I don't believe it was society moving away from keeping Pete institutionalized. It was a very deliberate action by the Reader administration to shut down scores of institutions, essentially shoving people out on to the street.
It was both. Advocates were screaming for community based care. Other advocates were demanding an end to compulsory commitment, vagrancy/drunkenness laws and other reforms.
The politicians said "Yes!", over promised, under-delivered and kept everyone happy except for the ones who have little or no voice -- the folks who need help.