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

Thursday, May 15, 2014

International development philanthropies have been testing out a simple solution to a complex problem. Can we help the poorest people in the world by just giving them money? If so, how about giving them money with no strings attached? An idea that simple to solve a problem that complex must be met with skepticism, especially from groups that thrive in the existing top-down international development aid structure.

Yet philanthropists and development experts were intrigued enough to put money toward pilot projects, research efforts, and groups such as GiveDirectly. Such success led the Center for Global Development, based in Washington D.C., to convene experts and practitioners from the World Bank, UNICEF, and Tufts University to discuss whether cash transfers can provide a “benchmark” to other international aid programs. Cash’s liquidity can facilitate an “apples-to-apples” comparison for impact evaluation. That means the day may soon come when top-down-oriented programs will have to prove their value vis-à-vis direct cash.

The arguments for and against unconditional cash transfers to the poor reveal many personal and societal assumptions.

Here are some of the arguments against cash transfers (at an admittedly simplistic and caricatured level), followed by rebuttals in parentheses:

• Poor people are irresponsible and cannot handle money. They will spend it on temptation goods (the rebuttal was: you mean something like shoes?).
• Poor people can only make short-term investments, but the goal is long-term development (the rebuttal was: what if they know what that looks like better than we do?).
• Giving them money raises a moral hazard. They will work less (This argument is made domestically by Rep. Paul Ryan and others in relation to food stamps and other types of “welfare.”) (the rebuttal was: the empirical evidence does not show moral hazard; and in cases where people are now “working less” it may mean instead of working an 18-hour day they are now able to work “only” a 16-hour day.).
• When the cash flow stops they will revert back to how they were before (the rebuttal was: this is currently being tested).
• Cash will be easily intercepted and only lead to further corruption (the rebuttal was: technology may enable a better direct line to the recipients via cell phone; top-down programs are also plagued by corruption; in fact, corruption is rampant so is neither an argument for or against any specific type of development aid).