Tag Archives: oil-to-cash

More on direct cash transfers

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As Chris Blattman put it, the Cashonistas are rejoicing. And with very good reason.

There is mounting evidence that giving money directly to poor people does a much better job of improving their welfare than traditional channels of institutional(ized) aid-giving. On a related note, this evidence lends credence to claims by proponents of oil-to-cash programs. Oil to cash enthusiasts advocate for direct payments to citizens of revenues from extractive sectors (and especially oil) so as to avoid what is commonly known as the resource curse (more on oil-to-cash here). I am not one to argue against evidence, so I am intrigued by the success of Give Directly, and look forward to further impact assessments to ascertain the stickiness of the observed welfare gains.

However, I agree with Brett Keller that we shouldn’t allow the present evidence to distract us from thinking about things like schools, hospitals, business-promoting state institutions, etc.

Despite the within-community evidence of positive effects of direct cash transfers, we shouldn’t forget that these communities do not exist in a vacuum but within political economies of various states. For instance, given what we know about ethnicity and attendant barriers against collective action, what would be the effect of giving all the money to the people and then requiring them to comply with tax regimes and other collective action endeavors?

Furthermore, giving poor people money is often based on an implicit premise that the poor ought to become entrepreneurs and lift themselves out of poverty (People respond to incentives, and we know what would happen if say we guaranteed them direct cash transfers in perpetuity. So the scheme only works if poor people can use the money to start businesses). But entrepreneurship is hard. Even for people with trust funds and super-charged business incubation resources. So is it really fair to require that the objectively most risk averse among us lift themselves out of poverty by starting businesses? Isn’t this the role of the middle and upper middle classes who can tolerate the risk? I am not saying that entrepreneurship is limited to particular classes (lots of people from humble backgrounds have created wildly successful businesses the world over). What I am saying is that as a matter of policy we shouldn’t unnecessarily burden the most vulnerable among us.

Also, to borrow from Huntington, we are well advised to keep in mind that even though economic success leads to stabilization, the process of development can be destabilizing. With this in mind, for most development initiatives to succeed, they need political cover (broadly defined as the ability to shape or influence government policy). Interventions to accelerate growth must never lose sight of this fact. Those who make and/or can influence policy matter a great deal.

This might sound very 20th century, but I think that the best anti-poverty measure out there is still mass job creation by BIG business (and agree with Chris Blattman here). It beats all the pro-poverty pro-poor interventions I can think of. So may be instead of raining cash on the poor it might be better to think of smart ways of jumpstarting the growth of SMEs in the developing world into mass employers. This is not a trickle down economics argument. It is an argument for the continued emphasis on macro reforms in the political economy to provide an enabling environment for mass job creation.

We can’t continue to insist that institutions matter but then turn around and do our best to device anti-poverty interventions that skirt the very same institutions that we insist are the fundamental cause of long-run growth.

Direct cash transfers might prove to be a key part of the shortcut to Denmark (and I hope the successes stick). But like with most shortcuts, the potential for disappointment is a little higher than most of us would like to admit.

On direct cash transfers: a look at US domestic politics of aid-giving

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This is a guest post by my colleague at Stanford, Lauren Prather, who works on the determinants of individual attitudes towards inequality, poverty, and redistribution, in both domestic and international contexts.

Does the American public oppose giving cash to poor people in developing countries? Giving cash instead of in-kind aid like food is a hotly debated subject in development circles and has recently received increased attention from the media. The apparent success of GiveDirectly, a charity that gives unconditional cash transfers to poor people in Kenya, has added fresh fodder to the discussion. Even the Obama administration entered the fray earlier this year by proposing changes to the way U.S. food aid is distributed.

Traditionally, much of the food aid provided by the U.S. government is procured in the U.S. and shipped abroad. The reforms would relax these requirements and include more flexible approaches to food aid provision including possibly giving cash or vouchers to people in poor countries to help them buy food locally.

Proponents of cash transfers argue that the poor know their needs best and therefore giving cash is a more efficient way of providing aid. With food aid in particular, providing aid in kind can be more expensive and can damage local economies by driving out local farmers. Giving people cash on the other hand can allow them to buy food locally, which can be more cost-effective for donors and can actually support local agriculture.

What are the political constraints to reforming aid to include cash transfers to the poor? While most of the opposition to the food aid reforms has come from the farm lobby, public opinion may be another constraint. Indeed, research on American political attitudes suggests that Americans oppose giving cash to the poor, at least to poor Americans. But do Americans exhibit the same level of opposition to cash transfers targeting the foreign poor?

To shed light on this question, I used a randomized experiment embedded in a survey fielded in July of 2013 to a representative sample of 1,000 Americans. In the survey, I gave individuals a fictional news article that described a government hunger relief program. The news article contained two experimental treatments. In the first treatment, I randomly told half of the survey respondents that the program gave the poor cash, while the other half read that the poor were given food. The second treatment was randomized independently of the first treatment: half the respondents were told that the program helped Americans and the other half read that it helped people living in other countries. After reading the article, survey respondents were asked whether or not they thought the government should cut the program. 

ImageThe results were surprising. Among those who read about the foreign hunger relief program, the cash treatment had little effect: 45% of respondents thought officials should not cut the program giving food, while a similar 43% thought officials should not cut the cash program. For those that read about the domestic program, however, the results were more expected: 72% of respondents wanted to keep the food program, whereas only 58% wanted to keep the program that gave the poor cash.

Two important conclusions can be drawn from these results. First, policymakers shouldn’t necessarily look to how the public thinks about domestic welfare programs to predict how they would respond to similar foreign aid programs. Instead, it appears that support for foreign aid remains relatively low regardless of whether the aid is distributed in kind or in cash.

Second, advocates of giving cash to the poor in developing countries need not fear the public; at least not any more than is usual for foreign aid. In the eyes of the public, the real issue seems to be whether to give any foreign aid at all.