Why cash transfers to the poor are not the next big thing

Good sales pitches do not include nuance. The politically savvy know to go for the simple, sexy, even vulgar message. This is a long honorable tradition. Generations of idealistic readers have gotten giddy at The Communist Manifesto and fallen asleep through Das Kapital.

I’ve recently had a series of papers and posts with pithy titles, such as “Dear governments: Want to help the poor and transform your economy? Give people cash.” It’s gotten more attention than I expected, even a mention in the New York Times.

I believe my message. But here’s why you shouldn’t take it too far.

First, the message can be misunderstood. It is not, “Cash transfers to the poor are a panacea.” More like, “They probably suck less than most of the other things we are doing.” This is not a high bar.

Second, cash transfers work in some cases not others. If a poor person is enterprising, and their main problem is insufficient capital, terrific. If that’s not their problem, throwing cash will not do much to help. I recommend the paper for details. Apologies: It is even more boring that Das Kapital.

Third, a cash transfer to help the poor build business is like aspirin to a flesh wound. It helps, but not for long. The real problem is the absence of firms small and large to employ people productively. The root of the problem is political instability, economic uncertainty, and a country’s high cost structure, among other things. A government’s attention is properly on these bigger issues.

If I were an enterprising young researcher looking for an idea and experiments that will prove powerful in five years, I would try to find the stake I can drive into the heart of the cash transfer movement.

My rule of thumb in this profession: “If the New York Times covers a research paper, the next year we will learn that it’s wrong”.

This is not a criticism of the New York Times. Single research papers are usually wrong. The Times catches the swell of the most interesting and sexy, and increases their attention and profile. A flurry of new studies ensue. The faults are laid bare. Yet another panacea crushes the hopes of the hopeful.

That is not depressing. That is science. We should welcome it.

In that spirit: I look forward to the stake-wielders. I’ll unbutton my shirt for you.

152 thoughts on “Why cash transfers to the poor are not the next big thing

  1. I found your post on conditional cash transfers pretty consistent with my recent take on on the Duck of Minerva on RCTs and project-based development, what works at the micro level might not transfer at scale. Moreover, if the political problems at the top create an adverse climate for entrepreneurial activity and the poor below, lots of luck trying to use levers like conditional cash transfers to make a dent.

    http://www.whiteoliphaunt.com/duckofminerva/2013/06/is-there-a-right-way-to-do-development.html

  2. Several years ago, Japan opened its financial doors to its citizens and loans were issued to anyone who asked, as a result, Japan’s economy had more than hiccups.

    WB’s CCTs do nothing to address poverty. It only served to further bloat the national debt burdens of heavily debt-ridden developing nations, which means, more social services have to be scrapped to pay it off + interest.

    By the way, how many developing and underdeveloped nations had to revise their national threshold criteria by lowerig the daily food requirement of an individual? Anyone? This surely would look good for that nation on paper, with a large chunk of impoverished disappearing from the database. Something rosy to report at the culmination of MDG. But people are not fooled.

  3. “The root of the problem is political instability, economic uncertainty, and a country’s high cost structure, among other things. A government’s attention is properly on these bigger issues.”

    What about well-meaning private individuals? I’m not a government. A lot of people (like me) like to have a small giving portfolios, but it’s hard to see how I would tackle “political instability” or “a country’s high cost structure” as a private, middle-class citizen. It’s much easier to confidently donate to a global health org, for example.

    So wouldn’t something like GiveDirectly fit nicely with that portfolio?

  4. Interesting your mentioning Das Kapital. As researcher based in the global south my research agenda is increasingly focussed on the behavior and actions of the kleptocratic elite. Was standing at a red light when a maroon Bentley stopped. A young woman and two children were begging on that street. The passengers of the luxury car lowered their car windows and the chauffeur tossed out the remnants of their half eaten meal cartons. Question was it merely an accident of birth that led to one family being given extraordinary wealth and other condemned to poverty. The extent of tax evasion would suggest otherwise. More important most of large businesses obtain enormous hidden or not so hidden subsidies in exchange for kickbacks. All hidden overseas.

  5. I have to say, after reading the Foreign Policy article slamming Sachs and his defensiveness with regard to the Millennium Villages, this candor is very refreshing.

    It would be nice if more researchers, especially in areas as important as this, showed the same intellectual honesty.

  6. “If a poor person is enterprising, and their main problem is insufficient capital, terrific. If that’s not their problem, throwing cash will not do much to help”
    Giving K to an enterprising poor is not enough. There should be other considerations other than some business acumen, such as the tools of the trade, and buffer funds, so the K won’t be touched in case of an unforeseen hiccup or emergency. Otherwise it would be unsustainable and the K would shortly dissipate into thin air. After all, cash transfers should not be treated as some kind of a candy shower when we were kids.

  7. Indian Government had started the ambitious direct benefit transfer (DBT) scheme on January 1, 2013. UNICEF-SEWA joint study on direct cash transfer, implementation in large scale will not lead to any misuse of money. Self Employed Women Association (SEWA) having membership of around 17 lakh entered into a partnership with UNICEF to pilot an unconditional cash transfer (UCT), or basic income grant experiment in rural areas of Madhya Pradesh. The study done in these rural areas covering 20 villages revealed that recipients of UCT were significantly more likely to contribute to their dwellings.

    Direct Cash Transfer are working good when the beneficiary is identified correctly. Who are these beneficiaries and how to identify them. A pretty useless and a stupid question to ask if it was pertaining to India. Identification is not a statistical exercise, but is a major political activity at ground level. Hence, even with good schemes like DCT nothing can work with money going through non existing beneficiaries into corrupt bureaucracy and political leaders.

  8. @chrisare, You just gave me an idea: somebody should write the Jeff Sachs version of this blog post. If it were Jeff’s experiment, his paper, and his publicity, this blog post would NOT say “You should prove me wrong” and “governments should focus on other things,” it would say “We have proven that we can end poverty,” and “We are going to further prove that we can end poverty,” and “We will need help from governments around the world to help us implement this proven strategy for ending poverty / further prove that we can end poverty.”

  9. Dear @author

    This article is nihihilstic and you’ve just ripped my wonderful 3 minutes of time. No solution, no alternative and no other perspective provided.
    Keep on focusing on the stuff you’re good at.

  10. The global economy is suffering from a lack of spending. The obvious and correct solution is to give money to the poor, as they are guaranteed to spend it.

  11. Giving money to the poor should be in a framework that would allow them to exit poverty, and not just get by for a day or two. The money should be sufficient for them to engage in a livelihood activity that could get them out of poverty.

  12. The author presented a problem. We the people involved in addressing poverty, together with the impoverished, need to think outside the box and formulate new solutions, since most of the old approaches do not work.

  13. “We have proven that we can end poverty,” and “We are going to further prove that we can end poverty,” and “We will need help from governments around the world to help us implement this proven strategy for ending poverty / further prove that we can end poverty.”

    Relying on the government already buries your program halfway down its grave. The governments in areas where there’s high incidence of poverty are running the very mechanisms that keep people in abject poverty. Look at Africa, Asia, and Latin America, even the Middle East.. Campaign promises do not translate into actions of fulfillment.

  14. It’s a LOT simpler than that.
    Where did the cash GO, in order to create all this poverty (inequality)?

    TAKE IT BACK.

  15. @Rodney Hytonen I am not sure if you are joking, since history, past and present, is replete with records of exploitation and oppression of peoples in different nations by their own monarchs, government leadership, or other more advanced countries. Wealth is not all cash. Diamonds of Africa did not make the African people rich. Heard of the horrific treatments of African people subjected to forced labor to get those diamonds? How one nation’s natural minerals and lumber get depleted by another? Of course, I could only surmise you know of these. The Arab Spring, a phenomena in our recent history that woke the suffering Arabs to action and toppled down their corrupt leadership, should still be fresh in your mind, correct? In the Philippines, when the tyrant dictator Marcos was dethroned by a peaceful show of people power, found 3 thousand pairs of shoes of Imelda Marcos among others. Some of their ill-gotten wealth had been retrieved, and still more to go, They were in stashed in Swiss and Carri bean banks, invested in prime real estate…so yes, taking it back is just one aspect, but identifying and locating them takes a lot of expense, time, and effrts. But I believe you know all these, and that you were only joking, right?

  16. @Rodney Hytonen I am not sure if you are joking, since history, past and present, is replete with records of exploitation and oppression of peoples in different nations by their own monarchs, government leadership, or other more advanced countries. Wealth is not all cash. Diamonds of Africa did not make the African people rich. Heard of the horrific treatments of African people subjected to forced labor to get those diamonds? How one nation’s natural minerals and lumber get depleted by another? Of course, I could only surmise you know of these. The Arab Spring, a phenomena in our recent history that woke the suffering Arabs to action and toppled down their corrupt leadership, should still be fresh in your mind, correct? In the Philippines, when the tyrant dictator Marcos was dethroned by a peaceful show of people power, found 3 thousand pairs of shoes of Imelda Marcos among others. Some of their ill-gotten wealth had been retrieved, and still more to go, They were in stashed in Swiss and Carri bean banks, invested in prime real estate…so yes, taking it back is just one aspect, but identifying and locating them takes a lot of expense, time, and effrts. But I believe you know all these, and that you were only joking and feigning ignorance where all the cash went, right? Surely you also know that self-enriching government leaders (be they enthroned by popular will or were born to it) acquired wealth, and not all of the wealth are in the form of cash. Surely you had learned these in your History and Economics lessons.

    Aslo, I am inclined to believe that you also know, that simply taking back wealth from these corrupt government leaders will not end poverty for it requires a sustainable and genuine program to address poverty. It is sometimes good to have a sense of humor when faces with issues affecting the quality of lives of millions.

  17. Is the point not that we shouldn’t be comparatively evaluating single intervention strategies such as CCTs. Doing so give’s the impression of a panacea even if that is not how it is meant. A donor hears a one-liner ‘CCTs good’ and proceeds to implement them across the board regardless of the caveats. Better would be to evaluate the efficacy of well implemented systemic change programmes with multiple complimentary interventions aimed at poverty reduction and compare them with individual interventions such as CCTs. Often the poor’s problem is that they are poor but giving them cash will only change that temporarily. Changing the system that created that poverty is far more likely to have longer term impacts.

  18. “In that spirit: I look forward to the stake-wielders. I’ll unbutton my shirt for you.”

    Your humility and faith in ego-less science are truly commendable.

    Perhaps you can run some RCTs to find ways to propagate these traits into the rest of academia?!

  19. Will cash transfers if badly handled increase dependency.
    One of the problems is that food dependency could be replaced by cash dependency. The governments want production not dependency.
    So many aid organisations say it is a problem but just keep adding to it. They don’t know what to do.