From what I know of the time, it wasn't just an imperfect system, it was an imperfect system with rampant opportunities for abuse.
Have you ever read about the Magdalene Asylums?
To my knowledge it wasn't the less-than-perfect parts of institutionalization that caused us to get rid of them, it was the abuse of aspects of those systems that caused us to abandon them, and thus it is the abuse of those systems to which we should probably compare our current solution.
One possible missed opportunity of course- institutionalization has been marked, and may never be seriously considered again. Yet it's possible with sufficient oversight it could be a useful system.