The Mission of the Manhattan Institute is
to develop and disseminate new ideas that
foster greater economic choice and
individual responsibility.

The Wall Street Journal.

Acorn Squash
August 26, 2006

By Steven Malanga

When Chicago's city council this summer required big-box stores to pay new employees at least $10 an hour, supporters of the legislation held an impromptu celebration in the council galleries. The hoopla was reminiscent of another scene five years earlier in New York, when opponents of Rudy Giuliani's effort to privatize failing public schools embraced in the streets after parents rejected the idea.

What linked these celebrations was the left-wing Association of Community Organizations for Reform Now (Acorn), which led the campaign for the legislation and against privatization. And in each case its efforts represented Pyrrhic victories for the poor. Anti-big-box legislation does little more than limit shopping choices and raise prices for inner-city residents, while parents who celebrated Acorn's defeat of Mr. Giuliani were left with their same old failing public schools.

No one should be surprised, for this organization grew out of some of the most counterproductive ideas of 1960s radicalism. Acorn's roots are in the National Welfare Rights Organization, whose leader, George Wiley, believed he could use poor, unwed mothers to foment a revolution. The NWRO agitated for unlimited welfare benefits for those mothers and persuaded many urban politicians to loosen welfare eligibility requirements. This led to a more-than doubling of the welfare roles and strained local budgets. Wiley hoped to persuade the federal government to come to the rescue with massive aid. Instead NWRO's strategy prompted a backlash against "welfare mothers" and politicians in free-spending cities like New York.

When Wiley's welfare strategy reached a dead end he moved on to other ventures, including sending some of his troops to form a new community organization in Arkansas, infused with the same radicalism. It was a brilliant stroke: By the early '70s billions of dollars in federal and state aid was streaming to these local groups, spurred by Republicans in Washington who reasoned that it was better to fund nonprofits than create giant federal bureaucracies to run burgeoning antipoverty programs. Little did the GOP understand that the money would finance a nationwide network of organizations that for decades have mobilized urban residents against the party's candidates and agenda.

Then came the Community Reinvestment Act. Passed in 1977 to prompt banks to lend money in underserved communities, the CRA allowed community groups to file complaints that could hold up or even scuttle bank mergers. As one nonprofit umbrella group observed: "To avoid the possibility of a denied or delayed application, lending institutions have an incentive to make formal agreements with community organizations."

Acorn became among the most successful at exploiting the law, especially after the Clinton administration set up tough new CRA standards. In 1993 Acorn crafted a $55 million, 11-city lending program administered by it and financed by 14 major banks eager to avoid CRA woes. In 1998 Acorn activists disrupted Federal Reserve hearings on the proposed Citicorp merger with Travelers, waving red umbrellas, a corporate symbol of Travelers, and then later protested Citigroup's acquisition of Associates First Capital Corp. Eventually Citigroup signed an agreement to provide mortgages through Acorn counseling centers, including home loans to undocumented aliens in California. In 2000 a U.S. Senate subcommittee estimated that such CRA deals had directed at least $9.5 billion through nonprofits, making the CRA the second-most important funder of social advocacy groups next to the government itself.

While Acorn now operates in more than 100 cities with a national budget of $37 million, it never truly left behind the welfare-rights mentality. One is hard-pressed to find in the organization's many antipoverty initiatives any programs that address social dysfunctions like illegitimacy and single parenthood. Instead, as Acorn's executive director, Steven Kest, said several years ago, "We are more focused on irresponsible behavior in the corporate sector. I don't think [illegitimacy] comes anywhere close to the irresponsible behavior of people running the largest businesses in this country."

While CRA spurred Acorn's growth, the "living wage" is the group's most successful local issue. In the early '90s, advocates persuaded Baltimore to require city government contractors to pay salaries substantially above the federal minimum wage; the campaign caught the attention of Acorn just when the Gingrich Congress was coming into power with a conservative agenda. Stymied in Washington, Acorn decided instead it would work city by city, starting in the most liberal places, to enact local wage legislation. Partnering with Wayne State University's publicly funded labor studies program, Acorn set up a national living-wage center to help coordinate campaigns. Some 125 municipalities have since passed living-wage legislation.

The movement is not always what it appears to be. Though Acorn touts living-wage laws as a way to lift the working poor into the middle class, the vast body of academic work on wage laws shows that they end up hurting the poor by forcing businesses to eliminate some low-wage jobs. Acorn's own leadership understands this principle perfectly. When California regulators sued Acorn for not paying its own workers the minimum wage, Acorn argued that this would endanger its mission—because it would have to hire fewer workers.

One of Acorn's real intentions with this legislation is to help its public-sector union allies. By artificially raising the cost of outsourcing until it is just as costly as work done by government employees, "the Living Wage undercuts the incentive to privatize," Acorn proclaims in its manual on how to run a living-wage campaign. Some living-wage efforts have gone one cynical step further—with laws that specifically exempt unionized companies from adhering to the new wage standards.

The Chicago legislation is the latest iteration of Acorn's living-wage campaign and is more likely to benefit unions than the poor. Wal-Mart and its competitors have lately been eying low-income urban neighborhoods because they are underserved by retailers. A recent study by the Brookings Institution estimated that millions of low-income residents of cities pay excessively high prices for consumer goods in part because of a lack of competition. The report noted that in Chicago "higher priced, small grocery stores" are concentrated in the city's poorer neighborhoods—exactly the kind of place where big-box stores now want to open.

Far from rejecting these stores, inner-city residents have embraced them. Thousands of local residents showed up to apply for jobs when Wal-Mart announced it was opening a new store in an abandoned former Macy's outlet in the Baldwin Hills section of Los Angeles. After the store opened in 2003, sales soared at the mall were the Wal-Mart was located and other national retailers moved into the predominantly black neighborhood, vastly improving the range of products offered to residents.

But if poor Chicagoans miss out on such a boom, so what? Groups like Acorn thrive off a 1960s philosophy which holds that the worse things are, the better. The more Acorn's policies thwart the free market, stymie efforts to make government more efficient and saddle the poor with bad stores and lousy services, the more Acorn can lobby for government aid to cure the ills of our society—all funneled through Acorn-run programs, of course.

Steven Malanga, a contributing editor at City Journal, is the author of "The New New Left" (Ivan R. Dee, 2005).

©2006 The Wall Street Journal

 


Home | About MI | Scholars | Publications | Books | Links | Contact MI
City Journal | CAU | CCI | CEPE | CLP | CMP | CRD | ECNY
Thank you for visiting us.
To receive a General Information Packet, please email support@manhattan-institute.org
and include your name and address in your e-mail message.
Copyright © 2009 Manhattan Institute for Policy Research, Inc. All rights reserved.
52 Vanderbilt Avenue, New York, N.Y. 10017
phone (212) 599-7000 / fax (212) 599-3494