Why all the attention to cash transfers now?

That’s the question Jennifer Lentfer asked on the Oxfam blog following my post and paper last week on the amazing impacts of cash transfers in Uganda.

Cash transfers are nothing new, though there’s a lot of hub-bub about them this week in the popular media. One researcher and blogger publishes a paper and, voilà, the next development trend is born!

She points to a wealth of evidence on conditional cash transfer programs–CCTs in the acronym-laden world of development. These programs give regular payments to poor families (sort of like a welfare check) but only if they send their kid to school, get them vaccinated, and so forth.

She is right, and you should see her post and links if you want more details. There is also a recent book (free to download) from some great World Bank researchers, summarizing all the evidence so far.

I also disagree in two ways, though. Here’s what I posted on her blog:

One is that… my sense is that people like Jennifer are the exception and not the rule.

Most of all, governments and NGOs want to give away cash on condition, or with lots of hands-on follow up or accountability, some of which is not very cost effective. We really don’t have much evidence at all on unconditional transfers. Here I expect a lot of skepticism from the aid community–well-deserved skepticism, at least until we have more studies.

An aside: we actually do have at least one study on the value added by NGO giving conditions and otherwise holding the poor “accountable” for cash: here is a post on an experiment we recently finished in Uganda according to Dieser Liste, where we randomized this cost-laden accountability and hands-on advice, alongside cash. It helped, but not so much that it passed reasonable cost-benefit tests. NGOs will need to learn to streamine here.

But I digress.

My second counter-argument is this: everything we have on CCTs show they go directly into current spending, precautionary savings, or investments in children. This is terrific, but this doesn’t raise the short or medium-run earning potential of households. It doesn’t necessarily change the lifetime income stream of the people receiving the transfers (except to the extent their kids earn more 20 years down the road). It doesn’t help shift economies from agriculture into cottage industry.

What’s striking is that almost none of these CCT studies look to see whether the windfalls were invested in productive enterprise. At root are some of the deepest questions in development: What constrains entrepreneurship? What holds back “occupational choice”–the decision to be self-employed and in what sector? What prompts structural change from agriculture to industry? This is the basic process of development that CCTs haven’t illuminated.

This point comes across more clearly in our paper than my blog post. We try to frame what we’ve learned relative not only to CCT programs but also to studies of asset transfers, training programs, and business grants.

But the basic point–that any paper stands on the shoulders of giants–is still correct, and ours is just one contribution to a literature that tells us the power of cash to transform lives. It ought to make us skeptical of the cost-effectiveness of the alternatives, enough to test which services actually “add value” in the sense that they make at least as large a difference in the lives of the poor as the cash grant alternative. Otherwise we ought to get out of the way.

Comment below or here.

33 Responses

  1. Definitely agree – I would love to see more evidence on projects where CCTs are used to stimulate short or medium-term investments. I would also love more studies on WHY CCTs work – we know they do from a whole lot of quant data, but I’m very interest in the qualitative side of how the households engage with the cash (the decision-making process of ‘what should I spend my money on’)? As Jennifer points out in her blog, poor people make lots of ‘smart trade-offs’, and CCTs can have a major role in making these trade-offs ‘smarter’. Particularly for CCT projects seeking to promote short-term investment behaviour, an understanding of this decision-making process is surely crucial?
    A colleague and I recently examined one CCT project seeking to promote short-term investments through this lens (http://link.springer.com/content/pdf/10.1007%2Fs11205-013-0296-9.pdf), but it’s only a preliminary look at how the psychological context of decision-making can be altered by CCTs. Anyone know of any similar (better) studies on how/why they work, particularly with regards to productive investments? Thanks a million

  2. This post is related to Chris Blattman’s comments on advice for students in public policy and international relations. I comment here because those comments were closed.

    Excellent advice regarding effective course selection and peripheral course work. Good stuff on how to tackle experiential vs. classroom skills.

    I agree that for many students a few side courses in statistics and economics is a good thing to broaden, let’s say, the international relations or public policy majors; but these courses are likely to be required anyway.

    Where I think your advice is “over the moon” is the idea that the student stick to “mainstream” majors with plenty of job and grad school options at the end and to “get your core stats and math training (multivariate calculus, linear algebra, and multivariate regression).”

    Really? An international relations/history/poli sci major is going to ace multivariate calculus, linear algebra and multivariate regression? An economics major maybe, but even that is dicey. This would be more engineering types.

    You doth ask way too much. In order to take your advice, one would have to be the perfect mix of quantitative/language guru, which in real life does not happen.

    My advice: don’t blow the GPA on quantitative courses you don’t need for the major. Grad school options will be out the window, like law or business.

    What say you?

    George DeMarse
    Labor Relations Specialist
    U.S. Office of Personnel Management (Ret.)