Josephy Amosi Kamanga, who lives in Malawi, couldn’t afford to pay the examination fee for his eldest child, so she dropped out of school two years ago. She later got pregnant and is living at home. The fee that changed his daughter’s life? Just $4.98.
That story comes from GiveDirectly Inc., an American charity that offers a simple proposition: Give poor people cash, with no strings attached, and good things will tend to happen. It certainly did to Kamanga and his family. GiveDirectly gave him $51.75 a month for a year. That enabled him to reopen a shop that sells soap, drinks, body lotion, sugar, eggs and cooking oil, and to buy a secondhand phone to operate the business. With the profits from the grocery he covered school expenses for three other children. He told a GiveDirectly interviewer that the news he’d been selected to receive the money “brought joy in my heart.”
Traditional aid, however well intentioned, can be insensitive to the needs of the poor. Massive donations of grain can put local farmers out of business, and donations of tons of used clothing can hurt the recipient nations’ cotton farmers, textile factories and apparel makers. A donated toilet may be repurposed inefficiently as a vegetable peeling bin. Trusting recipients to know what to do with the money can appear to be an attractive alternative to top-down programs that may strike some people as colonialist.
For this newsletter I looked into what research shows about the effectiveness of unconditional cash transfers, as the no-strings-attached gifts are called. Unlike a universal basic income, unconditional cash transfers go only to the poor. It’s super clear from the research that the gifts help alleviate poverty at the time they’re given. By and large recipients aren’t blowing the money on alcohol and cigarettes, or feeling they don’t need to work anymore. That’s a welcome finding. Better yet, transfers require little operational overhead, so a higher percentage of the money gets into the right hands.
“Small, frequent and reliable cash payments to poor households have been shown to cause contemporaneous improvements in multiple domains, such as per capita consumption, savings, nutrition, mental health, teen pregnancies, child marriages and intimate partner violence,” three World Bank staff members, John Loeser, Berk Özler and Patrick Premand, wrote in 2021.
What’s less clear is whether the transfers get people unstuck from poverty for good. Studies point in different directions. I’ll cite some of them in a minute.
Michael Faye, Jeremy Shapiro, Rohit Wanchoo and Paul Niehaus co-founded GiveDirectly in 2009 while studying economic development at Harvard and the Massachusetts Institute of Technology. From the start they wanted GiveDirectly to use the smartest ideas from economics and to be judged by randomized controlled trials, the gold standard of assessment, in which some people are randomly assigned to receive the treatment — in this case, money — and others serve as the control group.
GiveDirectly has given out more than $580 million in cash to about 1.4 million people and currently operates in the Democratic Republic of Congo, Kenya, Liberia, Malawi, Mozambique, Morocco, Nigeria, Rwanda, Uganda and Yemen, as well as its home country, the United States. During the worst of the Covid-19 pandemic, GiveDirectly gave $1,000 gifts to nearly 200,000 people in the United States, drawing on donations from the likes of MacKenzie Scott, Andrew Yang, Stephen Colbert, Stacey Abrams, Rihanna and Ariana Grande.
While unconditional cash transfers by charities remain unusual, government programs are common. A 2018 report by the World Bank found that of 142 countries studied, 70 percent gave unconditional cash transfers of various kinds. Lately, unconditional cash transfers have been a key means by which the U.S. Agency for International Development and other donors have thrown a lifeline to Ukrainians.
Giving cash has become more practical in recent years because of technology such as mobile payment systems, which can be used even by people who don’t have bank accounts, Rema Hanna, the chair of international development at Harvard’s Kennedy School of Government, told me.
I asked Niehaus in an interview why no-strings-attached donations aren’t even more popular. One reason is that they’re still not widely known, and another is that “there is a lot that’s deep in human psychology that wants to be in control and wants to be the solution to the problem,” he said. “We like to think our ideas and problem-solving capabilities are important.”
“Members of Congress don’t love this. They don’t love, ‘We’re going to write checks,’” Steven Radelet, a professor at Georgetown University’s Edmund A. Walsh School of Foreign Service who was chief economist of U.S.A.I.D., told me. Congress loves AIDS prevention because the benefits are clear and immediate, but “this stuff is a little more ambiguous. You need an econometric study to show it works,” Radelet said. (As it happens, he and three co-authors have done one of those. It appeared in The Economic Journal in 2011.)
The desire to shape outcomes is why a lot of aid programs do come with strings attached. They’re called “conditional cash transfers” in the industry. Examples are Brazil’s former Bolsa Familia and its Auxílio Brasil as well as Mexico’s Progresa, which insist that participants meet certain criteria — such as keeping their kids in school or getting them vaccinated — to get the money. Conditional aid is usually more popular with voters. One downside is that it can be too complex for some extremely poor nations to manage. Another is that it excludes people who need the most help but whose lives are too chaotic to meet the qualifying criteria, Hanna said.
I interviewed Özler, one of the three authors of that 2021 World Bank assessment. He is the lead economist and research manager of the Poverty and Inequality Research Program in the bank’s Development Research Group. He has his doubts about the long-term effectiveness of cash transfers, whether unconditional or conditional. “The short-term positive effects on a multitude of outcomes can dissipate after the cessation of transfers,” he and his co-authors wrote in their 2021 assessment.
In a video call, Özler said advocates of unconditional cash transfers once hoped that when people got the money they needed, all their other problems would be solved. That hasn’t been the case, he said. If you want kids to be better educated, for example, the most effective way is to offer aid that’s conditioned on making sure they’re in school, not just hand out money. He recommends layering some strings-attached aid to achieve particular social objectives on top of some no-strings-attached aid as a safety net for the poorest of the poor.
I won’t try to sort out the academic debate over whether unconditional cash transfers create lasting change. Niehaus pointed me to several studies, including one in Uganda and one in Sri Lanka, that showed long-term benefits from unconditional cash transfers. Niehaus also pointed to a study he co-authored from Kenya showing benefits after two years that appeared last year in the prestigious journal Econometrica. A 2021 study found that decades after receiving aid, beneficiaries of Mexico’s strings-attached Progresa had “larger labor incomes, more geographical mobility including through international migration, and later family formation.”
On the other hand, a study on the Philippines that appeared last month in The Review of Economics and Statistics found that cash transfers raised prices of perishable foods in some markets (presumably by increasing demand) and increased stunting by 34 percent among children whose families didn’t get the money. Niehaus said GiveDirectly doesn’t operate in extremely isolated communities where cash transfers would be most likely to raise prices of food or other essentials.
This just scratches the surface of a huge and inconclusive literature. But even if you decide that handing out cash to the poor isn’t a panacea, you may conclude that it deserves a place in the anti-poverty toolbox. I’m guessing Josephy Amosi Kamanga would agree.
The Readers Write
I just read your newsletter about overtime and the abuse thereof. When I worked in agriculture as a truck driver I never got paid overtime. I was paid by the hour, and I regularly worked 12-13 hours a day. One season I worked 25 days in a row. It seems that ag is exempt from the overtime rules. I also had a job working for a military contractor-type company. One time I worked 45 days in a row, eight hours a day, but I was only paid time and a half on the weekends that I worked. Each Monday was considered the start of a new week, so my pay went back to straight time until Saturday came around again. The little guy doesn’t have much of a chance these days.
Ray Charlton
Corvallis, Ore.
During my 35 years in human resources, I was often stunned by those who sought managerial status and exempt titles rather than overtime paying roles. Status and credentials for a résumé were often more important. During my tenure at a large pharma company in R&D, I had to contend with six levels of title that held the word “director” in it. People wanted to be called manager for managing a “process” or a relationship.
Dan Welch
Old Saybrook, Conn.
I saw this problem during my management career as I heard reports from other organizations about this type of abuse. Changing the dollar amount threshold would be one of the most far-ranging improvements that President Biden could make for all those working-class Americans that Republicans inaccurately claim to be representing.
Kyle Sonnenberg
Southern Pines, N.C.
Quote of the Day
“The path to one’s own heaven always leads through the voluptuousness of one’s own hell.”
— Friedrich Nietzsche, “The Gay Science,” second edition (1887), translated, with commentary, by Walter Kaufmann (1974)
The post Do Handouts Work? appeared first on New York Times.
