Betting on the poor

Professors Christopher Blattman and Paul Niehaus recently published an essay in Foreign Affairs magazine about their research on giving cash directly to poor people, as opposed to the traditional project model of aid delivery, under which the U.S. Agency for International Development pays a U.S.-based company or nonprofit to provide material and technical assistance to the intended beneficiary. After examining common perceptions that poor people will squander cash (for instance, by using it to buy alcohol or to avoid looking for work) the authors conclude that these fears are largely unsupported by the available evidence. By and large, they found recipients of cash transfers have used the money to buy the same types of things that aid projects would have provided — except that they spend it on what they need and value most, whether it is school fees, medication, business training or a better roof.  

Whatever amount is wasted is likely far less than it would have cost, in terms of salaries, management, travel, shipping and various overhead expenses, to provide goods and services through intermediaries. 

Now, there are many reasons why we could not and should not shift primarily to a system of cash transfers. Development assistance can generate public goods — such as a medical facility, a road or an improved governance process — that people would be unlikely or unable to purchase on their own, even if they pooled their funds. Many aid projects are designed to transfer knowledge, experience and skills rather than financial resources. And the American people are unlikely to support a system of cash payments to foreigners, particularly when most domestic poverty alleviation programs are tied to specific types of consumption and are continually targeted for cuts or outright elimination.

But what we can do, as Blattman and Niehaus propose, is to use cash transfers, or the anticipated effect of cash transfers, as the “placebo” or control study against which traditional aid projects are measured. Instead of judging the value of our aid against doing nothing, which is how projects are currently evaluated, shouldn’t we gauge their impact against what would have happened if we put cash directly into the hands of the poor? Cash transfers, of course, have their own administrative costs, although, as the authors note, the process is becoming much cheaper thanks to technology such as mobile money.

https://www.devex.com/news/betting-on-the-poor-85534?utm_source=moneymatters&utm_medium=email&utm_campaign=received&mkt_tok=3RkMMJWWfF9wsRokvq%2FBdO%2FhmjTEU5z17%2BwlUaG2i4kz2EFye%2BLIHETpodcMTcRqNLvYDBceEJhqyQJxPr3DJNUN0ddxRhbkDQ%3D%3D