The Best Way To Solve Poverty: Just Give the Poor Money

It seems deceptively obvious, doesn’t it? Poverty is absence of wealth, so the solution is to simply give the poor money. The problem is that, in addition to the misery that comes with scarcity, the poor suffer the added stigma of victim-blaming: their economic state is widely seen as a personal failing, a product of laziness, irresponsibility, or stupidity (especially among Americans).

But if one accepts the fact that poor people are no more or less likely to be savvy with money than the rich, then it simply becomes a matter of boosting their material conditions, albeit in a far less paternalistic and bureaucratic fashion than is typically prescribed. Indeed, traditional approaches to welfare are no more effective than the Right’s contention that poor would be better off in a freer market (or spurred into action by cut benefits).  As Bloomberg Businessweek — hardly a leftist source — reports:

A growing number of studies suggest…that just handing over cash even to some of the world’s poorest people actually does have a considerable and long-lasting positive impact on their incomes, employment, health, and education. And that suggests we should update both our attitudes about poor people and our poverty reduction programs.

In 2008, the Ugandan government handed out cash transfers worth $382, about a year’s income, to thousands of poor 16- to 35-year-olds. The money came with few strings—recipients only had to explain how they would use the money to start a trade. Columbia University’s Chris Blattman and his co-authors found that, four years after receiving the cash, recipients were two-thirds more likely to be practicing a trade than non-recipients, and their earnings were more than 40 percent higher. They were also about 40 percent more likely to be paying taxes.

In a second study, Blattman and colleagues looked at a program that gave $150 cash grants to 1,800 of the very poorest women in northern Uganda. Most began some sort of retail operation to supplement their income, and within a year their monthly earnings had doubled and cash savings tripled. The impact was pretty much the same whether or not participants received mentoring; business training added some value, but handing over the money it cost to provide would have added more.
Findings from around the world suggest that giving cash over goods or in-kind transfers is cheaper and more cost-effective, too. Economist Jenny Aker has found that cash transfers are better used than food vouchers in a comparison in the Democratic Republic of the Congo. Unsurprisingly, giving people a food voucher means they purchase more food than they do if you give them cash. But give them cash and they are able to save some of the money and pay school fees, all while consuming as diverse a diet as those who got vouchers. And the cash-transfer program is considerably less expensive to run.

Keep in mind that these are societies where poverty is widespread and endemic, and yet still most recipients knew how to use their money effectively. A presumed “culture of poverty” did nothing to undermine their ability to be self-sufficient when given the opportunity. This success isn’t limited to the developing world either:

Back in the 1970s, the U.S. federal government experimented with a “negative income tax” that guaranteed an income to thousands of randomly selected low-income recipients. (Think of today’s Earned Income Tax Credit, only without the requirement to earn income.) The results suggested that the transfers improved test scores and school attendance for the children of recipients, reduced prevalence of low-birth-weight kids, and increased homeownership. Early analysis of a 2007 cash transfer program in New York City suggested that transfers averaging $6,000 per family conditional on employment, preventative health care, and children’s educational attendance led to reduced poverty and hunger, improved school attendance and grade advancement, reduced health-care hardships, and increased savings.

Additionally, the Canadians also experimented with unconditional cash transfers, with similar success. It seems that no matter the culture or society, most individuals will use whatever resources they have at their disposal as effectively as possible (or at least make the attempt, which would regardless undermine the assumptions made about the competence of the poor).

Most cash-transfer programs do impose conditions—like requiring kids to go to school or get vaccinated, which does improve school attendance and vaccination rates considerably. But Blattman’s research suggests conditions aren’t necessary to improve the quality of life of poor families. In fact, while analysis by the World Bank’s Berk Ozler shows that making cash transfers conditional on kids being in school has a bigger impact than a no-strings-attached check, even “condition-less cash” considerably raises enrollment. Conditional programs increase the odds of a child being in school by 41 percent; unconditional programs, 23 percent. Other studies of cash transfers in developing countries have found a range of impacts that had little or nothing to do with any conditions applied: lower crime rates, improved child nutrition and child healthlower child mortality, improved odds of kids being in school, and declines in early marriage and teenage pregnancy.

So even the fairly successful conditional cash transfers implemented in places like Brazil and Mexico are, in a sense, unnecessary. While they’re definitely great steps, ultimately most poor people don’t need to be told the best way to spend their money. Indeed, as the article concludes:

It is comfortable for richer people to think they are richer because of the moral failings of the poor. And that justifies a paternalistic approach to poverty relief using vouchers and in-kind support. But the big reason poor people are poor is because they don’t have enough money, and it should’t come as a huge surprise that giving them money is a great way to reduce that problem—considerably more cost-effectively than paternalism. So let’s abandon the huge welfare bureaucracy and just give money to those we should help out.

Of course some will inevitably squander it out of greed, negligence, or simple error — and again, they won’t do this any more than many wealthier people do — but by and large, the majority will put it to good, sustainable use. They’ll put into the economy, which is driven by consumer demand, or into small businesses and education, which will also benefit the economy. In essence, such cash transfers are an investment.

Obviously, such an approach won’t resolve the systemic factors responsible for poverty — the lack of well-paying jobs, an economy driven too much by short-term profit and consumerism, the increasing expensiveness of education and healthcare, and so on — but it’s a fairly simple start, and the money wasted on inefficient programs — among other things — might be better spent going straight into the hands of poor people just waiting to tap into their own potential.

What do you think?



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