles. First, plans to revive Black urban neighborhoods must be based on an understanding of what caused their decay in the first place. That includes understanding how government policies, some overt and some buried in taxation and other policy technicalities, had for centuries worked to block the creation of wealth in Black communities. As a corollary, acknowledging that government policies have actively harmed Black communities meant rejecting the claim that our economy is entirely free-market — and, by extension, rejecting reinvestment plans that are overly reliant upon free-market mechanisms.
Second, reinvestment plans should be largely shaped by residents of disinvested communities (not people from outside, even if they happen to be Black). A corollary was that community organizing is crucial. King, Carmichael, and Hamilton agreed that for people everywhere, organizing was the basis of political power. For Black Americans, it was particularly important.
Third, policies for reinvestment in Black urban communities won’t succeed until Americans reject centuries-old tropes about African American inferiority, incompetence, violence, or corruption. White Americans used these stereotypes to justify denying Black Americans’ economic and political rights, including control over resources that might improve their communities. Reinvestment policies that assumed that African Americans were incompetent and untrustworthy ceded control to wealthy white intermediaries, who promptly corrupted such programs to ensure their own financial gain. A rejection of racist tropes was therefore essential for Black community reinvestment to succeed.
Unfortunately, these thinkers’ insights — on the necessity of understanding the causes of community disinvestment, and uncovering how institutionally racist government policies shape “free-market” or private business practices; of valuing community organizing and insisting on community input; and of rejecting racist tropes— rarely informed reinvestment plans, from the late 1960s to this day.
Instead, most reinvestment schemes relied upon government subsidies to encourage lending activity. These subsidies essentially funneled capital from government to financial institutions. Writing in 1972, economist Michael Zweig coined the term “ghetto as conduit” to describe such financial transfers. Zweig was building upon J.A. Hobson’s 1901 study of British imperialism, which showed that the cost of British colonies was paid by working-class taxpayers, while the profits went to British commercial and industrial elites. Similarly, Zweig explained, Black urban areas could “become an elaborate conduit for transfers effected… within white society.” For example, while the Small Business Administration (SBA) had recently begun to guarantee bank loans to Black businesses, it was banks — largely white owned — who would profit from fees they charged for making these loans, and who would benefit “in case of business failures, when government loan guarantees come in….”
Zweig explained that a disproportionate share of these subsidies’ costs would be raised by taxes collected from non-corporate, middle, and working-class households. The ghetto became a conduit, he explained, through which “taxes paid by …households would flow through the ghetto…in the form of subsidies to white corporations and banks.” If “programs are designed by white capitalists lobbying Congress to ‘do something,’ we can expect [that]…the ghetto as conduit will be dominant,” Zweig predicted.
Unfortunately, reinvestment plans rarely drew upon King, Carmichael, and Hamilton’s core insistence that solutions must be based on an accurate understanding of what caused neighborhood depletion in the first place. Instead, mostprograms followed the “ghetto as conduit” model. One can start with President Nixon’s initiatives to buttress Black business enterprise. In 1971 he requested $100 million for minority business programs, but the devil was in the details. As Nixon explained, 90% of that money would be used to connect minority businessmen to “nonminority businessmen who can provide them with additional help.” The program ignored barriers that Black businesses faced because of segregation that confined their businesses to already disinvested neighborhoods, or biases of retailers that refused to carry their products, or business and governmental bodies that overlooked Black contractors, or government agencies like the SBA that had routinely excluded Black petitioners, or even the core issues of insurance and credit redlining (the denial of insurance and credit to nonwhite areas). Rather, as Nixon aid Maurice Stans explained, Black entrepreneurs suffered because of their supposed inability to “formulate business plans, fill out complicated applications, and secure outsider advice.” Nixon’s plan assumed precisely what King, Carmichael, and Hamilton had warned against — first, that government policies supporting segregation and redlining played no role in shaping private markets, and therefore need not change, and second, that tropes about Black incompetence were true, and ought to serve as the basis of public policy.
Perfectly exemplifying the “conduit” strategy, Nixon funneled money between whites via an intermediary institution supposedly granting benefits to Blacks. Thus ninety percent of the Office of Minority Business Enterprise’s budget went to the creation of “Local Business Development Organizations” that would collect data, provide speakers for seminars, and “assist the entrepreneur in preparing a plan for his business.” This created a bureaucracy employing approximately 2,500 people — only a small percentage of whom were minorities.
As support for Black neighborhoods shrank under Nixon, some activists embraced Community Development Corporations (CDCs). Today, many view CDCs as “self-help” organizations devoted to economic development. In fact, their early promoters viewed them as primarily politicalorganizations. They expected CDCs to organize Black and other disinvested minority communities. CDCs would draw upon these communities’ political strength to press for the government funding that was obviously needed to foster local economic development. Finally, CDCs would direct economic development projects and ensure that they benefited their local area.
CDCs as originally planned were congruent with King, Carmichael, and Hamilton’s vision. They understood that the depleted conditions of minority communities were the product of institutionally racist governmental and private business policies. They knew that any remedy would require significant government resources; crucially, CDCs would be self-directed but not self-funded. They understood that government funding would be offered only if Black Americans organized to press their claim and would effectively redistribute resources and develop depleted communities only if local communities oversaw the funds.
Unfortunately, Donald Rumsfeld, who served as Counselor to the President in the Nixon Administration, refused to fund CDCs that were “too close to the constituency” — which, of course, was the very definition of a CDC. He also called them “irresponsible,” a code word for “Black.” Sometimes he went beyond code words. “What happens if ten years from now the Black Panthers are chosen by the stockholders to run one of these CDCs? How are you going to prevent that?” he asked. To Rumsfeld, the answer was to increase government oversite of grants to CDCs. That businesses can’t run effectively under strict governmental control was brushed aside. Republicans, the party of freedom and business, push CDCs into bureaucratic quicksand.
In lieu of government funding, CDCs were told about a new federal program that paid Wall Street investors to work the markets for them. Ultimately, CDCs were forced to compete for grants and loans from private philanthropy, state agencies, and cash-strapped municipal governments. Operating within situations almost absurdly stacked against them, many have nevertheless achieved modest but notable successes — particularly in creating affordable housing. Yet the achievements of these intrepid organizations remain a far cry from the original vision of CDCs, which recognized the damage caused by institutional racism, and understood that its remedy would require both political organizing and massive federal resources.
In the late 1960s and early 1970s, Democrats and Republicans continued to pursue a ghetto as conduit strategy, for example by offering tax incentives to businesses that opened in disinvested areas. Unfortunately, companies that needed such incentives operated close to the margin and paid low wages. The 1968 Housing and Urban Development (HUD) Act, meanwhile, provided 100% federal insurance on Federal Housing Administration (FHA) loans made in “older, declining urban areas.” These new, risk-free (for the lender) HUD-FHA loans were touted as examples of using “market forces” to spur reinvestment. Instead, mortgage lenders pushed 100% insured — but dangerously overpriced — mortgages in Black and racially changing neighborhoods. When borrowers fell behind, their homes were immediately repossessed, and the lenders were fully reimbursed by the government. The HUD Act’s program guaranteed that lenders could not lose, no matter how predatory their loans, and fostered a government-sanctioned looting of cities by mortgage companies.It led to the abandonment and ruin of approximately 240,000 units of housing, most of them located in majority-Black urban areas. The 1968 HUD Act’s insurance payouts cost the US government close to $4 billion dollars, or approximately $24 billion in today’s currency. In typical ghetto-as-conduit faction, this money flowed directly to mortgage companies, not Black communities.
The predations of HUD-FHA lenders encouraged activists in Black and racially changing urban neighborhoods to focus on a new target: mainstream banks’ redlining of their communities. In 1975, community coalitions such as National People’s Action helped pass the Home Mortgage Disclosure Act (HMDA), which forced banks to provide data on where they made home loans. Once banks’ own data proved that they were redlining Black and racially changing areas, activists helped pass the 1977 Community Reinvestment Act (CRA). In an early version of the CRA drafted by community activists, it would “require financial institutions to help meet the credit needs” of their local communities. It would have required bank regulators to ensure that banks make fairly priced loans within “historically neglected communities,” defined as “characterized by minority or racially changing populations, lower income households, or an older housing stock.”
Activists who fought for the CRA were passionately committed to interracial community organizing. They believed that government-supported bank policies, not “free market” operations, damaged Black and Black-adjacent urban communities. By showing that lenders, whose actions were shaped by government policies, were starving Black neighborhoods of credit, they rejected the idea that African Americans were responsible for their neighborhoods’ decay.. Their commitment to community organizing and their rejection of free market fantasies and racist tropes echoed core principles of King, Carmichael, and Hamilton.
Unfortunately, the final version of the CRA weakened many of these core principles. First, it made no mention of racism or discrimination. Instead, it contained color-blind language about the importance of lending to “low and moderate-income” communities — even though moderate-income white areas rarely suffered from redlining. Ignoring institutionalized racism in lending, the law merely “encouraged” banks to lend in areas where they received deposits. It noted that banks must ask regulators for permission to move or expand. The CRA directed bank regulators to take banks’ responsiveness to local credit needs into account — that is, consider if they were engaged in redlining — before granting permission for such moves. Although the CRA toldregulators to “permit and encourage” neighborhood organizations to testify about whether banks had met local credit needs, the power to deny bank requests remained with regulators. Therefore, as one activist noted, “if the regulators didn’t control the banks, nobody else could.” From community activists’ perspective, the CRA would be implemented by “people they didn’t trust.”
Despite these weaknesses, the CRA gave community groups an opening to appear before bank regulators and present evidence (often drawn from HMDA data) that banks were redlining. Bank regulators occasionally used such evidence to deny banks’ permission to move or expand, as the CRA required. Some banks who wished to avoid this possibility, however remote, crafted “CRA agreements,” in which they promised to make tens of millions of dollars of loans in areas they had formerly redlined. The CRA, like CDCs, becamea modest but important method of redirecting funding or resources into disinvested communities.
Yet banks found many ways to evade the CRA. For example, in lieu of government funding, new rules in the 1970s had allowed banks to create or invest in CDCs. Banks facing challenges from community-based reinvestment groups sometimes called upon the CDCs they’d funded to defend them. This pitted CDCs against neighborhood investment activists. To prove that they weren’t redlining, banks counted loans made to elite whites in gentrifying sections of working class or Black communities as “CRA loans.” Even worse, in the 1990s and early 2000s, regulators allowed banks to count predatory loans made by their subprime affiliates as fulfilling banks’ CRA mandates.
Meanwhile, contrary to many politicians’ claims, free markets were not “unleashed” in the 1980s and 1990s. Instead, governmental programs and policies once again gave investors new kinds of seemingly fail-proof supports. Mostwere hidden in the technicalities of mortgage-backed securities, which were themselves the product of government interventions in securities markets. New regulations to protect investors — enabling high rates of interest and forbidding pre-payment of mortgage loans, for example — left women of all races and nonwhite Americans of both genders vulnerable to new, dangerous forms of debt. Subprime (or poorly underwritten, high interest) mortgage lending skyrocketed. Not surprisingly, no-lose policies for investors again invited abuse and ultimately, in 2008, financial collapse.
Right-wing media narratives about the 2008 subprime lending crisis revived racist tropes about Black incompetence, criminality, and corruption. Some attacked laws that promoted Black community reinvestment. These narratives insisted that the 2008 crisis occurred because banks had been “held hostage” by the Community Reinvestment Act, which “forced” them to make loans to feckless minorities. Such language made lending to Black Americans sound like an act of minority violence against white bankers. It overlooked the fact that the financial institutions making the vast majority of subprime loans were mortgage banks not covered by the CRA.
Conservatives also attacked community organizers. They had special animus towards ACORN — an organization that had won manyreinvestment agreements in Black communities. They associated ACORN with Black sexual license by circulating a video that appeared to show an ACORN advisor telling a prostitute and her pimp how to better run their business. The video was later revealed to be a crudely doctored fake, but by then the damage was done. ACORN was denounced in Congress. It lost its governmental and private funding and shut its doors in 2010.
Conservative attacks on the reinvestment movement inverted the vision of King, Carmichael, and Hamilton. Instead of acknowledging anti-Black racism, they deployed it. Instead of crafting programs to remedy the effects of institutionalized discrimination, they used governmental policies to further expand investors’ wealth, and then blamed the victims when the bubble they helped produce collapsed. Instead of admitting that markets are always shaped by governmental policy, they promoted a fantasy about free markets, while simultaneously grabbing every possible governmental support for their “too big to fail” banks.Instead of supporting community organizers, they demonized them.
Basing policy on racist tropes while following a “ghetto as conduit” strategy that channels funds to wealthy white intermediaries has proven disastrous. At best, this approach wastes massive sums of money; at worst, it triggers global financial crises. Instead, we need policies that reject racist tropes, acknowledge the complex causes of community decline, and enable direct investment under community direction or control. We must enforce existing antidiscrimination laws, and pass new ones, to block practices that damage disinvested communities, from financial redlining or predatory lending to gerrymandered voting districts. We should support community organizing and center the ideas of community residents. We must redistribute income and funnel real resources directly into disinvested communities – not to wealthy white intermediaries. Targeted reparations for disinvested communities, public works jobs, guaranteed annual incomes for all poor Americans, and government-funded reproductive rights, childcare, elder care, care for the disabled, health care, and education should all be considered. In 1967, King insisted that the first law of life was not selfish competition but “other-preservation,” while Carmichael and Hamilton imagined a society “where human misery and poverty are repugnant . . . [and] not an indication of laziness or lack of initiative.” There may still be time to embrace their vision.
NOTE: All direct quotes in this essay can be found in Beryl Satter, Cash on the Block: The Broken Promise of Reinvestment in Black Urban Neighborhoods, from which this essay has been adapted.
