Do Cash Transfers Work?
Evidence Suggests They Do
The idea of cash transfers — giving money directly to the households on conditional or unconditional basis — as a way to alleviating poverty and distributing income is challenging the conventional libertarian and neoliberal thesis that social welfare programs, including conditional/unconditional cash transfers, discourage work and create sections of society that are only dependent on state for assistance. Simply put, cash transfers “make people lazy”. That is because monetary assistance from state provides unemployed people with roughly the same amount of money that they would have earned as minimum wage. In some cases, they argue, assistance from state exceeds minimum wage. In that scenario, it sounds irrational to work when not working brings more money.
Today, however, increasing number of scholars, researches, practitioners, analysts, even international institutions are pushing for more cash transfer programs. Some scholars and practitioners are going one step ahead and are calling for establishing Basic Income Grant (BIG) — a universal, unconditional, periodic transfer of income on individual (instead of household) basis.
So, do cash transfers work? Is simply giving money to the poor a prudent way of tackling poverty? Do cash transfers discourage work among recipients? Do they stifle economic growth?
I argue that cash-transfer programs have shown outstanding results in various countries around the world, and therefore it is about time that we reconsider the case built by neoliberals/libertarians against welfare programs. Evidence shows that many of their arguments crack open when put to test on factual grounds.
The idea of cash transfers as a way of income distribution and alleviating poverty originated fairly recently in history. Prior to it, the common practice of states undertaking welfare initiatives was to provide income to poor families through price subsidies, vouchers or the direct distribution of food (milk, bread, etc.). This approach changed in mid-nineties when poverty reduction programs in Latin America and the Caribbean began experimenting with conditional cash transfers (CCTs) — giving money to households on the condition that they comply with certain pre-defined requirements. Mexico and Brazil were the early pioneers of such programs. The success of these programs later inspired almost every other country in the region to take up similar initiatives.
Increasingly, evidence collected from different parts of the world has suggested that cash transfers can improve the educational, health, nutritional, and social indicators of the recipients, and can also contribute towards economic growth by improving human capital. More importantly, overwhelming evidence suggests that cash transfers do not discourage work among recipients. Today, there is a growing consensus that cash-transfer programs in various African, Latin American, and Asian states have shown remarkable success. In fact, according to World Bank, in 2009, more than 123 countries in the world had some form of cash-transfer program. According to Overseas Development Institute, as of today, 130 low- and middle-income countries have at least one noncontributory unconditional cash transfer (UCT) programme.
In its assessment of cash transfer programs GiveDirectly, a non-profit organization that provides unconditional cash transfers to people living in extreme poverty in East Africa, citing multiple research studies, concluded that cash transfer programs have positive effects on the health of children — for example, substantial increases in height-for-age and weight-for-height in South Africa, considerable reduction in HIV infection rates and psychological distress in Malawi, large reductions in the incidence of low birth weight in Uruguay, and considerable increase in schooling and reduction in child labor. In Sri Lanka, men’s annual income increased by 64%–96% of the grant amount five years after receiving the transfers.
Another study by Christopher Blattman, Nathan Fiala, and Sebastian Martinez found that one-time cash grants of $374 provided to young adults in northern Uganda resulted in 41 percent higher income for the recipients as compared to those adults who did not get the grant. Moreover, recipients were 65 percent more likely to indulge in a skilled trade. Women who participated in the program had 84 percent higher incomes than the women who did not.
In Brazil, the government-led cash transfer program, now covering 14 million families, has alleviated income inequality in the country. In fact, incomes for the poorest are growing faster than Brazil’s top earners.
A study, led by Johannes Haushofer and Jeremy Shapiro, on unconditional cash transfer program in Kenya found that cash transfers (average amount US$513) led to dramatic increases in income, assets, psychological well-being, food consumption, and female empowerment among the extreme poor.
Perhaps the most robust case for cash transfers in recent times has been made by James Ferguson, chair of the Anthropology Department at Stanford University. In his book Give Man A Fish, he questions the very foundation of neo-liberal approach to fighting poverty, i.e. through creating jobs. James argues that it would never be possible to create enough “stable jobs” for everyone in a state. In such a scenario, states need to provide for those left-out citizens through cash transfers. In other words, it is a duty of the state to provide for those in need — something fundamentally antithetical to the neo-liberal model. As evidence, he presents the case of post-apartheid South Africa where neo-liberal policies were implemented and the result was mass unemployment and unprecedented income inequality. Once neo-liberal model had failed to deliver, the government in South Africa took a radical turn towards welfare system based on cash transfers. South Africa transfers around 3.4 percent of the national GDP on loose conditions (increasingly moving towards no conditions) directly to the poor which make up more than 30 percent of the entire population. This “South Africa model” has been replicated, in various degrees, in Namibia, Botswana, Swaziland and Lesotho.
UNICEF seems to agree with James, and has stated that South Africa’s social grants have been extremely successful at reducing poverty. For example, the household that reported experiencing hunger has decreased from 29.3 percent to 12.6 percent between 2002 and 2012. An evaluation of South Africa’s Child Support Grant program concluded that it had made a positive developmental impact on nutrition, educational and health outcomes. A recent survey of living standards (based on indicators such as the presence of running water or flush toilets and ownership of key goods and appliances instead of income) found that the proportion of South African adults falling into the lowest of ten categories for living standards had fallen from 11 percent of the population in 2001 to just 1 percent in 2011.
Another groundbreaking work was presented by Joseph Hanlon, Armando Barrientos, and David Hulme. In their book Just Give Money to the Poor: The Development Revolution from the Global South, they put forth a similar thesis as Ferguson. They argue that instead of thinking about ways to effectively use aid to help poor, it is better to give that aid directly to the poor, thus allowing them to find ways to escape poverty themselves. The problem with those living below poverty is not the lack of motivation or knowledge, they argue, but the lack of cash that precludes them from taking any initiative to improve their lives. He cites examples from Mexico, Namibia and South Africa where long-term cash transfer programs have had significant impacts on the lives of recipients. These researchers broadly reached four conclusions: one, cash-transfer programs are affordable; two, recipients use the money effectively instead of wasting it; three, cash grants are an efficient way to directly reduce current poverty; four, they have the potential to prevent future poverty by facilitating economic growth and promoting human development.
A study conducted by Overseas Development Institute titled Understanding the impact of cash transfers: the evidence reviewed literature from 2000 to 2015 and reached the following conclusions: cash transfers reduce monetary poverty, raise school attendance, stimulate health service use and improve dietary diversity, help foster beneficiaries’ economic autonomy, reduce child labor, empower women by increasing their decision-making power and choices.
A study conducted by UK’s Department for International Development (DFID) found that cash transfers can reduce income inequality (for example, in Brazil various cash transfer programmes contributed to 28 percent decrease in the Gini index between 1995 and 2004), improve household productivity and capacity for income generation, positively impact labor market participation, contribute to long term growth by increasing human capital of
subsequent generation, empower the poor and allows them to exercise decision making power in matter concerning them, contribute to conflict prevention and peace building.
Lastly, the libertarian “myth” that cash-transfers discourage work was debunked by Harvard and MIT professors in their study titled Debunking the Stereotype of the Lazy Welfare Recipient: Evidence from Cash Transfer Programs Worldwide. They re-analyzed the data from 7 randomized controlled trials of government-led cash transfer programs in six developing countries. They concluded that there existed no systematic evidence that cash transfer programs discourage work.
In the light of these evidences and the successes of cash transfer programs in various parts of the world, particularly in the developing countries, perhaps it is about time that we rethink the popular neo-liberal paradigm that welfare programs, including cash-transfer programs, discourage work and are bad for economy.
