January 6, 2005
Vol. 24 No. 7

current issue
archive / search
Chronicle RSS Feed

    Arkansas uses Chicago’s South Shore Bank model for development project

    By William Harms
    News Office

    Richard Taub

    Do people in rural Arkansas who are interested in economic development have anything to learn from experiences in economic development on Chicago’s South Side? The answer is, probably, yes and no, according to Richard Taub, Chairman of Human Development and the Paul Klapper Professor in the Social Sciences and the College.

    Taub, an expert on local economic development, got a chance to witness an experiment in Southern economic development firsthand. He served as a scholar in residence for the Southern Development Bancorporation, which set up the Arkansas project in the mid-1980s at the invitation of former Arkansas Gov. Bill Clinton.

    “Someone had told Clinton about the success of South Shore Bank, so people in Arkansas interested in economic development decided to check it out to see if the model would work there,” said Taub, who spent several years traveling to Arkansas every other week to interview people involved in the project and document the results. His work on the project has been published in the recently released book from the University of Arkansas Press: Doing Development in Arkansas: Using Credit to Create Opportunity for Entrepreneurs Outside the Mainstream.

    Taub has examined local economic development in two previously published books, Paths of Neighborhood Change (1984, University Press) and Community Capitalism (1988, Harvard Business School Press). These books looked at ways in which local leadership in Chicago led to effective ways of preventing neighborhood decline.

    In Chicago’s South Shore neighborhood, the Shorebank Corporation was established with funds from philanthropic organizations, and it established the South Shore Bank. The bank financed apartment renovations and encouraged retail development. Much of the stability and eventual prosperity of the South Shore neighborhood was a result of the effort.

    Taub found that the work of a large institutional participant was key to boosting local economic development. In other parts of Chicago, other institutions, including the University in Hyde Park and the Beverly Area Planning Association in Chicago’s Beverly neighborhood, make contributions similar to those the Shorebank Corporation made in South Shore.

    “That experience of local institutions providing critical leadership was pretty much the same in Arkansas,” said Taub. The Southern Development Bancorporation set up its operations in Arkadelphia, a community of about 11,000, with two local colleges and a strong local foundation.

    “Not long before the company was founded in 1988, the community also became the site for an expanded hospital complex,” Taub said. “This complex, along with the two colleges and the interest of the local foundation, was very beneficial. The community had enough stability to be able to grow and develop.”

    The Southern Development Bancorporation, a holding company established with money from foundations, helped provide loans for residents in southern Arkansas, an economically disadvantaged area. Many of the lessons learned from previously working with people in that area underscored the possible limitations of economic development there as well as the problems of transporting Chicago’s successful model to the rural South.

    The holding company oversaw a variety of enterprises and initiatives, including the Elk Horn Bank and Trust in Arkadelphia, and a not-for-profit enterprise group that launched the Good Faith Fund, a small-loan venture. That venture became well known but was only marginally successful, Taub said.

    The Good Faith Fund was based on a model of a small-loan program in Bangladesh. There, people are given small amounts of money to purchase cattle and make other small investments that improve their standard of living. They work in teams with other people involved in similar enterprises, and the money they pay back is circulated into the community for other ventures.

    “The problem in Arkansas is that the population is much less dense than in Bangladesh, and the incentives are not the same,” said Taub. Although a small amount of money could make a big impact on the income of people living in the Third World, much more income is needed to make Americans feel they have improved their standard of living.

    The Good Faith Fund lent money for a relatively small number of projects. The projects probably made no net improvement to the local economy, Taub found.

    “One woman who borrowed money to set up a dry-cleaning business was a big success,” Taub said. “But she probably could have got the money on her own. In the end, her business may not have boosted the local economy because she was likely taking away business from another cleaner in town.”

    The Good Faith Fund eventually modified its mission to becoming a job-training program. In order for regions to prosper, industries that create substantial, additional employment need be established. The South Shore development, though successful, had little to offer Arkansas in that regard.

    “The South Shore Bank’s success was mainly in shoring up the housing market, and by so doing, made it possible for a group of small investors to increase their income by purchasing and rehabilitating housing,” Taub said.

    The Arkansas enterprise, which depended on expertise from Chicago, also stumbled because of cultural differences. The organizers ran into racial and lifestyle issues as well as problems with entrenched small-community leadership.

    Because Arkansas’ projects reached out to disadvantaged minority people, some of the initiatives were considered designed for the black population only. The Arkansas project also showed that, in some cases, development was not to the advantage of some community leaders who depend upon inexpensive labor for agriculturally related enterprises. Those leaders feared an economic boom could push up wages.

    Despite the problems, the Chicago-inspired effort continues to have a positive impact in Arkansas. In addition to the job-training work of the Good Faith Fund, Elk Horn Bank has flourished, and the company has purchased other banks in rural communities.

    “Regional economic development is always difficult to do,” Taub said. “In regions that have lagged economically for generations, where both people and material resources have been siphoned away, and market size and population density are low, the task is a complex and difficult one,” he said.

    An effective effort to turn the region around would require focusing on other problems that have accumulated throughout the history of the South, rather than only those that were immediately addressed by the Southern Development Bancorporation, Taub said.

    “Southern’s new management, learning from the past and building on the achievement of the old, has been moving down this road,” he said.