

Research Finds Outright Grants of Cash are an Effective Form of Aid to the Poor - jervisfm
http://news.columbia.edu/global/3240

======
cjbprime
If you find this persuasive, consider donating to
[http://www.givedirectly.org/](http://www.givedirectly.org/), which performs
unconditional cash transfers to the poorest people in Kenya.

Give Directly is the subject of this writeup[1] on GiveWell, and this
excellent episode[2] of This American Life.

[1]: [http://www.givewell.org/international/top-charities/give-
dir...](http://www.givewell.org/international/top-charities/give-directly)

[2]: [http://www.thisamericanlife.org/radio-
archives/episode/503/i...](http://www.thisamericanlife.org/radio-
archives/episode/503/i-was-just-trying-to-help)

~~~
jcroll
Why not hand the next beggar you see a $20?

~~~
justinpombrio
Presumably because $20 goes further in Kenya than in wealthier countries.

~~~
jcroll
My only point is that to me, giving cash to Kenyans and giving cash to beggars
seems morally equivalent. Not saying you shouldn't do either _but_ I do think
if you give Kenyans cash but have qualms with giving beggars money, well I
don't think that makes much sense.

~~~
csomar
I think the idea is to give the money to random people (not necessarily the
ones who needed). A beggar is not exactly random.

~~~
cjbprime
No, the opposite. Give Directly finds the very poorest people in a village (as
judged by the materials their house is made from), and the Uganda study used
self-selected entrepreneurs. Both of these were trying to maximize the impact
of each dollar by giving the money to the people for whom it would do the most
good.

Giving money to a beggar in the US would not do nearly as much good, both
because the US has excellent safety nets (hospitals that will treat you, food
banks) and because everything in the US costs more (so you can provide less of
it to someone in need per dollar).

------
asperous
I think the context is super important here. "gave cash to groups of young
people so they could learn a trade and start their own businesses." In Uganda.

These people were pretty much starving before. “These were mostly farmers who
had work 10 to 20 hours a week and earned about $1 a day,"

With different people, culture, attitudes, environment the effect might be
completely different in America, for example.

~~~
breischl
In addition...

<blockquote>To get the cash, applicants had to form a group with others in
their village and submit a proposal showing how they planned to use the
money</blockquote>

It's not clear how selective they were, but it does sound more involved than
just "fill out this form and get your cash." So it's a group of people that
were selected, or at least self-selected, for some minimum amount of
initiative and ambition.

The title of the article invites comparisons to social safety net programs in
the developed world, but this sounds more like a combination of the
educational and small business grant programs. It also seems like it would not
be broadly applicable - you couldn't just carpet an area with $400 grants and
expect the same kind of success rate.

~~~
ma2rten
In addition...

The simple fact that someone came after those people to check what they did
with their money, for the purpose of the research, probably influenced the
result (at least if they knew or suspected that beforehand). If they said they
would use the money for business, but then instead spend it alcohol and
gambling, that would be very embarrassing.

If on the other hand, a program like exists this for a long time and everyone
knows nobody will check what you do with the money, abuse would become very
likely, imo.

~~~
waps
I think you've just hit the nail on the head. Gifts in this program have the
same function as loans would traditionally have : they are supposed to be
invested in improving one's life. They were obviously not free, the money was
traded for promises that carry a social cost if one doesn't deliver.

A basic income would have no such effect. If it's enough to live on, why would
everyone invest it in becoming a better and more capable individual ? (note
the question is not "anyone", but "everyone". The aggregate effect of free
money is what will determine the outcome. Not what exceptional individuals
might achieve with it, but what a lazy drunkard would achieve with it matters)

~~~
karlmdavis
Don't this:

> The aggregate effect of free money is what will determine the outcome.

And this:

> Not what exceptional individuals might achieve with it, but what a lazy
> drunkard would achieve with it matters)

Contradict each other? The "aggregate effect" = "lazy drunkards" \+ the effect
of "exceptional individuals" \+ the effect of everyone else. So it really
isn't the lazy drunkards that matter; it's the overall effect that does. If,
on average, it improves society then isn't that a win?

Very often, when talking about basic incomes and similar programs, people seem
to say things like "twice as many people will take advantage of the system and
be lazy." To me, that's not a sufficient criticism: it all depends on the
percentages. If a program increases the percentage of bottom feeders from 1%
to 2%, say, but also doubles the quality of life of everyone else, that would
be a huge win to me. Obviously, the numbers I chose in my example are probably
unrealistic, which just further illustrates how important it is to actually
determine what the numbers are/will be.

~~~
waps
You're right. That was wrong. I obviously meant it's the effect of A plus B.

It would depend on the amount of "bottom feeders". That's a bad way to define
it though, "non-productives" might be better, since it would include
pensioners, children, students (including people who go back to studying if
this program is introduced, but are older than 0-24 years), really ill people,
... mostly not people I'd define as bottom feeders.

I would say that it's a lot larger than 1-2%. Let's assume that a lower bound
on the non-productive people would be 30% of the total (which would mean tax
levels need to be, at bare minimum . I would say that various factors are
going to make that close to 50% over a period of time that's not very long.

Suppose you'd have the same tax level for these things as you currently have
for social programs + medical programs (~50% of total taxes), then here's how
much it could be (ignoring administration costs, which would take another
bite):

Non-active population => basic income possible using 50% of govt. budget

30% => 11,249

40% => 9,642

50% => 8,035

60% => 6,428

70% => 4,821

(the current labor force participation rate is 65%. Since that is likely to
drop, prudence would suggest you take the 50% or 60% figure as realistic.
Increases in the govt. budget dedicated to this cannot make these numbers rise
by a significant amount. So I would think the 30% figure is the maximum
attainable even if the military were to be defunded)

Since even the largest of these numbers is only barely sufficient to live +
insurance + ... is this really worth it ? This amount is not of the level that
it's going to do what this program needs to do to improve our economic
situation : give the poor disposable income.

The basic problem we have is of a different nature. We do not have any
economic reason for 70% of the world population to be alive, and that number
is growing fast. In the US that number is currently amazingly low, but it's
bound to rise as well.

~~~
karlmdavis
> It would depend on the amount of "bottom feeders". That's a bad way to
> define it though, "non-productives" might be better, since it would include
> pensioners, children, students (including people who go back to studying if
> this program is introduced, but are older than 0-24 years), really ill
> people, ... mostly not people I'd define as bottom feeders.

You're absolutely right, thanks for the correction.

------
hristov
The problem with cash grants is something that does not show up when there is
a Columbia professor watching things. And that is that the money gets stolen.

Many poor countries suffer from corrupt callous and cruel leadership. And this
means that the people in power tend to steal from the poor. Thus, if some
organization tries to give cash to the poor there is a high likelihood that
the money will be stolen and sent to a swiss bank.

It is much more difficult to steal bags of grain with "US AID" printed on
them. They are heavy transport is expensive and no-one will pay full price for
bags of grains that say US AID on them because they will know it is stolen. If
you want to re-bag the grain, it will be a lot of work, and you will have to
hire many workers some of which may inform the US embassy. Thus, once the US
government dumps a bunch of grain in a poor place, even the evil corrupt
warlords tend to leave most of it to the poor because it is too difficult to
steal it and sell it.

There is a similar problem with cash crops. Initially when I heard activists
complain about cash crops, I said "what is the problem? Farmers should farm
cash crops in order to get the maximum amount of money for their land and
labor." Well the problem is that if you plant cash crops (such as coffee,
cocoa, etc.) you have to sell them to get some money out of them. But the
local corrupt official and/or warlord will take control of all the merchants
and make sure the farmers receive very little and take most of the money for
himself. If, on the other hand the farmers plant ordinary food, it is very
difficult for warlord to steal it. He will have to make his troops do actual
agriculture work to steal the food, and they hate that.

So this will only work for countries with relatively strong civil society and
there are very few of those among the poor countries.

~~~
nostromo
Don't you have it exactly backwards?

I've heard (from people like Andrew Mwenda) that say that Western aid to
African governments ends up not helping the citizenry and just props up bad
governments.

Aid that completely bypasses corrupt governments and goes directly to citizens
seems to be less likely to be stolen by middlemen. If you look at Give
Directly
([http://www.givedirectly.org/faqs.php](http://www.givedirectly.org/faqs.php))
they send cash directly to a person's cell phone, and their audits have shown
very little money being lost to corruption.

~~~
dragonwriter
> Aid that completely bypasses corrupt governments and goes directly to
> citizens seems to be less likely to be stolen by middlemen.

Pretty much by definition it is less likely to be stolen _by middlemen_ ,
since anyone stealing aid that goes directly to individuals without going
through middlemen is not a middleman.

Whether it is less likely _to be stolen_ \-- or even whether it is less likely
to be stolen _by the government_ \-- is a completely different story.

------
jasonlmk
A similar research based on the land lotteries in Georgia in 1832 and in
Oklahoma in 1901 showed that outright increases in wealth (i.e., winning the
lottery) had little or no effect on generational wealth. There was also
another similar research on the land lotteries which showed negative effect on
generational wealth.

[http://www.stanford.edu/group/SITE/archive/SITE_2010/segment...](http://www.stanford.edu/group/SITE/archive/SITE_2010/segment_5/segment_5_papers/bleakley.pdf)

------
yaix
The only way countries have /ever/ developed is by the production of value,
products that a market wants to buy, usually an export market. Handing out
free money doesn't help to achieve that goal. It just perpetualtes dependence.

It seems to be the "new hip thing" within the aid-industrial complex, though.
I hope it will not do too much damage to these societies, like many of the
previous "effective forms of aid" did.

~~~
tedsanders
I think the argument is that initial capital can jumpstart that production of
value. If you spend 10 hours a week maintaining your straw roof, and then
someone buys you a metal roof, you can now spend those 10 hours a week on an
exportable trade/product.

~~~
yaix
I know that argument, but it is incorrect.

Production needs to be efficient in order to compete. Efficiency needs
knowledge. These "groups of poor" lack that knowledge. And the amount of free
money is way to low to produce anything with enough surplus value. How many
unskilled carpenters, metal workers, and hair stylists do they need? I am
currently in Kenya, and the amount of barber shops is amazing.

Production of value is stuff that a country can export, to earn hard currency
that can buy knowledge to increase the country's production efficiency. Like
Taiwan did, and Korea, and Malaysia, and China, and any country that has ever
successfully developed in the past 70 years.

But the aid curse will not allow it, unfortunately.

~~~
nostrademons
I think both these explanations are missing that there are _many_ factors
behind successful economic development, and increasing one factor of
production will help if it is the limiting factor, but hurt if it is already
abundant.

If you give money to people who already have technical know-how, a willing
market, a solid distribution network, and a stable legal system but just lack
access to capital, it will usually have very good returns. If you give it to
people who have none of these, it will get spent on whatever good happens to
be available, usually booze. If you replace the government of a country that
has capital, an educated populace, and solid infrastructure but suffers from
endemic corruption and lack of solid legal foundations, you will probably also
help spur economic development.

What I wish more poverty-alleviation problems did was focus on identifying and
eliminating bottlenecks to economic growth. The casual American readership
loves to think there's one solution and then loves to argue over what it is,
but I don't think it works that way. Poverty is complex; the reason that
inner-city Baltimore is poor is very different from the reason Kenya is poor,
which is different from why rural China is poor.

------
argumentum
This is only "surprising" to those who think they know how other people should
live. I've always favored this approach (a minimum income, or negative income
tax .. whatever you want to call it) as a replacement to all other forms of
welfare.

If I am to spend my tax money on those in need, I do not want more than half
of it going to upper middle class bureaucrats and middle class administrators.

~~~
grandalf
Exactly, the idea that someone should buy food for their kid rather than a big
screen TV is extremely paternalistic.

~~~
waqf
The idea that people _need to be told_ to buy food for their kid rather than a
big screen TV is paternalistic, yes.

~~~
code_duck
Sadly, some people absolutely need to be told to buy their kid a jacket vs. a
large bag of cocaine.

~~~
tothebatfax
I think this is feeding into a prevalent and false narrative that persons in
poverty are all drug addicts or welfare queens.

Christian Parenti really sums it up well when he describes American views on
poverty in his book, The Soft Cage:

"In a society that denies the true causes of poverty—low wages and structural
unemployment—the poor necessarily show up as objects of mystery to be
examined, measured, interrogated, and indexed, or as James C. Scott would put
it, made “legible.” In a society that hides the real mechanics of exploitation
and sees all social phenomena through the lens of individualism, it is assumed
that the poor—their genetics, their habits, or their culture—must be the true
cause of poverty."[1]

Specifically with respect to your point about drugs:

"Reports such as the National Survey of Drug Use and Health suggest drug abuse
among welfare recipients is hardly widespread. Many states have tried drug
testing for welfare recipients with practically nobody testing positive. In
Arizona, for example, in 2012, after three years and 87,000 screenings, one
person had failed a drug test. Utah's drug screening program spent $30,000 on
testing and only 2.5% of recipients turned out positive for illicit drugs.
Florida's program had the same results.

"In all cases, the testing -- which assumes all welfare recipients are
druggies -- cost much more than the savings in welfare payments."[2]

We need to stop acting paternalistically toward the poor and, instead, treat
them as people who are capable of making their own decisions.

[1]
[http://openlibrary.org/books/OL7593829M/The_Soft_Cage](http://openlibrary.org/books/OL7593829M/The_Soft_Cage)

[2] [http://www.cnn.com/2013/09/30/opinion/granderson-michigan-
we...](http://www.cnn.com/2013/09/30/opinion/granderson-michigan-welfare-
bill/index.html?hpt=hp_bn7)

~~~
yummyfajitas
This is silly - the poor are not unemployed, structurally or otherwise. To be
unemployed one must be looking for work, which most American poor are not.

[http://www.bls.gov/cps/cpswp2011.pdf](http://www.bls.gov/cps/cpswp2011.pdf)

Your source [2] also disagrees with you. When Florida implemented drug
testing, they spent $46k to identify 108 drug users (presumably taking them
off the welfare rolls). Unless welfare costs less than $425/person, that's a
net savings. Further, according to the article linked to by [2]
([http://usatoday30.usatoday.com/news/opinion/editorials/story...](http://usatoday30.usatoday.com/news/opinion/editorials/story/2012%E2%80%9403%E2%80%9418/drug-
testing-welfare-applicants/53620604/1)), the actual number in Florida is
closer to 2000 people since 2000 people withdrew their welfare applications
when they reached the drug testing stage.

(The comparable number in Utah was $2000/person, if we assume Utah's program
had no deterrent effect whatsoever. Arizona's program seems less effective,
likely because the drug tests were easy to avoid - just don't tell the welfare
clerk you do drugs and you can skip the test.)

~~~
NateDad
That pdf says nothing about who is or is not looking for work.

~~~
yummyfajitas
Let me quote the first paragraph, which you apparently didn't read:

 _...46.2 million people...lived below the official poverty level...10.4
million individuals were among the “working poor” in 2011... The working poor
are persons who spent at least 27 weeks in the labor force (that is,_ working
or looking for work _)_

------
ig1
I've only read the article and not the underlying paper, but it seems to be
saying a $400 grant yields an average annual return of 40% - it would seem
that would make it viable as a loan scheme rather than a grant scheme (maybe
in terms of a loan that automatically gets written off after X years so it's a
pseudo-grant).

It's important to note also that they're using the group effect that are also
popular among microlenders, in that the grants are made to groups of
individuals so you'll have some degrees of the individuals checking up on each
other.

------
mh_yam
It's all about state of mind. People who actually want to make a living, start
businesses, create wealth, and live responsibly VS those who just want to be
parasites. Attitude is what matters...

~~~
photorized
Use of funds makes all the difference.

Sometimes, a person needs a little push - or some initial help to get off the
ground.

What are your views on all the entrepreneurs seeking funding - would you
consider them parasites?

------
skadamat
Kiva.org anyone? I"m shocked this hasn't come up in this thread

------
sandGorgon
I remember there was an article on HN not so long back about why poor people
dont trust banks. Well, without bank accounts how do you process billions of
dollars of micro-cash payments ?

Actually, this is the biggest reason for the build out of the Aadhaar project
or the Indian biometric ID project. It is less for reasons of trying to track
the common citizen (although I dont doubt for a moment, it will come to be
used like that), but to ensure credible, direct debit of cash to the poor.

------
pesenti
I wonder if this could be applied to rich countries: give $500/month to each
adult citizen. No questions asked. Unlike many existing programs for the very
poor
([http://en.wikipedia.org/wiki/Revenu_minimum_d'insertion](http://en.wikipedia.org/wiki/Revenu_minimum_d'insertion))
it would not dissuade them from working (if you work you just earn more) and
would be really easy to administrate (there are no criteria).

~~~
Figs
Wouldn't that just cause inflation?

~~~
pesenti
Not if you finance it through taxes and elimination of other programs for the
very poor like food stamps.

~~~
Figs
It seems to me that if everyone has an extra $500, the likely result is rent,
etc. rises to compensate, and you wind up with essentially the same social
situation just with all the prices offset slightly.

If you give everyone $500 and then take $500 back from most people in taxes
that just seems like you're shifting around the conditional evaluation of the
necessity of aid to the IRS instead. It's still conditional aid, it's just
more obscure how it works.

------
aaronchriscohen
I wonder if requiring applicants to "form a group with others in their village
and submit a proposal showing how they planned to use the money" had anything
to do with their success. It's not like they just dropped money out of a
plane. And the fact that these grants were funded by a World Bank loan seems
to undercut the headline even more.

------
dualogy
Just from the headline, I thought this would be an Onion article..

------
sliverstorm
The one-time grant model seems like it could be important; you don't develop
the whole cargo cult dependence when it is a one-time windfall only.

~~~
e12e
There's always the risk that one of the recipients will become so successful
that they start doing this themselves... ;-)

