Tuesday 5 August 2014

Is giving cash directly to the poor the solution to aid problems?




Poor results and management and agency problems associated with traditional approaches to aid have led some practitioners to propose new ways of disbursing resources. Giving cash directly to the poor represents one of these new proposals and it is seen by some as the new best approach in development cooperation. However, although it might solve some common problems such as the poor management of aid resources, this new modality still lies behind the curve in terms of providing long term sustainable solutions to the lack of development.

Aid cooperation has been operating more or less in the same way since its inception half a century ago: a rich country government transfers resources, levied by taxes among its population, to a poorer one. These resources take a varied range of forms including money, technical assistance, goods (like medicines or food) and services (provided by rich countries’ doctors and teachers). Typically these were received by the country government or the local community and then used to help those most in need by providing them with different services and goods: for example education, health or food security. Underlying this approach to aid was the idea that the poor needed a great number of things and that development experts (mostly from rich countries) together with recipient countries’ governments knew best what these things were. The poor, it was thought, were not capable of using aid money well and would therefore waste resources if they were given them directly. Conditions were also attached to make sure recipients used it appropriately. Governments, charities and development banks –among many others- were then needed to better decide how to spend aid money and to develop the required services to lift poor people out of poverty. Large teams of people and procedures were necessary to make sure proper monitoring was in place to ensure aid was properly used. And yet, despite these big bureaucracies and after more than 60 years, aid has not been able to meet the expectations placed on it. Poverty and lack of opportunities are still a major problem around the globe, even in countries that have received large amounts of aid.

Helping the poor in such a way has gone through a major paradigm shift since the beginning of this century. It was during that period that some governments, especially in Latin America, started giving small amounts of money directly to poor families to spend on what they wished on the condition that their children attended school or visited a doctor on a regular basis. Known as Conditional Cash Transfers (CCTs), they were not meant to replace aid, but instead, to support poor households, more concretely poor women, directly. At the operational level these programmes are cheaper to run when compared to the classical approach of aid. Most costs are incurred during the identification of poor individuals and the provision of vouchers; but it is then relatively cheap to know whether these families are complying with the conditions imposed as they are quite straight forward. Evaluations done of CCTs have been fairly positive. Not only are children better educated and in better health (and not just in the short term), but also household income improved. 

An initiative called GiveDirectly has taken these ideas one step further. Through its simple website, anyone can transfer cash money to a person or family living in poverty, but this time, without attaching any condition. With a credit card and with four clicks on the site your donation will end up in the hands of someone in need living in a lost village in Kenya or Uganda. As simple as that.
In addition to facilitating the transfer of money, the charity has previously carried out exhaustive work to recognise people’s needs and identify those suitable of receiving the funding. This approach gives more freedom to poor people so they can decide how to spend their money. Whether to acquire more cows to increase their milk production or buy additional books for their kids, those receiving the cash feel much more empowered. It is the poor people who choose on what to spend aid. And compared to the CCTs, the fact that there are no conditions attached means the management requirements are less, and the process cheaper. 

Results from evaluations done so far on these kinds of initiatives seem very encouraging. Like conditional cash transfers before, money given directly to poor people without conditions has helped them pull out of poverty. Contrary to what some thought might happen, the cash given directly has been well used, and not wasted on unproductive purposes. There have also been limited cases of corruption and poor management, which is –let’s not forget-, one of the main criticisms of aid. Given that is cheaper, and that the experience so far is that it helps poor farmers, women or communities, should donors get rid of their development agencies and multilateral organisations and just send cash directly to the poor? Not so fast. 

Cash can help poor people if they have the chance to exchange this money for something they value. Markets for different services and goods must exist so those receiving cash can meet their needs. The existence of these will depend upon the overall level of economic development of the country where the programmes are implemented, so not all people in every developing country would be suitable. Most critically, supporting people directly instead of states and local governments has serious implications, as it undermines the formation of the institutions that can provide adequate public services such as education and health, roads and energy in the long-term. 

Overall, new ways of giving aid are to be welcomed. They support the provision of products and services by local providers, encouraging the local economy. Giving cash directly can easily complement other traditional ways of giving, however other complementary services have to be in place so poor people with fresh cash in hand can take advantage of it. Cash transfers might solve some of the management and agency problems frequently identified by aid critics such as Bill Easterly or Dambisa Moyo, as poor people are the real beneficiaries of the aid intervention, but supporting economic development requires more than increasing people’s purchasing power.