NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, December 13, 2013

Rather than building schools and clinics, or donating solar lights and cows, is the best way to fight global poverty simply to give poor people money? That’s the question a group of smart economists are testing, and their answers could stand the multi-billion dollar aid industry on its head.

In an effort to unpack the promises and challenges associated with unconditional cash transfers (UCTs), I hosted a conversation at the Council on Foreign Relations last month with Paul Niehaus, an assistant professor at UC San Diego, and the co-founder of GiveDirectly, an innovative NGO implementing and evaluating a cash transfer program in Kenya; and Chris Blattman, an assistant professor at Columbia University and popular blogger whose research is also breaking new ground on cash transfers.

The most common concern about UCTs is that recipients will squander the money on detrimental activities such as drinking, gambling, and prostitution. To test this theory, Blattman conducted a field study in Liberia and selected participants not known for financial responsibility – drug addicts, former combatants, criminals, and the homeless. The preliminary results defy expectation: the Liberian recipients did not blow their cash on guilty pleasures. Instead, they spent it on useful things like clothing and shelter, and bought wholesale goods to start their own small businesses. Few of the criminals-turned-entrepreneurs succeeded in keeping their businesses afloat — likely due in part to the tough economic conditions in the post-conflict country, and the fact that, as microcredit programs have shown, not everyone is cut out to be an entrepreneur. Still, even with no strings attached, the Liberian participants generally made good efforts to invest in and improve their quality of life.