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Africa: Just Give Money to the Poor

AfricaFocus Bulletin
Jun 11, 2010 (100611)
(Reposted from sources cited below)

Editor's Note

Discussing poverty with a Washington Post reporter last month, 5th graders at a Southeast Washington school (the poverty rate for Washington, DC is 32 percent) came up with an obvious solution. "Why not just give them money?" (Washington Post, May 11). Experts and policy-makers have found it easy to dismiss this common-sense suggestion, in favor of magical belief in trickle-down economics or of elaborate poverty-reduction plans. But a new book brings together weighty evidence that in fact the children are likely to be right.

In "Just Give Money to the Poor: The Development Revolution from the South," Joseph Hanlon, Armando Barrientos and David Hulme look at the experience of recent cash transfer programs, in countries ranging from Mexico and Brazil to South Africa, Namibia, India, and Mongolia. The verdict: cash transfers work if they are both fair and assured. If poor people have even small amounts of regular ensured income, they are in general well-equipped to decide how to use it most productively. And the results not only alleviate immediate hardship, but also contribute to longer-term economic development and poverty reduction.

This AfricaFocus Bulletin contains the table of contents and excerpts from the first chapter of the book, which provides an overview of the argument. Much of the book is also available on Google Books at http://books.google.com/books?id=M2WWHIzQON0C. To purchase the book, go to http://www.africafocus.org/books/isbn.php?1565493338 or to Kumarian Press at http://www.kpbooks.com]

For additional brief commentaries by the authors, see the interview with Joseph Hanlon at http://ipsnews.net/news.asp?idnews=46711 and the blog entry by Armando Barrientos on http://povertyblog.wordpress.com / direct link at http://tinyurl.com/25efpmh

For previous AfricaFocus Bulletins on issues of aid, poverty, and public investment, see http://www.africafocus.org/aidexp.php

++++++++++++++++++++++end editor's note+++++++++++++++++++++++

Just give money to the poor

The development revolution from the South

By Joseph Hanlon, Armando Barrientos and David Hulme

j.hanlon@open.ac.uk

Contents

  1. Introduction
  2. From alms to rights and North to South
  3. Cash transfers today
  4. Eating more - and better
  5. Pro-poor growth: turning a $1 grant into $2 income
  6. To everyone or just a few? The targeting dilemma
  7. Identifying recipients
  8. Co-responsibility and services: the conditionality dilemma
  9. Cash transfers are practical in poor countries
  10. The way forward
    Bibliography

Introduction

[Excerpts, without footnotes. Much of the book is also available on Google Books. To purchase the book, go to
http://www.africafocus.org/books/isbn.php?1565493338 or to Kumarian Press at http://www.kpbooks.com]

"I bake 100 rolls per day and sell each for one Namibian dollar [12›]. I make a profit of about N$400 per month [$50]" said Frieda Nembayai. She began baking rolls in 2008 when she started to receive a grant of N$100 [$12] per month, and for the first time had the money to buy flour and firewood. In neighbouring South Africa, younger adults living in pensioner households are significantly more likely to go out and look for work, because the older person can afford to provide child care and small amounts of money for food and bus fare for the job-seeker.

In Mexico, families receiving child benefit (averaging $40 per family per month) eat better - spending more on protein and fruit and vegetables - which improves the health of the entire family, cutting days off work due to illness by one-fifth. Mexican children who do not go to school hungry do better in class and are much less likely to fail at the end of the year. "Before, we ate tortillas with chilli and salt, and that was it. Now we live better. Sometimes we can even buy meat," said Elvira Francisco Casimira, from Ixtlahuancillo, Veracruz, Mexico. In South Africa, social pensions have a direct effect on children. Children living in pensioner households are better nourished and are more likely to go to school.

These stories point to a wave of new thinking on development sweeping across the South. Instead of maintaining a huge aid industry to find ways to "help the poor", it is better to give money to poor people directly so that they can find effective ways to escape from poverty. These stories come from studies of programmes in Mexico, South Africa and Nambia that give cash to people on a long-term basis. And they point to a little understood reality of the developing world - the biggest problem for those below the poverty line is a basic lack of cash. Many people have so little money that they cannot afford small expenditures on better food, sending children to school, or searching for work . It is not a lack of motivation - people with little money spend their days actively trying to find a way out of poverty. It is not a lack of knowledge - they know what they need and manage their money extremely well. Mexico, South Africa and Namibia are not alone; Brazil, Indonesia, India and many other countries have introduced programmes to give regular cash payments to large numbers of people on a longer-term basis, and there are countless stories of small amounts of money making a huge difference.

In Brazil, 18 million households (74 million people, or 39% of the population), benefit from cash transfers - a family grant (Bolsa Fam¡lia) or pension. South Africa's child benefit reaches 8 million children (55% of all children) and a social pension reaches 2 million older or disabled people (85% of all older people). In Mexico a family grant (Oportunidades) goes to over 5 million households (24 million people or 22% of the population; in the three poorest states, it reaches more than half of all families). In Indonesia a grant went to 19 million poor families (40% of the population). In India, over 43 million households benefit from an employment guarantee scheme.

Drawing on the experience of these programmes, an African Union conference in 2006 issued the "Livingstone Call for Action" which said every African country should have social transfer programmes "including the social pension and social transfers to vulnerable children, older persons and people with disabilities".

This book draws on this rapidly growing pool of research to highlight the potential and limitations of cash transfers to transform the lives of people in poverty in developing countries. There is quite a broad consensus that many cash transfers have proved remarkably successful, and this has led to at least 30 other developing countries to experiment with giving money to people directly - through "cash transfer" programmes.

Four conclusions come out repeatedly: these programmes are affordable, recipients use the money well and do not waste it, cash grants are an efficient way to directly reduce current poverty, and they have the potential to prevent future poverty by facilitating economic growth and promoting human development. But two areas remain the subject of intense debate - targeting and conditions. Should smaller grants be given to many people or larger grants to a few? Should recipients be asked to satisfy conditions, such as sending their children to school or doing voluntary labour? Important challenges remain regarding the financing and delivery of these programmes, especially in low income countries. And transfer programmes remain controversial, with some still sceptical about their ability to reduce long term poverty. These issues, too, are discussed in this book.

Changed thinking

In industrialised countries, there was a major change in thinking in the 20th century, and cash transfers are now considered an effective and normal means of addressing poverty. There are child benefits, for example œ18.80 a week for the first child and œ12.55 a week for additional child in Britain, and EUR166 per month for the first two children and EUR203 for subsequent children in Ireland - paid independently of income. Britain gives winter fuel payments of œ200 a year to everyone over 60.

... Thus in industrialised countries we have become accustomed to giving cash. Indeed, article 25 of the Universal Declaration of Human Rights, adopted by the United Nations in 1948, states that everyone has the right to an "adequate" standard of living.

But this right had been questioned in two ways with respect to less developed countries. First, it had been assumed that social grants were a luxury for the relatively rich. Poorer countries could not "afford" to give money to their own poorest, because so many of their citizens have low incomes, and thus would have to wait until economic growth made them more "modern" before this right could be applied. Second, the right does not distinguish between the deserving and undeserving poor; the rich and powerful always argue that the poor are at least partly responsible for their own poverty and therefore unworthy of support; poor people must be guided or even compelled to act in the best interests of their children.

Over the past decade, both of these beliefs have been challenged by countries in the developing world. They argue that they cannot afford not to give money to their poorest citizens. And not only is it affordable, it is often much more efficient than systems promoted by conventional international aid and financial agencies. They argue that people living in poverty use the money well. And responsibility for eradicating poverty, as the Human Rights declaration implies, is shared by all.

Cash transfers represent a paradigmatic shift in poverty reduction. These grants are not short-term, emergency, "safety nets" or charitable donations; they do not assume poor people are poor because of stupidity and cupidity. Instead they are often broadly based, covering a significant part of the population in poverty; they are seen as contributing to partly satisfying the right to an adequate standard of living. Although the cash clearly reduces immediate poverty, these are not seen just as palliatives for current poverty, but also as building productive capacity among those in poverty and promoting development programmes. This is the southern challenge to an aid and development industry built up over half a century in the belief that development and the eradication of poverty depended solely on what international agencies and consultants could do for the poor, while discounting what the citizens of developing countries, and the poor among them, could do for themselves. The response has been an exceptional amount of research on southern cash transfer programmes. And researchers have been surprised to find that, by and large, families with little money have honed their survival skills over generations and use a little extra money wisely and creatively - without armies of aid workers telling "the poor" how to improve themselves.

A quiet revolution is taking place based on the realisation that you cannot pull yourself up by your bootstraps if you have no boots. And giving "boots" to a person with little money does not make them lazy or work-shy - rather, just the opposite happens. A small guaranteed income provides a foundation which allows people to transform their own lives. In development jargon, this is the "poverty trap" model - that many people are trapped in poverty because they have so little money that they cannot buy things they know they need, such as medicines or schoolbooks or food or fertiliser. They are in a hole with no way to climb out; cash transfers provide a ladder.

In industrialised countries, cash transfers are partly seen as a form of redistribution - money paid in taxes by the better off goes to those less well off. In Europe, government grants have largely replaced charity and discretional payments. The more developed countries in the South are using cash transfers as a means to redistribute much needed support to the worst off. At a global level, there is now a growing recognition of the need for redistribution, between developed and underdeveloped countries and between the better off in the North and the less well off in the South. So far, we have a system which describes itself as "aid" coming from "donors" - the classic charity language. The change in thinking coming from the South is to apply globally the positive lessons of industrialised countries, and build institutions that can redistribute at a national level, helped by global redistribution.

Anti-poverty and development

"The N$ 100 [$12] we receive seems small but it is a blessed money. Many things have changed in our lives. We have bought blankets, clothes, school clothes, paid school fees and a strong plastic to put on the roof of our house. We do not any more suffer from the severe hunger we were in before," explained grant recipients Johannes and Adolfine Goagoses in Otjivero, Namibia. And the grant has changed the community. "We don't any more hear of people complaining of hunger or asking food around. The theft cases have also reduced tremendously. Many people bought corrugated zincs and repaired their houses."

Each country has done its cash transfers differently; some use pensions and child benefits and others use family grants aimed at the poorest. But there is substantial research to show that most reach those with least money and reduce poverty levels both in developed and less developed countries. Money is spent on immediate needs such as food and medicine, and then on children - particularly clothes, shoes, and school supplies. Quite small amounts of money reduce the intense pressure on cash-poor families, and this has longer term implications. Children can go to school instead of walking the streets selling sweets or single cigarettes. None of this is because an NGO worker had come to the village and told people how to eat better or that they should go to a clinic when they were ill; people in the community already knew that, but never had enough money to buy adequate food or pay the clinic fee.

The major cash transfer programmes all report substantial contributions to poverty reduction. In Brazil, for nearly a decade the percentage of people in poverty remained stubbornly at 28%. Then in 2001 the government introduced Bolsa Escola, and in 2003 it was integrated with several other programmes into a family grant (Bolsa Familia); most commentators credit these programmes, along with the increase of the minimum wage, with causing poverty levels to drop dramatically to 19% in 2006, and continuing to fall to 17% in 2008. Extreme poverty fell from 7% in 2003 to below 5% in 2006. ...

Half way across the world in Mongolia, one of the poorest countries in Asia, a new child benefit has reduced the percentage of children in poverty from 42% to 27%. India's rural employment guarantee scheme is reported to have "a significant impact on rural poverty", leading not only to an important increase in food consumption, but also a 40% increase in the purchase of clothing.

Children are the main beneficiaries of all cash transfers, not just of child benefits. Cash transfers, whatever their form, and including pensions, improve child health and reduce malnutrition, increase school attendance, and reduce child labour. For example, a non-contributory rural pension in Brazil not only increases the income of the elderly, but also significantly increases school registration and attendance by children in the household. ...

Moving families out of malnutrition and improving their health and housing could be considered justification enough for cash transfers. But the real impact is longer term. The poverty trap stretches over generations, because children who are malnourished and badly educated are likely to remain in poverty as adults. ...

Virtuous spiral

Transfers can create a virtuous development cycle at the household and community level - and nationally. Families with an assured, albeit small, income begin to take small risks by investing in their future - buying better seeds to try to increase farm production, purchasing goods that can be resold locally, or even spending more time looking for better paid jobs. In impoverished communities, it is hardly worth starting a business because no one has money to buy. If most families have a bit of extra income, they spend the money locally, buying food, clothing and inputs. This stimulates the local economy, as local people sell more, earn more, and buy more from their neighbours, creating the rising spiral.

This basic insight challenges two aspects of the received wisdom which governed global development policy in the 20th century. The first is the extreme free market, or "neo-liberal", view espoused by the International Monetary Fund and World Bank and promoted by the US Treasury over the past three decades, and often imposed on the least developed countries. This argues that removing restrictions on global trade and on domestic markets will create rapid growth from which everyone will gain - a rising tide raises all boats. But recent history has shown that growth is not enough to ensure those in extreme poverty can escape from their predicament. ... a rising tide sinks leaky boats - especially among those so poor that they cannot participate in the new global market.

The second aspect of the received wisdom is that money spent on the people in poverty is charity and "unproductive", and takes resources away from real development. Mozambique has a cash grant programme giving $4 to $10 per month to more than 150,000 people, mainly elderly women, but the country's Minister of Women's Affairs and Social Welfare, Virgilia Matable, wants to reduce this. "Whether we want to admit it or not, these are alms", she said, and the government should not give alms. But the new revolution in thinking is that money spent on those with little cash can be productive and developmental - if it is guaranteed and longer term. ...

Indeed, research on cash transfers shows two important differences between the relatively poor and relatively rich. Poorer people spend more on food and locally produced goods, while the better off buy more imports, so any transfer from rich to poor stimulates the domestic and local economy. Second, poorer people are much more likely to use small amounts of money to try to leverage increases in income - by investing in their farm, by trading, or by looking for work. So grants can be explicitly developmental.

A final change in thinking which has come from the South is the realisation that social protection in the industrialised world has been primarily job related - deductions from salary (matched by government) providing unemployment insurance and pensions. But this leaves out many women and casual workers, and in the developing world it excludes the vast majority who are small farmers or work in the informal sector. In developing countries where informality is rife, cash transfers are the alternative to job related protection.

Failing to Make Poverty History

The number of people living in chronic poverty is actually increasing. Those who campaigned in 2005 to "Make Poverty History" increasingly ask what went wrong. Two best selling books, Dambesa Moyo's Dead Aid: Why Aid is Not Working and How There is a Better Way for Africa and Paul Collier's The Bottom Billion claim aid has failed, and largely blame poor countries for misusing the money. ...

The South desperately needs the money. Once you remove China's phenomenal poverty reduction from the 1990-2010 global figures, then life has improved relatively little in the rest of the world. The poverty in Africa, South Asia and other parts of the world remains dire. And the north tries to forget that these countries still bear the marks of distorted economic, social and governance systems caused by the slave trade, colonialism, unfair trade, overthrow of governments, and the "hot wars" of the Cold War era which were fought in the South. There is a debt to be paid.

Aid has not failed; rather the failure is of an aid and anti-poverty industry that thrives on complexity and mystification, with highly paid consultants designing ever more complicated projects for "the poor" and continuing to set policy conditions for poor countries. This book offers the southern alternative - give the money directly to the those who have the least of it, but who know how to make the best use of it. Cash transfers are not charity or philanthropy, but rather investments that allow poor people to take control of their own development and end their own poverty. Thus, this book is a direct challenge to Moyo, Collier and much of the current popular writing on aid.

...

An alternative to Moyo and Collier comes from Roger Riddell in his 2007 book Does Foreign Aid Really Work? which is a much more nuanced look at aid. Riddell is a member of the British government's Independent Advisory Committee for Development Impact, and his book concludes "Aid works, but not nearly as well as it could". Riddell studied aid in detail and concludes that there must be fundamental change, and not the "marginal change" (into which Collier and Moyo put their trust) that does "not even begin to address some of the most fundamental problems which continue to impede the greater impact of aid." The core problem, says Riddell, is that hundreds of donors remain in almost total control of their aid, and because of political, strategic and commercial interests, they are not prepared to give up that control. Thus "the aid which is provided is not allocated in any systematic, rational or efficient way to those who need it most."

"Just give cash to those who need the aid," concludes Riddell. The refusal of donors to give money to poor people is "linked to the paternalistic and condescending view that poor people do not know how best to us it. These beliefs sit uncomfortably alongside the increasingly mainstream view that beneficiary choice and participation are fundamental to the aid relationship." Cash transfers have proved to be effective, and "the case for significantly enhancing the impact of aid by giving it directly to poor people would seem to be compelling."

...

Cash transfers recognise the right of each individual to an adequate standard of living. But cash transfers also provide the resources for people, individually and collectively, to participate in the economy and develop themselves and their countries.

Of course, no one argues that all social spending or aid money should suddenly be given to poor people. Spending on health, education, infrastructure and government itself remains essential. But without cash, poorer people cannot make adequate use of these facilities. Thus giving money directly to poor people is as important as spending on health and education.

Fair and assured

Cash transfers in developing countries are mainly a phenomenon of the last decade and so are still being developed. There seems broad agreement on one overriding principle: cash transfers work when they are fair and assured. They must be seen to be fair in that most citizens agree on the choice of who receives money and who does not, and assured in the sense that every month the money really arrives and families can depend on it.

There will always be too many demands and too little money, so resource allocation is always fraught. Furthermore, taxpayers and finance ministers instinctively resist simply handing out money. And it is obvious that a cash transfer programme cannot be run by driving through the countryside throwing $10 bills or 10 peso notes out of a car window.

So far, each country has done cash grants in a different way, with main differences being over allocation and control. There is a natural desire to give money to the poorest, but very strict targeting is expensive - in general the smaller the percentage of people to receive grants, the higher the administrative costs - and strict targeting can be inaccurate and socially divisive. So different countries have selected recipients in a wide range of ways. Some give money to everyone - Alaska, in the United States distributes oil revenues to all residents of the state, $2069 per person in 2008. Others give to categories of people such as children or the elderly; Lesotho gives an old age grant to all citizens aged 70 or over. And some countries to identify only the most impoverished, as in Zambia where a donor programme is trying to give money only to the 10% "ultra-poor" who cannot work. There is a similar wide spread of views on whether or not conditions should be imposed on recipients.

...

In this book, we describe the extensive experience of cash transfers as well as their successes and limitations, review intense debate over issues of design and implementation, and draw out the still unresolved debates on the extent of targeting and the effectiveness of conditionality. We identify and discuss the main challenges ahead, especially in the context of low income countries. It is possible to give money directly to the poor, but each country will need to design its own programme. And cash transfers do not work alone; rather, they are the essential additional factor which makes health services, education, and road-building much more effective for reducing poverty and promoting development.

Cash transfer programmes are already being introduced across the South, as an explicit alternative to the development model promoted by the rich countries and their institutions. These programmes work, and many southern governments see cash transfers as their front line against poverty and to promote development.


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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