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What a Concept: Alleviating Poverty by Giving Money to the Poor

Posted: Sat, September 20, 2014 | By:

by Douglas Cruickshank

After I’d been living in rural Africa for a few months, I remarked to an American friend, “Based on careful analysis, I’ve discovered why people here are so poor: They don’t have any money.”

Poor people don’t have money. When they get money they become less poor. Sounds staggeringly obvious, but you’d be surprised how convoluted, dysfunctional and tangled up in bureaucracy that equation becomes once governments and the big foreign aid organizations—the Do-Gooder Industrial Complex—get involved.

this essay was first published on Douglas’s blog HERE

The roots of Third World poverty, why it’s so tenacious and why First World solutions are often so impotent, have long been explored by jumbo intellects ranging from Frantz Fanon to Dambisa Moyo, not to mention jillions of studies done by various government agencies, foundations, universities and NGOs. But now comes a refreshingly simple idea that finally may be getting traction: The best way to alleviate poverty, it contends, is to give poor people money—without any conditions.

In a recent article in Slate, The Best and Simplest Way to Fight Global Poverty, Matthew Yglesias asks,

“Poverty is, fundamentally, a lack of money. So doesn’t it make sense that simply delivering cash to poor people can be an effective strategy for alleviating it?”

Yglesias continues,

”...there’s striking new evidence that helping the truly poor really is as simple as handing them money. Money with no strings attached not only directly raises the living standards of those who receive it, but it also increases hours worked and labor productivity, seemingly laying the groundwork for growth to come.”

The evidence Yglesias cites is drawn from an experiment carried out by Christopher Blattman of Columbia University, Nathan Fiala of the German Institute for Economic Research, and Sebastian Martinez of the Inter-American Development Bank. In their report on the project, The Economic and Social Returns to Cash Transfers: Evidence from a Ugandan Program, they explain,“We follow thousands of largely unemployed youth two and four years after receiving grants worth twice their annual income. Most invest the transfers in vocations and earnings rise by at least 40%, especially among the more credit-constrained, patient, and risk-averse.”

I’ve had some experience in recent years with giving away money, or enabling its influx, in a rural African community and I’m happy to report that the results were excellent, and in more than one instance had an unexpected ripple effect, spawning several successful small business ventures—“IGAs” in foreign aid speak: Income Generating Activities.

Also, when living in Africa, I had extensive dealings with some of the large U.S. government aid agencies, as well as those of several foreign governments. I’m convinced the double hernia I got while working in Uganda was due to filling out aid agency forms and grant applications, not to mention the follow-up quarterly reports that are due once a project is funded, and also not to mention many long, tedious meetings with aid agency staff who, with a couple glowing exceptions, were often patronizing and condescending to the farmers I was working with.

I didn’t come away a big believer in how foreign aid works. I’m glad it’s there, I guess. I think people do benefit sometimes. And I suppose it’s better than no aid at all…or is it? Over time, what I saw that turned me off to the Do-Gooder Industrial Complex was enormous waste coupled with the glacial pace at which things get done.

One example: in Uganda, and I suspect this is the case throughout Africa, there is a virulent, widespread epidemic of “workshops,” “seminars,” and “trainings” that are a mini-industry all their own under the umbrella of the foreign aid establishment. Many, if not most, of these events are utter wastes of time and lots of money. They’re typically held at big hotels, with three buffets a day interspersed with various classes, discussions, breakout sessions and so on—the formulaic time sponges of the aid agencies. This is all delivered under the banner of capacity building, a phrase that gets trotted out incessantly by aid agency personnel as a rationale for these activities. There are some events that serve a purpose and are genuinely enriching, certainly, but just as certainly about 80 percent of them could be done away with and the average peasant in Uganda—the vast majority of the population—would suffer no consequences. However, if the money spent every year on these mildly lavish affairs was instead distributed to rural villagers, improvements in quality of life would be felt immediately.

A few weeks after the Yglesias article in Slate, Annie Lowrey published an interview with Christopher Blattman in the New York Times, Ending Poverty by Giving the Poor Money. Lowrey’s introduction to the interview begins,

“Can you alleviate poverty by just giving money to the poor?

“It seems like a tautology, sure. But for development experts, it is a subject of serious research. Say you give $100 to a poor person in a developing country with no strings attached, rather than providing goods or services like food or schooling, or $100 to use for a specific purpose. Does the money simply provide a one-time boost to her consumption? Or might it help her make longer-term investments, raising her standard of living down the line? And if it does help her down the line, might such cash transfers be underutilized as a broad development tool, too?”

Lowrey starts the interview by asking Blattman:

“This paper seems to imply that there’s some low-hanging fruit in development – that these cash infusions might have profound development consequences, and might be underutilized as a development tool.”

Blattman replies,

“The answer is yes in some cases. The answer might be yes in many or most cases. I think we still don’t know.”

Actually, we do know. The answer is yes. Period. At least according to my research—100 percent of the time. I have several concrete examples, but I’ll describe just one, the one that was the most surprising, thus the most satisfying to see.

While I was still living in Uganda, a group of friends of mine in the states contributed to an effort I coordinated to buy supplies for the local school—books, wall charts, sports equipment and maintenance tools, notably a gas-powered grass trimmer. All the grass, for miles down each side of the roads and anywhere else that needs clearing, is cut by hand, by men swinging machetes. A gas-powered trimmer makes such a chore much easier and faster. So, what the school was able to do once it got its trimmer was easily expand its playing field to regulation size, then keep it neatly maintained. This made the field very popular and it became the field of choice when local schools competed with each other. (Soccer, or as it’s called in Uganda, football, is nearly a religion there.)

Many exciting football games started being played on the field, and where there’s exciting football, there are crowds. And crowds get hungry. So naturally the local women, who all seem to be genetically entrepreneurial, started coming down to the field on game days to sell food to the hungry spectators. On the day I attended an exhibition game, there were a dozen or more such women. They were making chapatis, roast corn, muchomo (roast meat on a stick), and various other food. But more important they were making money selling these snacks to the crowd. And it was happening, and is still happening, once or twice a week, sometimes more frequently—a very helpful supplement to their income as subsistence farmers; the typical income in that area is about $1 per day.

This wasn’t something we ever thought of when we gave money to the school, but it’s the kind of thing that happens frequently. The people in the village where I lived—typical Ugandans all—were enormously resourceful and astute at creating IGAs. What they lacked was seed money. And in the case of these food vendors it wasn’t even given to them directly. However, their businesses, lucrative by local standards, were a direct result of a no conditions grant given to the school. (In several other cases, I’ve been involved in directly funding small business ventures—a clothing vendor, a woman selling palm oil, a young man starting his own carpentry shop—and seen uniformly positive outcomes.)

In the Slate piece Yglesias writes of the funding experiment:

“The government announced plans to give roughly a year’s worth of average income (about $382) to young people aged 18-34. Youths applied for the grants in small groups (to simplify administration) and were asked to provide a statement about how they would invest the money in a trade. But the money was explicitly unconditional—parceled out as lump sums with no compliance monitoring… The results show that the one-off lump-sum transfer had substantial long-term benefits for those who got the cash… recipients of cash grants acquired much larger stocks of business capital and thus earn more money—a lot more money. Compared to the control group [who received no money], the treatment group saw a 49 percent earnings boost after two years and a 41 percent boost after four.”

To put it in scientific terms: Wow. I believe that small, no conditions grants are the way to go as a means of having a direct impact on rural poverty in Africa. Forget the mind-numbing applications, the endless Excel sheets, the quarterly reports, the workshops and trainings, the buffets, the parades of giant aid agency SUVs rolling through small villages. Just identify good people in need and give them money—and a break.

Douglas Cruickshank is a writer and photographer. His book, Somehow: Living on Uganda Time, will be published in November 2013. Upcoming projects include two anthologies, Been There, Smashed That and Other Essays about Artists & Writers and Do They Serve Oat Muffins on Doilies in Hell? Travels in a Parallel Universe.


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