II. EXPANDING GOVERNMENT THROUGH COLLABORATION

Despite the persistent myth of a weak American state, the powers of the U.S. government have expanded in myriad ways. Since the late nineteenth century, the federal government frequently extended its reach by carrying out programs in conjunction with other parties. Starting with the passage of legislation for land grants for agricultural and industrial education, especially the second Morrill Act of 1890, the federal government introduced grants-in-aid as a way to induce state or local government agencies to participate in schemes for vocational education, road building, and public health, including antivenereal disease campaigns and maternal and child health clinics. The New Deal drastically expanded the method of federal matching grants to the states for highway and public assistance and relief. During Johnson's Great Society, the number of federal grants-in-aid exploded to encompass a vast array of activities: antipoverty measures; aids to education; new provisions for health care—including treatment for drug and alcohol abuse—support for humanities and the arts; mass transit, and even highway beautification.Footnote ⁶

The federal government's most frequent collaborator in these types of joint ventures was another body of government. For most of the twentieth century, the federal government sent grants-in-aid to state governments and their agencies. To help the unemployed, for example, Roosevelt's Federal Emergency Relief Administration issued matching grants to state agencies, even though some lacked the capability to hand out relief. In fighting the War on Poverty, Johnson administration officials often bypassed state governments, which previously had dispensed most federal program funds, out of fear that state officials would not implement programs for the poor or enforce civil rights laws. Instead, they funneled federal grants to alternative public jurisdictions: city government departments, school districts, special function districts, and Model Cities agencies, which the federal government had called into existence. As a result of LBJ's initiatives, the federal government was able to exert an unprecedented scope and scale of influence over state and local government agencies.Footnote ⁷

Federal monies for domestic policies also flowed outside the public sector to nonprofit organizations. From the New Deal onward, federal public works projects benefited nonprofit organizations, as well as local government institutions. Roosevelt's Public Works Administration and the Works Progress Administration, for example, built nonprofit hospitals during the Depression. During World War II, the Community Facilities Act of 1941 funded construction of schools and hospitals, and after the war the Hill-Burton Act of 1946 enabled federal grants-in-aid for hospital construction. Besides subsidizing construction projects, some government social programs provided financial assistance to nonprofit service providers. The engine of LBJ's war on poverty, the Office of Economic Opportunity, for example, used such programs as Head Start, Job Corps, and Community Action to fund nonprofit educational job training and community organizations.Footnote ⁸

III. GOVERNMENT, PRIVATE ENTERPRISE, AND SOCIAL POLICY

By the late twentieth century the federal government also operated countless programs for and in conjunction with private for-profit businesses to assist businesses, stimulate economic development, and regulate economic activity. From the earliest days of the Republic, government officials granted special charters and monopolies to businesses—including mills and waterworks—that they believed provided needed public services and gave subsidies to encourage certain business activities, such as building canals and railroads. During both wartime and peacetime, the U.S. government contracted with private businesses to provide not only military goods but also mail and freight services. As the federal government expanded, so did the amount of government contracting, although it usually constituted a temporary hiring, not an ongoing collaboration.Footnote ⁹

Sometimes the federal government created special-purpose private corporations—the Emergency Fleet Corporation during World War I and the New Deal's Tennessee Valley Authority, for instance—to perform work that neither the private sector nor existing government agencies were equipped to do. At other times the federal government created or funded entities that provided funds to for-profit companies to undertake such activities. During the Great Depression, for example, the federal Reconstruction Finance Corporation lent money to private companies to stimulate economic activity.Footnote ¹⁰

Most government programs that made use of for-profit businesses were not social welfare programs per se. The proponents of social reform took little interest in promoting businesses and economic development. To the contrary, moral and social reformers often aimed to suppress commercial practices of which they disapproved. In the nineteenth and early twentieth century, supporters of temperance worked to limit or eliminate the alcohol industry, whereas Progressive-era reformers worked to stop employers from hiring children. When reformers did utilize businesses to meet social welfare goals, it was generally by means of coercion. Through the Social Security Act of 1935, the landmark social welfare legislation of Roosevelt's New Deal, for example, the government forced business owners to help fund unemployment and old age insurance programs.

Hence, until the late twentieth century, the federal government did not usually pay private for-profit companies to carry out social welfare programs. In general, federal agencies themselves ran programs in domestic policy areas that for-profit businesses either ignored, such as providing for the poor, or were unable or unwilling to enter, such as building highways or investing in economically depressed areas. In such cases, federal officials generally either carried out the activity themselves or contracted some portion of the work to private companies. In the New Deal's public-works programs, the government did both, as government officials alternated between directly managing projects and contracting them out.Footnote ¹¹

The postwar policy of urban redevelopment used public-private collaborations in the name of improving slums, although in practice most of the projects were aimed at raising the status and economic value of the chosen sites. Title I of the Housing Act of 1949 allowed the federal government to distribute funds to state-chartered urban redevelopment agencies to acquire and clear blighted areas, which the agencies then turned over at reduced cost to private real estate developers to rebuild. Early urban redevelopment projects often included housing—sometimes public housing but more often privately developed moderate-income housing. The 1949 law did not require construction of social housing of any sort, however, and the urban renewal amendment of 1954 gave redevelopers even more leeway. As a result, urban renewal soon became a vehicle for creating luxury housing, commercial complexes, office buildings, and civic centers. Instead of furthering social welfare, urban renewal was frequently antithetical to the interests of low-income people, especially those whose homes it destroyed. Nonetheless, some liberals believed that removing substandard homes would improve the lives of the urban poor and continued to support urban renewal.Footnote ¹²

Over time the government adopted various other hybrid arrangements in which it used for-profit companies to help fulfill a social goal but retained responsibility for implementation. Some of these arrangements involved government contracting, others subsidized particular activities in the name of social goals, and many combined elements of such relationships in ways that make them hard to categorize. Many of LBJ's programs blurred the boundaries. In the 1965 Medicare program, for example, the government functioned as an insurance agency for retired Americans, but at the outset it farmed out administration to the large nonprofit company Blue Cross/Blue Shield while paying doctors and hospitals for their services.Footnote ¹³

IV. THE IDEA OF PARTNERSHIP IN FEDERAL GOVERNMENT PROGRAMS

The expansion of government authority by dividing it among different agents has obscured the nature and extent of governance in the United States. Indeed, the mechanisms for domestic social programs have been so bewilderingly complicated as to constitute, in the words of sociologist Elisabeth Clemens, a “Rube Goldberg welfare state.” Analyzing the trend toward divided or delegated governance, many social scientists characterized and often decried the resulting forms of government as the “hollow state,” “shadow bureaucracy,” and “government-by-proxy.” Footnote ¹⁴

Twentieth-century American presidents looked on the government's complex federal programs more favorably than scholars have. Seeking to allay fears of an imperious Washington, they described the collaborative arrangements between the federal government and other entities as “partnerships.” In his Second Fireside Chat delivered in May 1933, Franklin Roosevelt drew an analogy between New Deal legislative proposals and joint-business ventures. The bills to regulate farms and railroads and through the National Industrial Recovery Act to impose production and price controls, he asserted, represented partnerships—not a “partnership in profits” as in a business proposition, FDR explained, but “rather a partnership in planning” and implementation.Footnote ¹⁵ On other occasions Roosevelt used the term to define programs in which the federal government collaborated with state and local governments, such as the Civil Works Administration's jobs project, or private institutions and organizations, including social work agencies and voluntary art committees. Instead of a socialistic takeover, the partnership idea suggested a mutual agreement between equals.Footnote ¹⁶

Roosevelt's successors of both parties also justified programs that expanded federal influence as partnerships. Democratic president Harry Truman applauded the partnerships between federal agencies and state and local governments that built a dam in Kentucky, constructed the nation's highways, and established community hospitals.Footnote ¹⁷ Republican president Dwight Eisenhower commended such partnerships as a barrier to federal government bureaucratic domination. In “cases where Federal participation is necessary,” Eisenhower proclaimed in 1954, his administration would “develop partnerships rather than an exclusive and often paternalistic position for the Federal Government.”Footnote ¹⁸

Presidents John F. Kennedy and Lyndon B. Johnson were more enthusiastic, invoking partnerships to embrace the expansion of federal authority. Both men extolled the federal collaborations with other government bodies and private citizens to promote economic development, agriculture, irrigation projects, vocational training, social welfare programs, transportation, and so on.Footnote ¹⁹

Kennedy and Johnson singled out a particular type of partnership between government and private businesses. In a 1961 speech to Congress, Kennedy praised the depression-era Federal Housing Administration mortgage insurance and the postwar Veterans Administration mortgage guarantees as “a partnership between industry and government.” Two months after he took office in November 1963, Johnson referred to the same programs as “the long-established partnership between private industry and Government in housing and community development” that had “made possible good housing and widespread home ownership for millions of our citizens.” Of the many public-private collaborations that had sprouted in the United States, it seemed, some of the most successful examples could be found in the housing field.Footnote ²⁰

V. THE TWO TRACKS OF AMERICAN HOUSING POLICY

Federal housing policies adopted during the twentieth century ran the gamut of types of government intervention but generally followed two separate tracks.Footnote ²¹ During the Great Depression, government officials created several agencies and programs dedicated to reviving the ailing private housing industry. To aid private building and loan societies, Herbert Hoover in 1932 signed the law creating the Federal Home Loan Bank Board (FHLBB) and its regional banking system. To rescue mortgage lenders and home owners from rampant foreclosures, Roosevelt's New Deal administration in 1933 set up the Home Owner's Loan Corporation. To revive the housing industry by reducing financial risks to private lenders, the National Housing Act of 1934 established the Federal Housing Administration (FHA), which issued mortgage insurance, and (in 1938) the Federal National Mortgage Association (FNMA or Fannie Mae), which would purchase and sell the FHA-insured mortgages and assist the secondary-mortgage market. Taken together, these schemes created a lasting policy of buttressing the for-profit production and finance of housing.

Avidly courted by housing industry trade associations and supported by sympathetic members of Congress, the panoply of agencies and programs greased the machinery of private enterprise to stimulate the national economy and to help middle- and upper-middle-class Americans become home owners. In the postwar period the industry-oriented housing policies of such agencies as the FHLBB and the FHA enjoyed unchallenged political success. Supported at the grassroots level by small builder, broker, and lender businesses and nationally by trade associations and powerful congressional supporters, these federal housing agencies became as accepted a part of the landscape as the sprawling suburbs that they helped create. Their programs, like the “hidden” social policies in health care and social security, chiefly benefited better-off Americans.Footnote ²²

Roosevelt's New Deal, however, also inaugurated a social welfare branch of housing policy to help low-income Americans. Its main program, public housing, was the result of a campaign by housing reformers, including social workers and labor leaders, to rescue the inhabitants of the slums by placing them in “decent, safe, and sanitary” homes.Footnote ²³ The Roosevelt administration and Congress first introduced public housing in 1933 as part of the Public Works Administration (PWA). In the PWA public housing program, officials in Washington developed housing projects in local communities, but this centralized method ran afoul of the judiciary's understanding of the prerogatives of state and local governments.

After that effort reached a dead end, the president and the national legislature agreed in 1937 to establish a permanent public housing program. To avoid such constitutional issues, the authors of the 1937 act divided responsibility between the federal government and local government agencies known as housing authorities, which had responsibility for choosing sites and building and managing low-income housing projects. The federal government picked up almost the entire tab for construction of housing projects and thus freed the local housing authorities to charge low rents, which were to pay for the maintenance of the projects. The permanent public housing program was far more generous than European social housing programs and therefore, according to historian Gail Radford, “was in some respects the most radical aspect of the New Deal.”Footnote ²⁴

The opposite of a partnership with business, the public housing program was built on the principle of government construction, ownership, and management. Private companies were hired to build the housing communities, but only as contractors who had no say over the development or management of the projects. This was not coincidental: Progressive Era and New Deal reformers aimed to correct the inequities—or, in a later generation's term, “failures”—of the private market. Moreover, public housers, as the advocates of public housing called themselves, despised the private housing industry for building and profiting from America's slums.Footnote ²⁵

The feeling was mutual. The lenders, builders, and brokers who made up the housing industry could not abide public housing. They were the type of American small businesspersons who fervently supported “free enterprise,” a concept that combined ideas of economic opportunity and liberty. Moreover, during the 1940s and early-1950s, it seemed possible that the United States would enlarge the public housing program to serve masses of Americans, which would have deprived the housing industry of a substantial amount of business. To prevent such a calamity, the National Association of Home Builders (NAHB), the National Association of Real Estate Boards (NAREB), and other housing industry trade associations led national campaigns to eliminate public housing, which they labeled socialist and an unwarranted giveaway, even as they lobbied for new government subsidies for their members to carry out urban redevelopment projects. Throughout the postwar period, industry spokespeople defended government support for the FHA and the Veterans Administration mortgages while adamantly opposing any congressional appropriations for the program that they called a dangerous intrusion by government into the free market.

The public housers, however, fought back to preserve their program. In legislative battles in Congress, they could flex the lobbying muscle not only of their own groups—such as the National Housing Conference (originally called the National Public Housing Conference) and the National Association of Housing and Redevelopment Officials (NAHRO)—but also of the powerful labor unions' and mayors' organizations. In Congress, Northern liberals and Southern conservatives (as long as racial segregation was left untouched) backed the cause. Even “Mr. Republican,” Sen. Robert Taft (R-OH), sympathized with the goal of government-sponsored housing for the poor and supported public housing at key moments. Nonetheless, the running battles between the opposing interest groups ended in a political stalemate in which the public housing program survived but produced only a small fraction of the country's dwellings.Footnote ²⁶

VI. A SENSE OF POLICY STAGNATION: PUBLIC HOUSING

The election of John F. Kennedy in 1960 seemed to augur well for public housing. Robert C. Weaver, the nation's top housing official, had been an early public houser who had helped to administer the program in its infancy. Both as administrator of the Housing and Home Finance Agency (HHFA) from 1961 to 1965 and as the first secretary of the Department of Housing and Urban Development (HUD) from 1965 and 1968, Weaver tried to strengthen public housing.Footnote ²⁷ Lyndon Johnson was an unabashed supporter, even more so than Kennedy. LBJ liked to brag that when he was a congressman in Texas during the 1930s, Roosevelt's public housing agency awarded its first funds to a project in his congressional district. Once Johnson became president and Democrats won large congressional majorities, he helped Weaver garner significant budget appropriations for public housing in several housing acts, including the 1968 bill.Footnote ²⁸

The problem was that by the 1960s the public housing program, never popular, had become increasingly controversial. As suburban development opened up previously white neighborhoods to African Americans, the urban working class mostly chose to live in privately owned apartments and houses. The increasing number of poor tenants in public housing reduced the rental income that paid for maintenance. As poverty increased and buildings deteriorated, especially in large cities, public housing entered a downward spiral of disorder, increasing vacancies, and further unpopularity. The most advanced case was Pruitt-Igoe, a St. Louis housing project, where—despite a multimillion rescue effort by the federal government—tenants launched a rent strike to protest living conditions. At the same time, middle-class whites and their political representatives successfully fought against situating projects in their districts. Partly as a result, housing authorities fell far short of building the number of dwellings for which Congress had appropriated funds.

As the plight of public housing worsened, many local public housing officials seemed to surrender. In the large cities, they frequently proved unable to cope with vacancies, social problems, and eventually basic upkeep of their buildings. “A spirit of lassitude and disillusionment,” a veteran public houser observed, “appears to affect the local housing authorities.” Longtime supporters, including Catherine Bauer, an author of the bill that created public housing, and Sen. Paul H. Douglas (D-IL), had come to despair of making public housing the vibrant and innovative program they had envisioned. Liberals now sought ways to renew and enhance public housing.Footnote ²⁹

In Washington, Weaver tried to revive the program, which since the days of the New Deal had been an important piece of the nation's social welfare policy. In 1961 he appointed Marie McGuire, the former executive director of the San Antonio Housing Authority, to lead the federal Public Housing Administration and reform the system. From her first year in office, McGuire urged local housing authorities to break with their past and buy or lease existing homes for low-income families, hire private firms to manage their properties, help tenants “graduate” to home ownership, and allow commercial facilities to operate in housing projects. But the local bureaucracies resisted change. By 1964 the top agency officials were forced to admit that their pleas for innovations had failed to arouse “enthusiasm and concrete activity” among public housing officials.Footnote ³⁰

While trying to resuscitate public housing, Weaver also tried to expand federal social housing policy through alternative approaches. Soon after taking over HHFA in 1961, Weaver proposed a new program modeled on a New York law that relied on public-purpose corporations as opposed to for-profit builders. In 1955, when he was deputy commissioner of housing for New York State, Weaver had helped implement the Limited-Profit Housing Companies Act aimed at “middle-income” families who earned too much to be eligible for public housing but not enough to afford new apartments in the private market. The law offered mortgages with interest rates below market rates to cooperative, nonprofit and limited-dividend companies—such as those formed by labor unions and veterans' organizations—to build affordable rental housing projects. Soon after taking the helm of HHFA in Washington, Weaver and his staff drafted a similar law, Section 221 (d) (3) of the National Housing Act, known as the Below-Market-Interest Rate program because of its method of subsidy. Passed in 1961, it too allowed nonprofit, cooperative, and limited-dividend companies to develop and manage rental apartment buildings for moderate-income families.

Four years later, Weaver persuaded Congress to approve a version of rental subsidies, which for decades public housers had opposed and the housing industry had supported. The federal subsidy in the Rent Supplement program helped pay the rents of low-income households in projects built or renovated by private non- or low-profit companies, such as those who had developed housing under the Below-Market-Interest Rate program. Seeing the new programs as alternatives to public housing, the National Association of Home Builders (NAHB), after initially hesitating, dropped its long-standing opposition to federal subsidies for low-income housing.Footnote ³¹

Starting in 1965, Weaver even began to allow what McGuire called “greater participation of the private home-building, renting, and financing industry” in the public housing program. First, the federal housing agency encouraged local authorities to lease existing homes for public housing and to share ownership of projects with local nonprofit groups. Then, in 1966, with much fanfare Weaver and McGuire unveiled the Turnkey program, in which private developers built housing projects for local public housing authorities.Footnote ³²

if Weaver opened the door to for-profit developers, he nevertheless remained wary of their ability to provide good low-income housing. He restricted private industry to an auxiliary role in public housing and circumscribed their ability to earn profits in the alternative low-income housing programs. The housing chief hoped socially conscious nonprofit organizations and cooperatives would produce the bulk of new social housing.

VII. THE URBAN CRISIS COMES TO A CLIMAX

Despite Weaver's initial steps down the new policy path, the adoption of public-private social welfare programs was not inevitable. The Below-Market-Interest Rate and the Rent Supplement programs attracted few housing developers, primarily because Weaver and his staff had hedged them with regulations aimed at preventing the for-profit sponsors from earning excessive profits or producing inferior products. Hence, seven years after it was set up, the Below-Market-Interest Rate program had produced only 23,660 units. The Rent Supplement program was in worse shape, besieged by Congressional critics who feared it would promote racial integration of white neighborhoods. In 1968, three years after its establishment, the Rent Supplement program had produced only 2,800 dwellings in 119 properties. The early experiments in enlisting private sponsors of low-income housing were going nowhere and, if events had not dictated otherwise, might have continued to progress slowly or even recede.Footnote ³³

It was the crisis in America's cities that turned social housing policy definitively in the direction of private enterprise. From the 1950s onward, American journalists, politicians, and intellectuals had become increasingly troubled by the state of the cities. At first they worried mainly about planning issues—such as the decline of downtowns—but over time their concerns spread to encompass a variety of social and economic problems. Then at the peak of the civil rights movement, riots broke out in African American neighborhoods and catalyzed the multiplying worries into a matter of utmost national urgency, the “urban crisis.”Footnote ³⁴

Today it is difficult to recapture the shock and fear that these eruptions engendered among the white leaders of the United States. Beginning in 1964 with the first large outbreak in New York's Harlem and Bedford-Stuyvesant neighborhoods, the riots seemed to multiply and grow larger every year. The alarming August 1965 riot in the Watts district of Los Angeles was followed the next year by upheavals on Chicago's West Side and Cleveland's Hough neighborhood. The summer of 1967 brought unheard of levels of violence in numerous cities. The worst events occurred in Detroit, where after four days 43 people were left dead, nearly 1,200 were injured, and 2,500 stores were looted or burned. While the fires were still smoldering in Detroit, President Johnson named the National Advisory Commission on Civil Disorders—known as the Kerner Commission after its chair, Illinois governor Otto Kerner—to determine what was causing the violence and how it could be stopped.

As black inner-city neighborhoods exploded with violence during the long hot summers of the 1960s, the nation's leaders cast about in all directions for explanations and solutions. Although some called for a crackdown on lawlessness, many observers—including some who espoused a “law and order approach”—felt that deep-rooted problems were partially or mainly to blame for the violence. President Johnson condemned the violence of the 1965 Watts riot but the next year put forward the Model Cities program, which funneled diverse government resources to new community agencies, as a way of uprooting the sources of urban violence.Footnote ³⁵

The sense of crisis created by the riots, particularly those of 1967 and 1968, precipitated the full turn toward private-sector participation in housing and urban policy. A long tradition of environmental determinism inclined Americans to see the nation's slums and ghettos as one of the principal sources of the violence. Since the nineteenth century, the belief that one's living environment can shape one's character and behavior had motivated numerous reform efforts—from public schools to housing. In 1966 both Vice President Hubert Humphrey and HUD Secretary Robert Weaver strongly condemned “the deprivations of the environment,” urging action “to heal their sickness before they explode.” Two years later, the Kerner Commission concurred with this interpretation.Footnote ³⁶

Hence, many officials concluded that improving the homes of the lower classes—along with providing more jobs and better education—would help prevent urban violence. In the aftermath of the 1967 riots, Edward Brooke (R-MA) declared on the floor of the United States Senate that “the plainest and most pressing urban need today is housing. We do not need a study to tell us that much of the housing occupied by the poor is dilapidated, deteriorating, and dismal.”Footnote ³⁷ Across the aisle the feeling was even stronger. “Everyone agrees,” Democratic congressman Wright Patman wrote to Johnson in August 1967, “that bad housing is one of the major causes of the social unrest and discontent. This is a time when we should be accelerating our housing programs to serve lower income families.”Footnote ³⁸ Yet public housing, America's long-standing program to serve low-income families, seemed incapable of accelerating production.

VIII. THE NEW POPULARITY OF BUSINESS

If not public housing, what then would provide impoverished Americans the new homes they seemed to need so desperately? American businesses, the nation's leaders concluded, would answer the problems of ghetto poverty. Several trends led to government officials to decide that private enterprise could be an engine of social justice and urban revival.

To begin with, federal officials had long deferred to large-scale businesses in the interest of promoting economic growth. The Eisenhower, Kennedy, and Johnson administrations each cultivated institutional relationships with corporate leaders, and, despite an occasional burst of anti-trust prosecutions, acceded to corporate oligopolies and price-fixing. In the name of stimulating growth, Kennedy's signature fiscal program cut taxes not only for wealthy individuals but also for businesses. By the 1960s, the old arguments about how to divide the wealth between workers and capitalists had given way to strategies for economic growth that would benefit all citizens. The answer was not to slice the pie differently, went the saying, but to bake a larger pie.Footnote ³⁹

In this context, theories about the causes of poverty served to elevate the potential role of the private sector in solving social problems. During the Cold War era, intellectuals and policy makers had come to believe that economic “development” could act as a lever against backward poverty both at home and abroad. No longer, as in the 1930s, did they find the cause of poverty in the failings of capitalism. Now poverty resulted from the failure of poor people—often mired in a “culture of poverty”—to adopt capitalistic ways. This idea called for extending private investment to slums, both in the United States and in undeveloped nations.Footnote ⁴⁰

At the same time, many Americans in the 1960s had come to admire corporations. Today the images of civil rights and antiwar protests and the counterculture have obscured the dynamism of business in that era. In the 1960s the earnings of the top “nifty fifty” corporations, including high-value technology companies such as IBM and Xerox, dazzled investors and powered a great bull market. Furthermore, research and development and engineering companies in the defense and aerospace industries associated business with the nation's military might. Old firms, such as General Electric and Bell Labs, as well as younger companies, such as Lockheed, TRW, Northrop, and Raytheon, produced awe-inspiring rockets, satellites, computers, and sophisticated mathematical systems. Starting in the mid-1960s, many of these companies bid on government contracts to apply systems planning and engineering methods to urban problems.Footnote ⁴¹

Most significantly perhaps, the national mood inspired businesspeople to volunteer to solve the nation's domestic problems—as a matter of conscience rather than profit. This activity grew in part from the long tradition of civic involvement typified by local Community Chest campaigns. But in the 1950s, a small but influential group of corporate executives began to espouse the notion of corporate social responsibility (sometimes for self-interested motives), and a few housing industry leaders, led by Baltimore mortgage banker James Rouse, tried to tackle urban issues. As the sense of national emergency deepened during the 1960s, corporations funded policy conferences on business solutions to urban problems, and businesspersons signed up to help the urban and racial-minority poor.Footnote ⁴²

By 1968 across the United States, employees of private firms enlisted in hundreds of programs run by government agencies, nonprofit organizations, and their own companies. Perhaps most of these civic projects concerned employment of the “disadvantaged” because businesses could most directly help in this arena. Corporations such as General Electric, IBM, and Litton Industries, for example, operated most of the urban centers of the federal government's Job Corps program, a key part of the War on Poverty. Many other business projects, however, dealt with housing, education, safety, economic development, and social work. At the height of the urban crisis and the rising liberal political tide, many business leaders dropped their categorical opposition to government social welfare programs and joined the search for policy solutions to the problems of the cities. Even the ultraconservative United States Chamber of Commerce proposed joining hands with labor, civil rights groups, and the government to take on the problems of ghetto poverty. Whether moved by idealism, a sense of crisis, or political expediency, corporate America in the 1960s stood ready to help.Footnote ⁴³

IX. CALLING UPON THE GENIUS OF PRIVATE INDUSTRY

The acceptance of underdevelopment theories, the improved public image of corporate America, and the personal involvement of business executives in domestic social issues made it easier for liberal political leaders to ask private enterprise to carry out plans for rescuing urban America. Liberals like Sen. Robert F. Kennedy (D-NY) mistrusted the administration's big-government programs and felt this approach offered a different way of tackling urban poverty. Despite the “many hostilities to the business and conservative community,” which he and his close aide Richard Goodwin claimed to share, Kennedy recruited corporate executives to help him devise an alternative to Model Cities and other Great Society programs.Footnote ⁴⁴ In December 1966 Kennedy started an experimental program to revive the Bedford-Stuyvesant neighborhood in Brooklyn by means of a locally based community organization supported by the power and wealth of big business—specifically a committee that included the chairs of IBM and First National City Bank (Citibank).Footnote ⁴⁵

“For the first time,” the Kennedy team explained, “the leaders of the American business community have assumed the primary responsibility for dealing with problems of the ghetto.” Or as Daniel Patrick Moynihan put it, the Bedford-Stuyvesant Restoration Corporation project would “get the market to do what the bureaucracy cannot.” In fact, the Bedford-Stuyvesant Restoration Corporation—like the community development corporations that would proliferate in the 1980s and 1990s—relied not on the market, but on financial aid from government, foundations, and corporations. Regardless, Moynihan expressed the growing impulse to tap business know-how and resources to solve social problems.Footnote ⁴⁶

At the national level, the president had additional motives for turning to the private sector. Far more than the Kennedys, Lyndon Johnson admired great business leaders. From his early days in government during the New Deal, LBJ had exploited the many political advantages of government contracting in public works projects—tangible improvements in the lives of voters, job creation and patronage, and, not least, the loyalty and financial support of grateful contractors. Indeed, Johnson's political career and financial success were inextricably bound to his long relationship with George and Herman Brown of the Brown and Root Construction Company.Footnote ⁴⁷

Fiscal issues also compelled LBJ to seek ways to address social problems that would not cost or at least appear not to cost the government too much. The soaring costs of the growing American involvement in Vietnam, plus Johnson's ambitious domestic programs, threatened to raise federal spending above the debt limit. Under fiscal pressure, Johnson in 1966 retreated from his Great Society programs or at least from fully funding them. He also tried to reduce the federal budget through such means as having Fannie Mae selling bonds (known as participation certificates) backed by pools of its mortgages. Feeling the painful budgetary constraints, LBJ sought partnerships between business and government in part so that the private sector could help pay for new public policies.Footnote ⁴⁸

For many reasons then, the Johnson administration avidly sought ways to utilize corporate power to solve the crisis of the cities. In May 1966, the White House assembled about one hundred business leaders—including the top executives of Ford Motor, American Airlines, and RCA—at the State Department to hold a “Business-Government Conference on Urban Problems,” which Weaver and Detroit Mayor Jerome Cavanaugh addressed. That June HUD held a seminar on science and urban development, an aide reported to the president, to bring together “profit-motivated business leaders who are alert to what science and technology can contribute to their private gain” and public officials who could influence “private enterprise to serve public services.”Footnote ⁴⁹

On January 10, 1967, in his State of the Union address, Johnson proclaimed to the nation his new business-oriented approach to urban policy. “We should call upon the genius of private industry,” LBJ declared, “and the most advanced technology to help rebuild our great cities.” In June he announced the formation of a committee to map out specific ways that businesses could rebuild the slums, “which shame the nation and its cities.”Footnote ⁵⁰

The president wanted to ensure that private industry dominated the housing committee. He named Edgar Kaiser, president of the corporate conglomerate Kaiser Industries and an old ally, to head the committee and loaded it with executives. Although he placed his favorite labor and civil rights leaders on the panel, LBJ appointed mostly businessmen: construction and building supply company executives, home builders and developers, and a prominent Chicago banker. Significantly, he did not invite a single public houser to join a group charged with crafting urban housing programs. Going beyond the usual deference to industry lobbyists, LBJ invited private-sector representatives to write their own program.Footnote ⁵¹

Although central to Johnson's business-oriented urban strategy, the Kaiser Committee was by no means its only component. In September 1967, for example, LBJ jubilantly announced a pledge by 348 life insurance companies to redirect $1 billion from their normal investment stream to the impoverished sections of America's cities. Administration officials, congressional leaders from both parties, big-city mayors, civil rights leaders Roy Wilkins and Whitney Young, and National Association of Home Builders' president Leon Weiner attended the announcement at the White House, which garnered national attention. Gilbert W. Fitzhugh, the head of the Metropolitan Life Insurance Company and the chair of the life insurance industry's Joint Committee on Urban Problems, explained that the industry's leaders had concluded that they could most effectively help “hard core ghetto areas” by financing housing projects and job-creating enterprises. Much to the delight of Johnson and HUD Secretary Weaver, the insurance executives proposed to funnel money immediately into government housing programs, particularly the Rent Supplement program—an implicit endorsement of a program that House Republicans had refused to fund.Footnote ⁵²

Buoyed by this development, LBJ ordered all his cabinet secretaries—from Agriculture to Defense!—to come up with more ways the private sector could solve the problems of America's cities. Some of the departments' ideas seemed far-fetched—Commerce, for example, proposed that major oil companies sponsor service station maintenance firms in the ghetto—but others such as the Job Opportunities in Business Sector (JOBS) Program bore fruit. Through the JOBS program, the Departments of Labor and Commerce would train the “hard-core unemployed,” and a new volunteer organization, National Alliance of Businessmen, would find the trainees gainful employment.Footnote ⁵³

The National Alliance was a corporate affair. Henry Ford II of the Ford Motor Company and Paul Austin, president of the Coca-Cola Company, headed its executive committee. The chief officers of some of the largest corporations in the United States—IT&T, Aluminum Company of America, and McDonnell-Douglas Aircraft, for example—chaired its nine regional committees. Beneath them, leading business executives from the fifty largest cities in the country directed local committees. The collaborative program was bound to be a great improvement, the president asserted, over the government “make-work projects … we had back in the thirties.”Footnote ⁵⁴

Johnson began to describe this type of hybrid social policy in terms that would become familiar to future policy makers. On October 6, 1967, LBJ became the first president to use the phrase, “public-private partnership,” which he did to laud the accomplishments of the Truman administration's Hill-Burton hospital construction program. The next month, LBJ thanked the members of the NAREB for supporting his administration's social housing programs, which involved private developers and landlords. The realtors, he announced, “had demonstrated the good that can come from business-government partnership.”Footnote ⁵⁵

X. CONGRESS SEARCHES FOR A CURE FOR SLUMS AND GHETTOS

Despite Johnson's enthusiasm for new sorts of public-private initiatives, the administration was caught unprepared when Detroit and Newark exploded in violence during the summer of 1967. The previous fall, Weaver felt he had his hands full organizing HUD and implementing the Rent Supplement and Model Cities programs and so decided not to draw up any major bills for the following year. John Sparkman, the powerful chairman of the Senate Committee on Banking and Currency and its Housing and Urban Affairs Subcommittee, concurred, emphasizing that the government should spend less time devising new programs—which Democratic losses in the 1966 elections made more difficult to pass—and more time administering existing ones. Hence, in 1967 federal officials had no major legislation—private, public, or in-between—to propose to calm the ghettos. On the last day of the Detroit upheaval, Johnson responded by establishing a committee, the National Advisory Commission on Civil Disorders, to investigate the causes and make recommendations. “Even as our cities went up in flames,” chided Congressman William Widnall (R-NJ), the adminstration offered “only housekeeping amendments.”Footnote ⁵⁶

In the summer and fall of 1967, members of Congress leapt into the legislative vacuum left by the White House. They submitted dozens of bills—too many even for Sparkman to read at hearings—to reconstruct America's inner cities. Most congress people called for increasing existing housing programs, usually by immense amounts. LBJ's political rivals, Robert Kennedy and Sen. Charles H. Percy (R-IL), submitted bills that garnered the most support. Both proposals depended on the private sector, albeit in strikingly different ways, to solve the problems of the urban slums.Footnote ⁵⁷

As he had in his Brooklyn experiment, Robert Kennedy looked to big business to help end the urban crisis. In the 1930s, Kennedy explained, the private sector had failed and government had stepped forward to save the nation. Now the situation was reversed; it was government's social welfare policy that was broken. In a slap at Johnson's record, Kennedy declared that the greatest failure of the government's antipoverty efforts was the “failure to involve and rely on the private enterprise system, which is the basic strength of the Nation.”Footnote ⁵⁸

To redress this flaw, in July 1967 Kennedy submitted legislation to encourage “private enterprise to provide adequate [rental] housing in urban poverty areas for low-income and lower middle income persons.” Extrapolating from private-market housing policies, he offered large-scale low-income housing developers fifty-year FHA-insured mortgages at 2 percent interest, gave their corporate investors tax credits and accelerated depreciation tax write-offs, and paid city governments half the revenue losses from abating the developers' taxes. Kennedy also submitted a companion bill that used a combination of tax benefits and subsidies to lure large corporations to set up new factories in economically deprived areas like Bedford-Stuyvesant. Reflecting the appeal of his approach, Kennedy was able to persuade a number of other senators—including Republicans—to cosponsor his inner-city development bills.Footnote ⁵⁹

At hearings held by the Senate Finance Committee in September 1967, the bills received an enthusiastic response—except from the White House and its allies. While administration officials privately deemed Kennedy's housing proposal worthy of serious consideration, Weaver publicly criticized the bill as inadequate and more expensive than expanding current low-income housing programs. The treasury department also weighed in, dismissing the proposal because its tax incentives would aid too few people. Where it mattered most, the White House's opposition outweighed support: the finance committee, chaired by longtime Johnson ally Russell Long, never reported either bill to the full Senate. The following year, Kennedy continued to push his approach until Howard Moskof, the Kaiser Committee's chief of staff—sent by the White House on a personal mission—visited Kennedy at his home and, while tolerating the drooling affection of the senator's pet Springer Spaniel, Freckles, persuaded Kennedy to set his housing bill aside and support the administration's own private-sector proposal. Nonetheless, Kennedy's general approach was in line with that of Johnson's policy makers, and, as we will see, in the following years different forms of subsidized mortgages, accelerated depreciation accounting, and tax credits would become part of American housing policy.Footnote ⁶⁰

XI. CHARLES PERCY'S INNOVATIVE HOME OWNERSHIP ACT

In contrast to Kennedy's corporate strategy, Charles Percy devised an innovative scheme that operated largely outside the private enterprise housing system to enable low-income families to purchase houses. Where Kennedy's programs sought investments by large corporations, Percy's scheme relied on nonprofit agencies. Based on the ideas of Charles Abrams, one of the original public housers, the proposed quasi-public entity—the National Home Ownership Foundation—would lend or guarantee loans to nonprofit, cooperative, or limited-dividend groups to build or rehabilitate “safe, decent, low-cost” homes. The low- and moderate-income purchasers of the houses—not private lenders—would receive direct subsidies on mortgages from the Department of the Treasury. Percy's home ownership bill contained far-sighted features: home buyers training and counseling; low-income home owners' insurance against foreclosure as a result of illness or unemployment; and the potential for buyers to invest “sweat equity” by contributing their own labor to defray construction costs.Footnote ⁶¹

Had Percy been a Democrat or had Robert Weaver concocted this bill inside the Johnson administration, it would have stood a good chance of passing. The proposal's nonprofit agency and government subsidies to low-income consumers fit squarely within the New Deal social-welfare policy tradition. Ordinarily, liberals, many of whom were Democrats, would support such a low-income housing bill, but its authorship by a Republican confused the usual lines of political support. Glad to have a legitimate Republican policy alternative, Percy's fellow Republicans rallied to the bill: all 36 Republican senators and 106 of 187 House Republicans signed on as cosponsors. Percy persuaded four Democratic senators to cosponsor the act, and several others would have joined the effort but declined to endorse an act authored by a likely Republican candidate for the presidency.

Feeling politically threatened, Johnson and his allies attacked Percy's bill from numerous fronts. Weaver, like many public housers, was genuinely skeptical about home ownership for the poor but exaggerated his opposition, blasting Percy's bill as a “gimmick” and “simply inadequate.” The housing interest groups steered clear of Percy's plan because they preferred working with the existing government agencies and were wary of offending the president and congressional Democrats. Hence, the liberal AFL-CIO condemned the proposal as a “cruel hoax,” and both the National Housing Conference and the NAHRO rejected Percy's bill. The industry trade associations NAREB and NAHB were also cool to the Republican's idea.Footnote ⁶²

Ominously for Percy, Sen. Walter F. Mondale (D-MN) pushed an alternative home ownership program to be carried out by for-profit businesses—using the FHA mortgage insurance system and private mortgage financing—rather than nonprofit organizations. The chair of the Banking and Currency Committee, John Sparkman (D-AL), instructed Mondale and Percy to come up with a compromise between their two bills, but the lopsided result of the negotiations produced a bill that left only the goal of low-income home ownership from Percy's bill. Seeing that Percy was losing control of the bill, Republicans began to drift away from it.Footnote ⁶³ Still the White House was not ready to move on its own, so at Weaver's request, Sparkman stalled long enough on reporting the bill for the Senate leadership to declare it too late to consider during this session.Footnote ⁶⁴

XII. NEEDED: LARGE-SCALE PROGRAM TO REBUILD AMERICA'S SLUMS

The president knew that the urgency of the moment required more than quashing the bills of his political rivals. Having charged the Kaiser Committee with finding ways to rebuild all of America's slums, LBJ now directed Weaver “to put together a ten-year housing program that would eliminate all the substandard housing in this country.”Footnote ⁶⁵ Thus, the president assigned responsibility for what would become the 1968 housing bill to both the Kaiser Committee and HUD without distinguishing their roles. Meanwhile, the Congress, led by Senate Banking and Currency Committee chair Sparkman, worked on its own legislative proposals. The three centers of power pushed ahead simultaneously, alternately consulting and jousting with one another while they advanced their own particular agendas.Footnote ⁶⁶

Because many, including the president, believed that only a massive housing construction program could save the ghettos and stop the riots, it made sense that the legislation would set a production goal.Footnote ⁶⁷ Kaiser organized a subcommittee, and Howard Moskof, the Kaiser committee's chief of staff, assigned two technical consultants and economists from HUD, the Council of Economic Advisors, and the NAHB to come up with a target for housing production. The experts calculated current supply and volume of rehabilitation, rate of home building and demolitions, likely future demand for housing based on demographic information such as immigration and household formation, “national housing needs” for particular income groups (e.g., to replace substandard units and end crowding of poor families), and the ability of the private-market system to supply the homes for all groups. In the end, the committee accepted a goal for the next ten years of building or rehabilitating 26 million dwelling units of which 6 million would go to low- and moderate-income families.Footnote ⁶⁸

Despite the seeming objectivity of the statistical computations, the NAHB was the driving force for the idea of national housing goals, only one of several instances in which the home builders shaped national housing policy. A national commitment to produce a great number of dwellings appealed to the home builders' self-interest. In 1967 NAHB president Leon Weiner, a pro-business liberal, brought industry and reform interest groups together in two conferences that endorsed the idea of housing goals. By lobbying and coordinating interest groups on the outside while Weiner pushed inside the Kaiser Committee, the NAHB was able to add a provision in the 1968 legislation that the government annually review progress toward meeting the goals. Liberals wanted an enormous production program as well and applauded when Sen. William Proxmire and Rep. Henry Reuss inserted the annual reporting provision.Footnote ⁶⁹

A delighted White House jumped on the big target for housing, even while the bill was pending. In his January 1968 State of the Union address, the president put the Kaiser Committee figures forward as a national goal. Johnson called for 300,000 new housing units for low- and middle-income families next year—more than half of the production of the previous ten years—and a total of 26 million new dwellings in the following decade.Footnote ⁷⁰

Not everyone was pleased by the gargantuan target. The previous year John Sparkman had hammered many of the housing proposals into legislation that was never put to the full Senate for a vote but served as a useful draft for a 1968 housing bill. As he listened to the president deliver the State of the Union message, the senator had a sinking feeling that the president had “smothered what I considered a fine, but modest, housing bill.” Sparkman was correct: setting sky-high goals would require powerful new engines of housing production.Footnote ⁷¹

XIII. A BIG BUSINESS APPROACH TO LOW-INCOME HOUSING

The high goals for housing raised the stakes for the 1968 housing legislation but left unanswered the question of how to attain them, a quest that chief-of-staff Moskof labeled “The Elusive Search for the All-Purpose Housing Solution.” The White House pushed the idea of new building technologies, but the Kaiser staff, with the help of NAHB expert testimony, convinced the committee to keep this approach small and experimental. That left the committee members to struggle over whether small or big business was better suited to mass-produce housing.

Kaiser, for one, liked large-scale operations. The large business model had great allure, especially when compared to the small-scale, localized, and fragmented home building industry. Echoing a long and widely held criticism, a Kaiser Committee memo lamented, “The industry has no GM, GE, IBM, Esso, AT&T or similar unit with the size and market power adequate for the tasks now before it.” Some committee members envisioned a public-private profit-making corporation—like the Communications Satellite Corporation (Comsat) or the recently created Corporation for Public Broadcasting—that would build apartment buildings and houses.Footnote ⁷²

Those who represented the housing industry, which was dominated by small businesses, objected. “Proposals for vast joint Government-industry corporations are more dramatic than realistic,” wrote Weiner, the head of the home builders’ association. “Such mechanisms would be cumbersome and unworkable in an industry where flexibility is the first consideration…. A new, huge corporation—whether purely private or quasi-Governmental, whether profit or nonprofit—will succeed only in concentrating a myriad of small problems into one massive impossibility.”Footnote ⁷³

Over time, the Kaiser Committee revised the concept of the housing corporation into a national finance agency, which embodied in name and functions the concept of the public-private “partnership.” The proposed National Corporation for Housing Partnerships would raise money from corporate members and investors and use it to provide the working capital for local development projects. To attract investors, Kaiser proposed federal tax benefits that would allow them to deduct losses and depreciation from the venture. “Private enterprise would invest [and] get the tax benefits,” Moskof explained, to set up “a well-funded organization that would assist local … builders and nonprofits to build housing all over the country.” Hence, the corporation would carry out two types of government-business partnerships: one in which the federal government aided corporations to invest in housing projects, the other in which the new private government-sponsored entity formed alliances with local housing developers, be they nonprofit or for-profit entities.Footnote ⁷⁴

Although the Kaiser Committee's young staff members protested that the scheme was a boondoggle for corporations and the politically connected corporate lawyer Lloyd Cutler (whose firm would profit from the transactions), Moskof overruled them. After the heads of IBM, General Motors, and other Fortune 500 executives indicated they would be willing to participate, Kaiser convinced skeptical committee members such as Weiner to agree to the new corporation. The White House enthusiastically approved the idea, and in his Crisis of the Cities speech to Congress on February 22, 1968, LBJ trumpeted it as an ideal way to harness the productive power of the private marketplace for the public good of low-income housing. The following month HUD staff worked with John Sparkman to incorporate a provision for a for-profit entity, the National Corporation for Housing Partnerships, in the proposed housing bill.Footnote ⁷⁵

XIV. THE SMALL BUILDERS GET THEIR PROGRAMS

Weiner and the home builders could tolerate the inclusion of the National Corporation for Housing Partnerships because they knew the law contained numerous other provisions to their liking. Besides leading the effort for numerical housing goals, NAHB representatives had consulted with Senate and House committees, HUD, and the Kaiser Committee on the two new large low-income housing programs—one for home buyers and the other for renters—that comprised the core of the 1968 housing bill.Footnote ⁷⁶

XV. CLEAR SAILING

As the Congress took up the big housing bill in the spring, Lyndon Johnson's task force strategy began to pay off. In March 1968 Sparkman and his counterpart in the House, William Barrett (D-PA), introduced and held hearings on the legislation. First, HUD Secretary Weaver, then the president's urban housing committee chair Edgar Kaiser endorsed the legislation. A noteworthy parade of interest-group representatives followed suit. Remarkably, the longtime supporters of public housing—including the AFL-CIO, U.S. Conference of Mayors, National Housing Conference, and NAHRO—favored the new social programs to be implemented by nongovernment agents. Meanwhile, the traditional enemies of public housing—NAHB, the Mortgage Bankers Association of America, American Bankers Association, and the conservative U.S. Chamber of Commerce—endorsed the bill despite its provisions of funding for public housing.

What induced members of these housing lobby groups to put aside their long-standing principles to support the 1968 bill?

First, both reformers and representatives of industry shared a deep sense that the urban crisis demanded a massive rebuilding effort, which current housing programs could not accomplish. Speaking for the social work contingent of the housing movement, DeLeslie Allen, president of the National Federation of Settlements and Neighborhood Centers, argued that the bill's unprecedented housing production goal was not high enough to fulfill her organization's aim of eliminating all “slums, blight, and deterioration in our country in the shortest possible time span.” Housing reformers—and, of course, the industry leaders—believed, however, that the public housing program was incapable of producing the huge quantity of new construction needed to solve urban problems. It was necessary to supplement public housing with new programs, National Housing Conference president Nathaniel Keith explained, “to expand the volume of housing and broaden the participation in meeting urgent needs.” In this critical moment, the imperative of production trumped ideology.Footnote ⁸⁴

Second, by 1968 people of all stripes in the housing field had grown accustomed to the idea that private-sector entities, including businesses, could help implement social welfare policy. During the 1960s nonprofit and limited-dividend for-profit agents had used Below-Market-Interest Rate, Rent Supplement, Turnkey, and other programs to make housing that was affordable to low-income Americans. Hence, despite doubts that private enterprise and technology could act as urban “miracle drugs,” William Rafsky, the president of NAHRO, and Dorothy Gazzolo, the longtime editor of the organization's magazine, saw great potential in new collaborations between government and business. A longtime champion of increasing governmental powers to achieve social change, United Auto Workers (UAW) chief Walter Reuther declared that now the housing and urban development fields required “the growth of non-governmental institutions … to end slumism.” As for the private housing industry, its representatives preferred almost any nongovernment program to public housing, which they disdained.Footnote ⁸⁵

Third, the bill offered an array of approaches and implementing agents from which to choose. This allowed the leaders of the diverse interest groups to acclaim the programs they liked and criticize or ignore those that did not appeal to them. Proponents of nonprofit developers, such as Mayor James H. J. Tate of Philadelphia and DeLeslie Allen, the settlement house leader, praised the provisions that would build up neighborhood nonprofit housing corporations but said nothing about limited-dividend builders. Edgar Kaiser, not surprisingly, praised the bill's National Corporation for Housing Partnerships for involving “large industry,” whereas Lloyd Clarke of the NAHB celebrated the role of small-scale private enterprise in the Section 236 rental housing program, pointedly asserting that “big capital and large organization” was less efficient in homebuilding.Footnote ⁸⁶

Organized labor's spokespeople endorsed the private-sector programs—not unexpectedly, perhaps, considering labor's postwar support for employer distribution of social benefits—but they too differed on whether small or large business was best. AFL officials threw their “enthusiastic support” to the Section 236 rental program because they believed it would enable small-scale developers—nonprofits, cooperatives, and small builders for whom building tradespeople traditionally worked—to produce the most housing in the shortest time. In contrast, the leader of the industrial unions—United Auto Workers president Walter Reuther—barely mentioned Section 236, disparaged homebuilders for being antilabor and inefficient, but celebrated the “private profit-making corporations” to be created by the Corporation for National Housing Partnerships as an innovative step towards a large-scale and efficient housing system.Footnote ⁸⁷

Last but not least, the 1968 bill strengthened existing housing programs, giving the interest groups further incentive to support the bill in its entirety. For example, liberal interest groups such as the AFL-CIO and National Housing Conference praised the bill's generous funding for public housing and rent supplements. Industry groups such as NAREB and NAHB were highly enthusiastic about the mortgage-industry sweeteners—particularly raising the cap on FHA-insured mortgage interest rates and turning Fannie Mae into a private corporation—and approved funding current private-market low-income housing programs such as Rent Supplements and leased public housing.Footnote ⁸⁸ By packing the 1968 act with highly desired provisions, LBJ and the Democratic leadership encouraged the interest groups to participate in a kind of social policy log-rolling. The liberal reform and housing industry lobby groups thus found common cause in supporting the 1968 housing bill, which helped end their long political war and begin an era of collaboration on urban and housing policy issues.Footnote ⁸⁹

With such unanimity of support—and the memory of the riots that followed the assassination of the Reverend Martin Luther King Jr. still fresh—members of Congress were not disposed to alter the legislation greatly. They fussed with the formulae for eligibility for the housing programs—attempting to restrict the programs to relatively lower-income families—and slightly reduced the administration's requested large authorizations. But, for the most part, the bill enjoyed clear sailing. In May it passed the Senate by a roll call vote of 67-4; in July the House approved it by an almost two-to-one margin. The chambers adopted the conference report by similar margins, and on August 1, 1968, Lyndon Johnson signed the Housing and Urban Development Act of 1968 into law.Footnote ⁹⁰

XVI. THE PRIVATIZING OF HOUSING AND URBAN POLICY

As its creators had hoped, the 1968 housing law helped produce plenty of new dwellings. Between 1969 and 1979, under presidents Richard Nixon, Gerald Ford, and Jimmy Carter, the United States generated almost 19.5 million housing starts, the largest volume of housing construction for any decade in American history. All the more impressive, this volume of production occurred in a period of economic turbulence marked by inflation and spikes in oil prices.

The 1968 act's low-income programs contributed significantly to this achievement. Thanks in part to zealous implementation by President Richard Nixon's HUD Secretary George Romney, in 1970, the first year the new housing programs ran at full capacity, the Section 235 and 236 programs produced about 12 percent of the nation's total housing starts. Over the course of the 1970s, Section 235, the low-income home ownership scheme, produced approximately 419,000 new units. Section 236, the rental housing program, also produced many units—about 540,000 by the end of the decade, three-quarters of which were built by 1975.

The passage of the 1968 law permanently shifted production of new social housing in the United States away from public housing and toward private development and ownership. A headline writer for the trade journal, House and Home, summed up the emerging policy, “General Grantsmanship Bows to Pvt. Enterprise.”Footnote ⁹¹ Despite a surge in public housing construction—made possible by appropriations procured by the Johnson administration—the two new private-sector low-income programs together generated more dwellings during the late-1960s and early-1970s than did the venerable government-based program. For the decade 1969 to 1978, the Section 236 program by itself created more low-income rental homes than the public housing program created, and after 1978 the private-sector rental housing programs that succeeded Section 236 also outpaced public housing.Footnote ⁹²