There’s been a long-running debate in international development circles about whether it is better to give people goods or to give cash instead. It is an interesting debate, because it raises many of the same questions that pop up about Universal Basic Income (UBI). Will people waste the money? Will they stop working? Will it actually reduce inequality?
Giving people in Latin America cash aid to stay at home and not migrate to the US is an idea that has been around since a 2018 paper entitled Should I Stay or Should I Go? Do Cash Transfers Affect Migration? It found more research was needed. But it seems to have heated up. Reuters reported April 9 that the US administration was considering a conditional cash transfer program to deter Latin American migrants. And if it does so, you can bet the same questions will pop up.
The first time I became aware of the ‘cash vs goods’ debate in aid circles was in connection with a program delivered in a disputed area in northern Somalia in 2003-4, when drought had strained the clan relief and local trading systems to the breaking point.
Many Somalis who still lived nomadically used pack camels to migrate seasonally to find water and pasture for their herds. When times were hard, they relied on credit from traders and on clan and family social assistance, redeeming their debts when they had milk or animals to sell. But in the Sool and Sanaag Plateau, migration was impossible because seven consecutive rain failures had killed most pack camels and many livestock. Milk production, and livestock prices, had dropped so low that herders could not pay their large debts for water. Traders could no longer extend credit. Clan support systems were near collapse because so many families were destitute.
NGOs argued that a cash aid program was the only sensible solution, but it took a lot of persuasion and involved building in many safeguards. In the end, the short-term program distributed $691,500 to 13,830 households through Somali-owned remittance agencies and dramatically revived the community’s economic life and social safety net.
An evaluation showed that cash had allowed families to pay off their debts, which most saw as their priority, and that in turn had allowed traders to resume operations. In all, 97% of the cash was spent locally and productively. Households ate one more meal per day, and some households moved emaciated herds to better grazing areas.
Traditional relief programs would not have allowed people to repay debt, and the program’s administrative costs (17%) were lower than the 25-35% of traditional relief. The program’s success encouraged other agencies to fund cash intervention programs in northern Somalia.
But generally in the aid world, cash seemed to cause uneasiness. One analyst suggested that was because people, rather than agencies, would decide how to spend the money. And there were concerns that money might be mis-spent, or wasted. Research since then, however, suggests that cash aid is effective and not mis-spent.
These questions crop up in the UBI debate as well. Since the late 1960s, there have been more than a dozen experiments, in six US states or cities, two Canadian provinces, India, Namibia, and some parts of Europe. Some have ended; some are still going on. But the answers haven’t been definitive, for various reasons – at least pre-pandemic. (A December working paper notes that between March and September 2020, “212 countries introduced 1,179 new social protection measures covering an estimated 1.8 billion individuals. Cash transfers make up a large share of this expansion, reaching 1.2 billion individuals.”)
Looking for definitive answers
Now a US nonprofit that gives cash directly to poor people is engaged on a quest for definitive answers. In Kenya.
While it’s not a national trial, GiveDirectly says this is the largest and longest of the 16 UBI programs either delivered or underway so far, covering 295 villages in Kenya over a 12-year period.
Give Directly, which bills itself as the first and largest nonprofit that lets donors send money directly to the world’s poorest and says it has sent more than $300 million to more than half a million poor families since 2009, embarked on the $30 million program in 2018. It has already distributed millions of dollars to 20,000 individuals living in 197 villages in two of Kenya’s poorest counties. Some will receive payments for 12 years, which is the expected length of the study. An additional 100 villages have been surveyed as a control group, Give Directly says.
The two counties, Siaya and Bomet, have populations of 940,000 and 860,000, respectively, says Innovations for Poverty Action (IPA), which is doing the program’s research. Approximately 630,000 live below the Kenyan government’s poverty line of less than US$15 per household member per month in rural areas, and US$28 in urban areas.
The study assigned each of 295 rural villages in the Western and Rift Valley areas of Kenya to one of four different groups:
- Long-term basic income: 44 villages (4,966 people) with recipients receiving roughly $0.75 per adult per day, delivered monthly for 12 years. All payments for all groups are made in Kenyan Shillings.
- Short-term basic income: 80 villages (7,333 people) with recipients receiving the same monthly amount, but only for two years.
- Lump Sum: 71 villages (8,548 people) with recipients receiving the same amount as the short-term basic income group (in net present value), but all up front as a “lump sum.”
- Control group: 100 villages not receiving cash transfers.
GiveDirectly also chose two more “pilot” villages to receive monthly payments for 12 years. These people are not part of the formal research study, which would allow for “more in depth, qualitative conversations with them about what it’s like to receive a basic income”.
Program results will be measured against baseline data collected from household heads and spouses, village elders, and local business owners before the project began. Research surveys, which will be done independently by IPA, will look at the program’s impact on well-being from various lenses – economic, health, social, and macroeconomic – and will explore if the payments affect peoples’ willingness to take financial risks, invest, start businesses, and migrate.
They want to look specifically at how giving people 12 years of basic income vs two years affects how people “invest, migrate, start businesses, and take financial risks”, as well as whether it makes a difference if people get the basic income over two years vs getting the same amount in a lump sum up front.
Its first results, reported in the December working paper, spanned the first part of the COVID pandemic. These results “showed transfers improved well-being on measures such as hunger, sickness and depression in spite of the pandemic, with modest effect sizes. Researchers also noted that recipients reduced hospital visits and decreased social (but not commercial) interactions, implying potential public health benefits. During the pandemic, recipients lost the income gains they previously accrued from starting new non-agricultural enterprises, but also suffered smaller increases in hunger.”
Unfiltered stories told by recipients show the impact of the money they have received. Many talk about how, without the cash help, they would have been homeless or hungry or sick. Some talked about how the money made it possible for them to pay debt.
GiveDirectly also is running COVID-19 relief programs in the US and internationally, and – apart from the amounts involved – the stories are likely to be the same everywhere.
On its website, GiveDirectly addresses a common reservation about giving cash, head-on.
“And no, people don’t just blow it on booze.
It’s ok. Many people think that at first.
In fact, research finds people use cash in impactful and creative ways.
We read the research. We read more research. Then we did our own research. And it turns out, people use cash on medicine; cows and goats and chickens; school fees; water; solar lights; tin roofs; irrigation; motorcycles to jumpstart taxi services; businesses to generate income; and more.”
Sources:
Effects of a Universal Basic Income during the pandemic. Dec. 8, 2020. Authors Abhijit Banerjee, Michael Faye, Alan Krueger, Paul Niehaus, Tavneet Suri
Updates:
Why Billionaires Like MacKenzie Scott And Jack Dorsey Are Donating Millions To This Nonprofit That Gives Cash To The Poor. Forbes, Jul. 22, 2022.