WHEN GEORGE Bush denounced the legacy of the Great Society in a commencement speech at the University of Michigan earlier this month, there was nothing suprising about the outcry that greeted his remarks. Many Americans remain passionate in their support of government programs as the answer to poverty -- despite a 25-year record of, at best, meager accomplishment.
Bush, of course, was not saying that every anti-poverty measure failed. Programs targeted to the elderly have significantly reduced poverty in that group. Head Start and early childhood intervention receive consensus support from the center-right and center-left. And some will argue that things would have turned out even worse without the Great Society's attempts.
But neither can it be denied that after a $2.6 trillion investment at all levels of government -- with 100 federally-funded anti-poverty programs operating at a cost of more than $150 billion a year -- joblessness, crime, drug use, family-breakup and despair are still at epidemic proportions. I invite those who claim otherwise to visit America's pockets of poverty with me.
In fact, the evidence of our past suggests that any new and successful War on Poverty requires a dramatic and radically different approach. If we are to have such a war -- and we should -- it ought to be based on empowering people rather than bureaucracies, expanding individual ownership and increasing economic incentives. These are precisely the distinctions the social engineers of the Great Society missed, notwithstanding their laudable goals and noble aims.
During the 1980s, the entrepreneurial model for economic growth and job creation was vindicated by the creation of more than 21 million new jobs and 4.5 million new businesses. And yet, poverty rates have remained seemingly intractable. Some go so far as to suggest that poverty is perpetual, that the poor lack the moral and spiritual qualities for success. That notion, of course, attacks the very heart of the American idea: an abiding faith in human potential and equality of opportunity for all persons.
In a recent column, William Raspberry asked whether there is "something about poor people themselves" or is it "the way society at large treats the poor that perpetuates their poverty?" He suggests that lack of access to assets, property and jobs is a major cause.
I agree; I've seen a lot of it firsthand. After two years at the Department of Housing and Urban Development, I've discovered that America doesn't have just one economy -- we have, in reality, two economies, separate and unequal. After visiting dozens of distressed communities, I have concluded that our socialist-like welfare and tax systems undermine the poor and perpetuate poverty.
Our mainstream economy is based on democratic and entrepreneurial capitalism. It links individual effort with reward and is based on private property and incentives for work, saving, investment, education and family. But our second economy -- the welfare economy -- is more akin to the Third World socialist economy than to the capitalist West. It is a grim world in which the rules of the market are reversed by government fiat, and where there is too little private property and too much publicly owned and managed property. Human effort and productivity is punished: Those welfare recipients and unemployed fathers who take jobs and get married end up as net losers. When you combine the lost benefits and new taxes, they end up earning less -- in effect paying a marginal tax rate in excess of 100 percent.
As a result, our welfare policies encourage dependency and reward family breakup. They emphasize the transfer of income and require little or nothing in return from beneficiaries except one condition: that the poor remain poor. In a sense, federal welfare and tax policies discourage the poor from succeeding almost as effectively as the Jim Crow laws of yesterday locked out blacks from the political and economic mainstream.
Consider the case of Grace Capetillo, a young welfare mother in Milwaukee, whose case was reported in great detail last year in the Wall Street Journal. She scrimped to save enough to buy a washing machine and, perhaps, someday send her 5-year-old to college. She managed to build a savings account of more than $3,000. But then the county Social Services department took her to court, filing charges of fraud. They wanted the savings, and they also imposed a fine -- a total of $15,545. Capetillo did not, of course, have $15,545; as it turned out, a perplexed judge fined her $1,000 and sentenced her to probation.
But the lesson for Capetillo was all too clear. Not surprisingly, she now spends every cent she gets -- saving nothing; and she relies on government subsidies to pay for just about everything. Her case embodies all the flaws in a failed system: In an effort to minimize economic pain, the present system in effect encourages the low-income family to break up and remain poor.
The good news is that government policies can change; the forces that cause poverty can be reversed. As Michael Sherraden, of Washington University in St. Louis, author of "Assets and the Poor," has written: "America has needed a different welfare idea, an idea more suited to capitalism, oriented toward accumulation and economic independence."
He's right. Acquiring assets powerfully affects the way people think, promoting achievement, inspiring confidence and encouraging planning for the future. As the president recently observed while visiting a St. Louis public-housing community, ownership and property rights become a catalyst for entrepreneurship, upward mobility and dignity.
To those who have said that the Bush administration has no policy, I would reply that we're trying something different: We want to bring the power of homeownership and homesteading to distressed communities by empowering public housing residents to manage and ultimately own their own homes. And to those who have complained that some of our first experiments were too expensive, I would point out that a good deal of that expense is the fault of inefficient local housing authorities. More important, however, is that it may take a substantial investment to get a solid long-term return, but that's still better than what we've been doing.
The president is now seeking $855 million in fiscal 1992 to fund an initiative we call Homeownership and Opportunity for People Everywhere (HOPE); it would create more than 30,000 new homeowners in public and assisted housing and start an additional 60,000 families on their way toward homeownership. With full funding in 1992, an estimated 425 public housing communities could be moved to homeownership, and another 800 communities would start down that path.
The HOPE proposal reflects the radical new thinking behind the Bush administration's domestic policy. Consider the example of Cochran Gardens, a public-housing community in St. Louis under the inspired leadership of resident-manager Bertha Gilkey. Once a picture of decay, drug wars and high crime, Cochran Gardens was slated to be blown up in 1974. When the residents took control from the city-run public-housing bureaucracy in 1976, they reclaimed their community and made it into a showplace of dignity, hope and secure living. Now, residents run a child-care center for 65 children, a transportation system to get workers back and forth to jobs and job-training and drug-prevention programs.
Multiplying success stories like Cochran Gardens is what HOPE is all about. And, to my mind, the Democratic Congress was hypocritical when, instead of funding HOPE, it voted for the largest increase in a decade for status quo programs such as public housing construction.
It is a great irony indeed: From Moscow to Managua, socialism is on the run and governments are privatizing their housing stocks. Yet in the United States, some still support expanding one of the world's last socialistic schemes -- that 50-year-old relic known as public housing. But with more than 100,000 boarded-up vacant units and a legacy of failure, decay and suffering, the last thing the poor need is more conventional public housing construction.
Isn't it time to stop treating low-income people as "sharecroppers," to use Bertha Gilkey's phrase? Polly Williams, the Milwaukee city council member leading that city's education voucher movement, says she's tired of the liberal-left's menu of "giving them baby food."
Poor people don't need more subsistence-level government subsidies. Rather, to help build on the emerging property base of new low-income homeowners, we must ensure stronger economic growth, more jobs and entrepreneurship. And to stimulate entrepreneurship, we must open up the flow of venture capital to minorities and the inner city. Today, billions of dollars in capital remain locked up because high capital gains taxes -- what the president calls "a tax on the American dream" -- discourage the sale of assets.
This doesn't hurt the rich, it hurts the poor -- especially inner-city minorities. Blacks and Hispanics especially have their capital gains in front of them, while the wealthy have most of their gains behind them. African Americans, who represent more than 12 percent of the population, control just one-half of 1 percent of the nation's capital stock. Seventy percent of minority-owned businesses are started with less than $5,000, but even that much is hard to come by when the capital flow is so thin. In that way, Bush's proposal to dramatically reduce capital gains taxes -- and eliminate them in ghettoes and barrios -- is the greatest affirmative action strategy of entrepreneurial capitalism since the Steiger Amendment in 1978 and the Reagan tax cuts of 1981.
If enterprise zones were in place, distressed areas such as Cochran Gardens could be greenlined for growth, jobs and enterprise capital. In New Jersey, for example, the state's enterprise zone program generated 15,700 new jobs and $1.5 billion in added investment in under five years. Despite revenue loss concerns, the New Jersey zone has generated $1.50 in state tax revenue for every $1 in tax reduction. But state enterprise zones are only a glimmer of the benefits the poor would see if powerful new federal incentives were passed.
Our goal is to make capital and jobs so plentiful in distressed communities that opportunity will pursue aspiring poor people. Unfortunately, the Democratic leadership in Congress, which hasn't had a new poverty-fighting idea since the Great Society, is doing more than simply blocking our efforts to revolutionize the system for those who are trying to escape poverty. They are also promoting schemes to redistribute wealth and soak the rich -- schemes that would destroy jobs and capital by taxing away the fruits of enterprise.
"If the system's not helping build a better life," Bush said, "then we must change the system." We're ready. But where's Congress?
Jack Kemp is secretary of housing and urban development.