Poverty Rx: Cash Payments Are Best Way to Help Poor, Study Finds

How do we end world poverty? Boy, that's a head-scratcher. It's right up there with "Does God exist?" and "What's the meaning of life?"

And here's a radical answer: Give the poor some money. And don't tell them what to do with it. Sounds crazy, right?

Not according to three scholars in the United Kingdom. In a new study titled "Just Give Money to the Poor," Joseph Hanlon, Armando Barrientos and David Hulme argue that giving small amounts of cash on a regular basis to poor people may actually be the most effective way to lift developing countries out of poverty.

The scholars ground their argument in reams of empirical data gathered from cash transfer programs across the developing world. They cite programs like India's National Employment Guarantee Act, which provides 100 days of employment in every financial year to adult members of any rural household willing to perform unskilled manual "public works" at the statutory minimum wage. Or Brazil's Bolsa Família program, which provides financial aid to indigent Brazilian families on the condition that their children attend school and are vaccinated.

According to the authors, small transfers of this sort help provide access to economic opportunities and vital health and education services for very poor households. And they aren't distributed randomly; rather, the programs carefully select and monitor recipients to ensure that they are well informed about objectives, and administrators also track outcomes. And so far, at least, they appear to be working.

So what makes these programs different or "revolutionary" (the subtitle of the book is "The Development Revolution From the Global South")? For starters, unlike a lot of contemporary development assistance, which comes in the form of "projects," these programs all come in the form of money.

So you don't have aid donors -- whether it's individuals, like Bill Gates; international non-governmental organizations, like Oxfam; or government agencies, like USAID -- deciding that X region in Ethiopia needs a new dam or Y municipality in Mexico should have a new school (and then financing it). Instead, the poor people in these regions receive a chunk of money and then decide where to invest it themselves. This frees poor people from the endless summits, red tape and reporting requirements that so often clog up the corridors of the international development industry.

Which brings us to the second crucial difference: local input. Projects like those listed above were generated from the ideas of poor people themselves. They are very much premised on the notion that poor people can be trusted to figure out what's best for them and to use the money prudently to achieve those ends. And it appears that they do. In this way -- and much like the whole school voucher movement in the United States -- there's a very strong anti-paternalism thread running through this line of development thinking. This is "bottom up" development of the sort long championed by former World Bank economist-turned-foreign-aid-basher-in-chief William Easterly. Easterly has long argued that the international aid community needed to shift from being a "planner" of development projects (which often fall prey to corruption or misuse) to a "searcher" of worthy, locally generated, well-monitored development opportunities.

There are unquestionably some problems with this method of assistance. For starters, there are debates within the development community over things like particularism vs. universality. Do you carefully target the recipients of these programs among the very poor -- which may be more economically efficient -- or do you extend them to wide swaths of the population, which may be more politically popular but also more expensive?

Another debate swirls around conditionality. Do you give cash to poor people and expect nothing in return? Or do you -- as in Brazil's Bolsa Familia program -- ask recipients to send their children to school or get a vaccination in exchange for the money? So far, at least, it isn't clear that imposing conditions actually improves outcomes.

Then there's the question of public goods. Sure, local entrepreneurs might be best positioned to decide whether to invest their cash transfer in building a dam or buying a sack of fertilizer. But what about classic public goods, like education and health care? Who's supplying those? As Duncan Green, head researcher for Oxfam Great Britain, points out on his blog, cash transfers increase demand for things like schools and hospitals, but that can be pointless if their quantity or quality does not respond in turn. In other words: don't you still need a reasonably strong state to respond to this increased human capacity at the local level?

Which brings us to corruption. I was listening to an interview with David Hulme about this book on the BBC and was struck by the inordinate faith he has in developing country governments -- national, state and local -- to implement these programs in a responsible way. Because at the end of the day, even if the poor are receiving cash transfers and deciding how to spend that money, the agency handing out the cash and checking up to see that it's being used wisely is a governmental one. Hulme's response was that -- to the extent that cash transfers are financed through taxes (as is the goal in the medium to long term) -- taxpayers will have a strong incentive to monitor carefully what happens to government revenues. Maybe so, but last I checked (and I think I've got world-renowned economist Paul Collier on my side), the thing developing countries are most short on these days are accountants -- which is a proxy for the sort of transparency and accountability that cash transfers require.

Finally, and most interesting to me, anyway, is the question raised by Oxfam's Duncan Green about the politics of these programs. He wants to know such things as: Why do they start? How do they spread? And, crucially, how do you prevent them from tipping over into just another form of patronage?

Hopefully, some enterprising, newly minted Ph.D.s are giving some thought to these more fundamentally political questions about state capacity and the potential politicization of social transfers.

But this isn't just an academic question. Earlier this week, Congress voted to cut nearly $4 billion in aid to Afghanistan after it was discovered that large amounts of cash were never reaching their intended recipients. Rather, the money was being flown out of Kabul by (presumably) corrupt allies of the Karzai government.

So we've all got a stake in figuring this out . . . and quickly. I recently read that USAID has opened up a policy planning shop to enable the agency to think more strategically. Maybe this question of how best to deliver foreign aid ought to figure high on its to-do list.

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