Poverty and the Problem of Opportunity: Examining the War on Poverty and a Social Capital Approach to Building Long Term Wealth

Abstract

The American neighborhood is far more than a collection of homes, families, and individuals, but rather is representative of social status, a quality of education, and access to economic opportunity. Understanding neighborhoods to be the gate of the ‘American Dream,’ President Lyndon B. Johnson signed the Economic Opportunity Act of 1965, a novel piece of legislation aimed not just at ameliorating poverty but eliminating it altogether. The key innovation of Johnson’s EOA was in its emphasis on tackling destitution at a local level through community action agencies. These agencies bypassed the typical governmental bureaucracy to efficiently connect communities with epistemic and economic resources which empowered communities to achieve their own success.

Shifting political currents and rising racial fear, however, brought the demise of the EOA before it had an opportunity to deliver neighborhoods out of poverty. Likewise, a legacy of slavery, intentional discrimination, and denial of equal access to opportunity commingled poverty thoroughly with race, leaving concentrated pockets of Black destitution. Frustrated and under resourced, these minority communities became the foot soldiers of the Civil Rights movement that pushed the Johnson administration into signing the EOA, the Civil Rights Act of 1964, and the Voting Rights Act of 1965. At the same time, however, racial unrest and protest also led Johnson to pursue an agenda of bolstering local police forces—a trend of militarization that would be continued by each successive president.

This study explores the political and racial undercurrents that contributed to the ‘tough on crime’ mindset that invaded the political scene. To conduct this historical analysis, this study defines a new operationalization of social capital—the market model of social capital—which evaluates economic conditions as a function of two levers: the level of community trust, defined as ‘virtue-based social capital,’ and the level of community resources, defined as ‘asset-based social capital.’ The market model of social capital effectively explains how various policies and events built the spatially and racially stratified landscape of poverty seen today. In addition, this thesis models economic conditions quantitatively, using a nationally representative data set to model future income levels as a function of community virtue and asset-based social capital and several neighborhood characteristics. The results of this empirical analysis emphasize both the importance of social capital and the relevance of real estate in improving economic conditions for impoverished communities.

Understanding social capital as an avenue to ameliorate poverty, this thesis concludes by proposing an innovative policy that would build cooperation and economic agency at the neighborhood level by providing communities with opportunities to invest in local real estate projects. Facilitating these investment opportunities has two parts: providing impoverished communities with access to capital and incentivizing real estate development in low-income or adjacent areas. The first task can be accomplished by exploring the flexible loan structuring Microfinancing Institutions provide. The second task could be achieved by expanding traditional public-private partnerships to include non-profits, philanthropies, and community investors. The hypothesized consequences of this bipartite policy are increased local cooperation, financial literacy, and wealth accumulation.