There has been a lot of debate in the development community over the past few months over the effectiveness of Unconditional Cash Transfers (UCTs), i.e. just giving people money, no strings attached. Over the summer, the debate went mainstream with a Planet Money broadcast (later replayed on This American Life) on GiveDirectly, an organization that gives money directly to people.
The argument for UCTs is that poor people, just like rich people, know what they need to improve their lives, they just don’t have the money to do it. Hard to argue with that. So if you just give them money, they will put it to better use than any NGO providing services or projects will. Of course, some people argue that poor people will just spend their money on alcohol, cigarettes and other unhelpful things.
Conditional Cash Transfers (CCTs) have proven to be quite successful in a number of contexts. These usually consist of giving cash on the condition that you send children to school and/or take them to the doctor for certain vaccines etc. They have been quite successful first in Mexico and later throughout Latin America. They have been especially attractive to governments because they are much cheaper to administer than say, an overhaul of the education or health system in a country.
GiveDirectly got started according to its founder when a group of econ grad students were debating what charity or NGO to give their money to. They couldn’t think of any. So they came up with GiveDirectly.
Anyway, the first randomized controlled trial (RCT) of GiveDirectly’s direct cash transfer in Kenya was published on Friday and the results seem to point to high success. Recipients of the money (in this case, either $300 or $1000) did see large improvements in their lives: reduction in hunger, increase in consumption and assets like livestock and better roofs, people reported being happier and less stressed. They found little or no impact in health or education improvements. Also, people didn’t spend more on alcohol, tobacco or gambling. In the 63 villages involved in the RCT, child hunger fell by a third and livestock holdings have risen by half.
As an Economist article mentions, this wasn’t the first study to find that giving money directly to people was beneficial. In 2006, a similar program was undertaken in Vietnam. Two years later, poverty rates had fallen 20%. In Uganda, a program where groups of people submit a business plan then receive no-strings money has seen participants incomes increase by 50 percent.
Some have pointed out the risk in the study of self-reporting bias, i.e. that the subjects might be inclined to report or exaggerate positive impacts. Increases in assets wouldn’t be affected (you can physically observe these) but there could be an exaggerated affect reported on hunger or consumption. Either way, this study raises a lot of interesting questions. The debate is far from settled, but as some have suggested (for better or for worse) cash transfers might be to this decade what microcredit was to the last one.
At the Center for Global Development, Amanda Glassman argues that the fact that UCTS (and CCTs) have been shown to improve nutrition could be a bigger boon to education than increased school attendance. The argument is that malnourishment affects cognitive ability which can be extremely difficult to overcome even with increased schooling. Glassman provides a rundown of a number of studies that have shown CCTs and UCTs improve nutrition (in line with GiveDirectly’s findings.
I guess the main conclusion here is that there needs to be more studies done on CCT programs. Nobody is suggesting that it replace the work of government in providing public goods–because no matter how much money you give to individuals, they aren’t going to overcome collective action problems (they aren’t going to build a road, a bridge, a school etc.). But as an individual intervention, it might have some potential.