The charity GiveDirectly has been generating a lot of hype over the past few years for turning the conventional aid paradigm on its head by giving cash directly to poor people via their mobile phone. By cutting out the middle they can drastically reduce waste and ensure 93 cents in every dollar makes it to a recipient. They are also running two RCTs on their programs to measure impact and performance, which show some positive initial results and are publicly available here. GiveWell (discussed previously on the blog) has also bumped them up into their three recommended charities. (You can hear more about GiveDirectly’s work in this episode of NPR’s ‘This American Life”.)
From an initial read there is a lot to like about cash transfers. They are committed to empowering poor people, they cut waste and overheads and there is initial evidence to show that they deliver a positive return on incomes of the poor. But is the hype running ahead of the impact? Kevin Starr and Laura Hattendorf of the Mulago Foundation certainly think so, explaining in this excellent blog why we are “mistaking an important experiment for a proven solution”. Addressing the ‘revolutionary’ hype behind cash transfers, the authors state:
‘It’s an experiment—an important one, but an experiment nonetheless. We hope we’re wrong, but our hunch is that it is more of a 1-year reprieve from deprivation than a cost-effective, lasting “solution to poverty.”’
The authors make a lot of valid points, and their entire post is worth a read, but their argument basically boils down to the point that cash transfers don’t have as large (or lasting) income gains as other interventions.
“When you don’t have access to high-quality education, information, and products, it can be hard to make optimal decisions and take effective action. The poor don’t spend the cash on stupid things; they just may not have access to great things… such as water purification, education, health care, fortified foods, and farm extension services.”
This argument resonates with me, and surprisingly with cash transfer advocates as well. Chris Blattman, a popular development blogger and long-term advocate of cash transfers, has posted a reply to their piece on his blog. In it, Chris argues that we should not be viewing cash transfers as a panacea for the poor; rather they can be viewed as a baseline from which to assess the cost effectiveness of other interventions. Those that are consistently found wanting will have a much harder time justifying why they shouldn’t just be giving cash. You can also read GiveDirectly’s response here.
The jury is clearly still out on the relative impact that direct cash transfers will provide, but if the least that they do is set a baseline of cost effectiveness that NGOs and donors must aspire to pass to justify their work surely that must be good for the world’s poor.
What’s in a name. One person’s cash transfer is another person’s dole payment. The question is whether it is unsustainable welfare (a bit like one-off bed nets), or is it like Chris Blattman says a first step to longer term interventions. I have nothing against welfare payments but recipient governments are probably best placed to assess run and manage such schemes, otherwise they are ripe for ‘rent seeking’. I have seen quite few local NGOs in places like India target the ‘poorest of the poor’, but ignore the state collected data and criteria, only to find themselves providing hand outs to the ‘not quite so poor’, or even the ‘mildly rich’.
Thanks for this very helpful discussion. I think it’s worth noting that within the humanitarian and emergencies context the cash transfer debate takes on different dimensions. Until livelihoods recover, affected communities often don’t have income to take care of their own critical needs, and cash transfers into an at least semi-functioning local economy are often faster and certainly more empowering for those affected – who can then make their own decisions in real time about what their priorities are. In the 18 months or so after a disaster, even if cash is at best a temporary reprieve, as Starr and Hattendorf suspect, that’s an important window while livelihoods recover.
Cash transfers start with one clear advantage over many other types of aid – at least the money (or most of it) goes to the developing country and not to people from wealthy countries.
I have never found a comprehensive analysis of where global aid dollars get spent – does anyone know of one?
Garth — I imagine you’re familiar with this 2008 paper by Bill Easterly and Tobias Pfutze, ‘Where Does the Money Go? Best and Worst Practices in Foreign Aid’. Perhaps it’s not quite the kind of nitty-gritty, comprehensive analysis you had in mind but it’s an interesting, if sometimes contentious, read. It concludes that, while the available data are terrible, they ‘tend to confirm a number of long-standing complaints about foreign aid’, including that ‘the aid effort is remarkably splintered into many small efforts across all dimensions—number of donors giving aid, number of countries receiving aid from each donor, and number of sectors in which each donor operates’. In addition, ‘a lot of aid still goes to corrupt and autocratic countries and to countries other than those with the lowest incomes’. And ‘aid tying, the use of food aid-in-kind, and the heavy use of technical assistance persist in many aid agencies, despite decades of complaints about these channels being ineffective’. Not to mention that ‘some agencies have remarkably high overhead costs’.