The Poverty Solution: Cash

Posted: 10th July 2010 by Khannea Suntzu in Uncategorized
Infect Teh Interwebs

Reprinted from here, as suggested by James.

A new book, “Just Give Money to the Poor,” says the poor will spend the cash wisely and boost the economy, too.

By Melinda Burns

Who’s responsible for the poor?

Back in the reign of the first Queen Elizabeth, English lawmakers said it was the government and taxpayers. They introduced the compulsory “poor tax” of 1572 to provide peasants with cash and a “parish loaf.” The world’s first-ever public relief system did more than feed the poor: It helped fuel economic growth because peasants could risk leaving the land to look for work in town.

By the early 19th century, though, a backlash had set in. English spending on the poor was slashed from 2 percent to 1 percent of national income, and indigent families were locked up in parish workhouses. In 1839, the fictional hero of Oliver Twist, a child laborer who became a symbol of the neglect and exploitation of the times, famously raised his bowl of gruel and said, “Please, sir, I want some more.”

Today, child benefits, winter fuel payments, housing support and guaranteed minimum pensions for the elderly are common practice in Britain and other industrialized countries. But it’s only recently that the right to an “adequate” standard of living has begun to be extended to the poor of the developing world.

In an urgent new book, Just Give Money to the Poor: The Development Revolution from the Global South, three British scholars show how the developing countries are reducing poverty by making cash payments to the poor from their national budgets. At least 45 developing nations now provide social pensions or grants to 110 million impoverished families — not in the form of charitable donations or emergency handouts or temporary safety nets but as a kind of social security. Often, there are no strings attached.

It’s a direct challenge to a foreign aid industry that, in the view of the authors, “thrives on complexity and mystification, with highly paid consultants designing ever more complicated projects for ‘the poor’” even as it imposes free-market policies that marginalize the poor.

“A quiet revolution is taking place based on the realization that you cannot pull yourself up by your bootstraps if you have no boots,” the book says. “And giving ‘boots’ to people with little money does not make them lazy or reluctant to work; rather, just the opposite happens. A small guaranteed income provides a foundation that enables people to transform their own lives.”

There are plenty of skeptics of the cash transfer approach. For more than half a century, the foreign aid industry has been built on the belief that international agencies, and not the citizens of poor countries or the poor among them, are best equipped to eradicate poverty. Critics concede that foreign aid may have failed, but they say it’s because poor countries are misusing the money. In their view, the best prescription for the developing world is a dose of discipline in the form of strict “good governance” conditions on aid.

Joseph Hanlon, a senior lecturer in development at the Open University in Milton Keynes, and Armando Barrientos and David Hulme, professors of poverty and development studies, respectively, at the University of Manchester, England, and directors of the Brooks World Poverty Institute there, back up their conclusions in Just Give Money with a wealth of studies on cash transfer programs, many of them conducted by the skeptical foreign aid community, including such global micromanagers as The World Bank and International Monetary Fund.

According to The World Bank, nearly half the world’s population lives below the international poverty line of $2 per day. As the authors of Just Give Money point out, that’s despite decades of top-down, neo-liberal, extreme free-trade policies that were supposed to “lift all boats.” In Africa, South Asia and other regions of the developing “South,” the situation remains dire. Every year, according to the United Nations, more than 9 million children die before they reach the age of 5, and malnutrition is the cause of a third of these early deaths.

Just Give Money argues that cash transfers can solve three problems because they enable families to eat better, send their children to school and put a little money into their farms and small businesses. The programs work best, the authors say, if they are offered broadly to the poor and not exclusively to the most destitute.

“The key is to trust poor people and directly give them cash — not vouchers or projects or temporary welfare, but money they can invest and use and be sure of,” the authors say. “Cash transfers are a key part of the ladder that equips people to climb out of the poverty trap.”

Brazil, a leader of this growing movement, provides pensions and grants to 74 million poor people, or 39 percent of its population. The cost is $31 billion, or about 1.5 percent of Brazil’s gross domestic product. Eligibility for the family grant is linked to the minimum wage, and the poorest receive $31 monthly. As a result, Brazil has seen its poverty rate drop from 28 percent in 2000 to 17 percent in 2008. In northeastern Brazil, the poorest region of the country, child malnutrition was reduced by nearly half, and school registration increased.

South Africa, one of the world’s biggest spenders on the poor, allocates $9 billion, or 3.5 percent of its GDP, to provide a pension to 85 percent of its older people, plus a $27 monthly cash benefit to 55 percent of its children. Studies show that South African children born after the benefits became available are significantly taller, on average, than children who were born before.

“None of this is because an NGO worker came to the village and told people how to eat better or that they should go to a clinic when they were ill,” the book says. “People in the community already knew that, but they never had enough money to buy adequate food or pay the clinic fee.”

In Mexico, an average grant of $38 monthly goes to 22 percent of the population. The cost is $4 billion, or 0.3 percent of Mexico’s GDP. Part of the money is for children who stay in school: The longer they stay, the larger the grant. Studies show that the families receiving these benefits eat more fruit, vegetables and meat, and get sick less often. In rural Mexico, high school enrollment has doubled, and more girls are attending.

India guarantees 100 days of wages to rural households for unskilled labor, paying at least $1.25 per day. If no work is available, applicants are still guaranteed the minimum. This modified “workfare” program helps small farmers survive during the slack season.

Far from being unproductive, the book says, money spent on the poor stimulates the economy “because local people sell more, earn more and buy more from their neighbors, creating the rising spiral.”

Pensioner households in South Africa, many of them covering three generations, have more working people than households without a pension. A grandmother with a pension can take care of a grandchild while the mother looks for work.

Ethiopia pays $1 per day for five days of work on public works projects per month to people in poor districts between January and June, when farm jobs are scarcer. By 2008, the program was reaching more than 7 million people per year, making it the second largest in sub-Saharan Africa, after South Africa. Ethiopian recipients of cash transfers buy more fertilizer and use higher-yielding seeds.

“In other words,” the book says, “without any advice from aid agencies, government, or nongovernmental organizations, poor people already knew how to make profitable investments. They simply did not have the cash and could not borrow the small amounts of money they needed.”

Just Give Money is lucidly written, but it bogs down when it explores the complex ins and outs of designing cash-transfer programs. In effect, the authors are combining a book for general readers with a book for policymakers. But there are helpful summaries for the layman at the end of every chapter, and some of the debates are fascinating.

For example, there’s the question of whether mothers who receive grants should be required to attend health talks and perform community work, as they are in Mexico and Brazil. On one hand, these rules could be viewed as reinforcing the view that mothers must sacrifice themselves for their children. On the other, studies show that many of the women had been confined at home by their husbands and welcomed the chance to get out.

Just Give Money does not put much stock in micro-credit programs that loan money to the poor in developing countries. Many people are too poor to take on the risk of paying back a loan, the authors say. They find fault with the U.N.’s Millennium Development Goals, too, saying these have “kept governments at arm’s length from the economy.”

A better way for donor countries to help, the authors suggest, is to give aid as “general budget support,” funneling cash for the poor directly into government coffers.

Cash transfers are not a magic bullet. Just Give Money notes that 70 percent of the 12 million South Africans who receive social grants are still living below the poverty line. In Brazil, the grants do not increase vaccinations or prenatal care because the poor don’t have access to health care. A scarcity of jobs in Mexico has forced millions of people to emigrate to the U.S. to find work. Just Give Money emphasizes that to truly lift the poor out of poverty, governments also must tackle discrimination and invest in health, education and infrastructure.

The notion that the poor are to blame for their poverty persists in affluent nations today and has been especially strong in the United States. Studies by the World Values Survey between 1995 and 2000 showed that 61 percent of Americans believed the poor were lazy and lacked willpower. Only 13 percent said an unfair society was to blame.

But what would Americans say now, in the wake of the housing market collapse and the bailout of the banks? The jobs-creating stimulus bill, the expansion of food stamp programs and unemployment benefits — these are all forms of cash transfers to the needy.

Just Give Money says cash helps people “see a way out,” no matter where they live.

* Just give money to the poor.
* When benefits run out.

  1. Serendipity Seraph says:

    Schemes like BIG also seem to assume that people are owned by the “society” or the state and that parts of their life and labor can be demanded by “society” at any time it wish and in any amount that it wishes. Let me say what the problem is with this. YOU DON’T OWN ME. I am not your property. Not yours personally nor any number of people bundled together and called “society”.

  2. Serendipity Seraph says:

    A right to a decent standard of living? To be provided by whom? By those who created enough value that they received enough value in return for to not need such a guarantee? By forcing those others who are the current producers and innovators to carry everyone else? Do you think you get more of the very innovation that brings us to a better future by doing this? The countries with such entitlement countries are all struggling economically right now. In many of them the entitlements are the largest part of the budget (including the US). Never mind the unfunded future liabilities for these entitlements. At a time when every worker in the US is $140,000 in debt already as their “fair share” of the officially counted debt (never mind the 5x unfounded and not officially reported liabilities) just where in the hell it would create do you think the money will magically come from to do what you suggest?

    • Khannea Suntzu says:

      Serendipity, my love, If we continue this debate sooner or later you have to in full acknowledge all my arguments and not handpick them as you find suitable.

      Currently the US provides a range of unemployment benefits which is comparatively low by western standards. Best states are NY and Cal, at just over 400 a month. In my country, wellfare is about 800 euro, by comparison double that amount. However do not for a second assume I ‘gloat’ over this societal sacrifice. It’s a travesty.

      (quote: Put simply, we find that countries that spend a
      greater proportion of GDP on welfare have lower
      imprisonment rates and that this relationship
      has become stronger over the last 15 years. The
      consistency in these findings across the United
      States and the other 17 countries studied makes
      it difficult to believe that this relationship is
      simply accidental or coincidental.

      http://www.google.com/url?sa=t&source=web&cd=1&ved=0CBcQFjAA&url=http%3A%2F%2Fwww.crimeandjustice.org.uk%2Fopus303%2FWelfare_and_Punishment_webversion.pdf&rct=j&q=link%20between%20low%20welfare%20and%20imprisonment%20rate&ei=HLNKTNmeN5rT4waSvdCaDA&usg=AFQjCNEA5pb20I-u5vW9-H_WnS2xL5iTkQ&sig2=qmgSYpPNUSLNyJNJkD6YYQ )

      It can be argued [countries like] the US (and to some extent mine) don’t pay this fortune out of any charity, but by and large to avoid trouble – in essence paying (whatever form of) welfare is in effect an insurance investment reducing both crime *and* desperation votes.

      I’d go as far as label wellfare in the current paradigm to be a “Guillotine Insurance”.

      In effect, if voters become more desperate they are more likely to start voting more populist and more leftist and this would have an adverse effect on business and economics far more insidious than the moderate sacrifice in money represented by what you disparagingly label ‘entitlements’. The rationale stems back to a historical era of severe societal unrest which you clearly exhibit a problem visualising. The extremes of societal unrests have a habit of getting people killed, and I need only raise the vision of revolutionary uprisings to illustrate my point. If you lock out a big segment of society from reaping the benefits of said society, the ‘underclass’ (or proletariat if you will) will eventually rize up and kill. Worse, long before it has, it will have caused severe, almost incapacitating societal drag in terms of corruption, crime and despair.

      People who are locked out eventually become a far FAR greater drag on society than any wellfare ‘entitlement’ might ever constitute. Even if you don’t feel a shred of human empathy for the ‘losers’ of our collective systems, you should at the very least have a good hard look in the mirror and ask yourself where you’d be if you walked a mile in their shoes, and what you’d end up costing society if you had ‘to do whatever it takes’. I know you are at least as stubborn as I am, but can’t you see the practical mechanics at work here?

      http://www.google.com/url?sa=t&source=web&cd=3&ved=0CCcQFjAC&url=http%3A%2F%2Fwww.surveillance-and-society.org%2Farticles5(3)%2Feditorial.pdf&rct=j&q=surveillance%20society%20income%20disparity&ei=7atKTIXnEuWM4gaWh6GaDA&usg=AFQjCNGLincv0yHbQrBPCw3sIsdn7CbhVg&sig2=HE1n-MagMJSHeQ4MYf_IJg

      My position is very clear on the matter – societal inclusion is a ‘collectivist’ investment a society can not avoid making at its own peril. If an excluded underclass of the ‘opportunity challenged’ are not fed, protected, housed, medically cared for (or even entertained), they will funnel discontent in a manner that will cost you far more (and worse) than an equivalent entitlement program in safety nets would cost.

      http://en.wikipedia.org/wiki/Incarceration_in_the_United_States

      (* note: the average cost of a prison inmate is *claimed to be* lowest in florida at 20.000 a year: http://www.dc.state.fl.us/pub/statsbrief/cost.html. The real cost is far higher: http://www.ehow.com/about_5409377_average-cost-house-inmates-prison.html.)

      It is severely distressing to me that whereas my position has evolved into solid arguments in the last year, you keep completely effectively ignoring this whole ‘entitlement sustainability’ argument, and keep hammering at the entitlements sacrifice.

      In fact this line of argumentation has been proven to be total bunk

      http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6W5H-4F01824-1&_user=10&_coverDate=02%2F28%2F2005&_rdoc=1&_fmt=high&_orig=search&_sort=d&_docanchor=&view=c&_searchStrId=1410269360&_rerunOrigin=google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=31f19118083e0781f75ec397d0e533b9

      I *do* agree with you that the current system is broken beyond repair.

      The problem is largely ‘voter recalcitrance’ on either side of the political spectrum. The left wingers can’t afford to relinquish control of what you’d term ‘collectivist feeding troughs’ and the rightwingers seem recalcitrant to make any other consideration other than an antiquated conception of personal responsibility and protestant work ethics.

      The two positions cannot in the current system be resolved. It’s a political stalemate. In our society many people have to work real hard, and most somewhat more right-wing oriented voters who ‘have the pride to make a decent life for themselves’ (and might subscribe to whats colloquially referred to as ‘producerist’ attitudes) are intolerant of giving out what they term ‘free cash’. This segment of the voter base does not ascribe to the idea of ‘humane values’ or ‘pity’ and feels contempt for those that do not or can not find employment.

      Fact of the matter is however we live in a democracy. The reality on the ground IS that exclusion translates one on one into a democratic electorate voting for more handouts *AS SOON AS they don’t make do*. This is starting to happen increasingly even in the US, despite epic ‘establishment’ efforts to marginalize or intimidate the already marginalized. Democracy was instituted to give the marginalized a voice and if you resent them using this voice to tax your ass blue, well then boohoo – there are many nations with lower tax rates where you can migrate.

      You have yet to respond to this argument itself and you have yet to offer a viable and credible conceptual alternative.

      You know my alternative – *start out* by giving *everyone* (including you) in any specific state entity an inalienable basic income of *LESS THAN* the current welfare amounts. *And then* have people vote every goddamn election whether or not they want this amount to go up or down. You win, either way. Why? Well, here is why :

      0 – Basic Income is now democratized. You are still in favor of democry right? Well, now you get to enjoy both the benefits and costs almost seamlessly. Feel free to vote and actively for LOWER BASIC INCOME continuously.

      1 – You can now open borders and give economic immigrants *NO BI*, and immigrants are free to come in as long as they behave, register, renew their residence visa every month. Your society will gain massive tax benefits by exploiting low wage workers in this manner – in effect you are saying to economic migrants ‘you are welcome, but you don’t get any handout, and we WILL tax you for the pleasure of working here’. Hell if you are a royal asshole you can even destroy minimum wage for immigrants (while still taxing them) and keep it in existence for citizens.

      2 – you silence right wing populists as now they “underbelly people” get the same entitlement money as do the ‘freeloaders’, whereas immigrants will end up paying THEIR BI cheques. Everybody wins (except of course rosita who will do your laundry at 2.10 $ an hour).

      3 – Right now, if people are ‘unable to get a job’ (real or lazy or pretend is irrelevant) this system would institute a blanket buffer. Right now people can’t afford to lose welfare. So what do they do? They don’t look. However by basic income they would look for part time jobs. This would make labor markets a LOT more flexible in terms of flexible work hours.

      4 – if people need study to get other employment you create a financial buffer to allow them to do so. They can take a part time job with some measure of confidence they will be able to survive (of which they have zero guarantee right now) while they study and retrain.

      5 – you save as a society a FORTUNE on not having to check every single wellfare recipient over and over to see if he’s secretly working (or panhandling) next to their welfare.

      http://www.youtube.com/watch?v=ZhzwB-3Zg0Y

      Simply allow everyone to work next to receiving BI (and rent control, a disability bonus, if applicable, and collectivist medical care). YES you would pay taxes for this.

      There are other benefits listed here:

      http://www.bostonreview.net/BR25.5/vanparijs.html

      Serendipity, I understand and empathize with your position and arguments, and yes they are valid. Yes taxation is an invasive societal consequence and it is often a waste, since the state can be argued to spend this money incompetently. But the time has come for you to start affirming that there are severe consequences for societal exclusion that cannot be addressed by merely offering the losers of society ‘free euthanasia’. You live in a country suffering massive benefits of pooling some of the available resources through levvied taxation. the sun and rain fall on everybody, and you travel roads implemented by the collective. My strong suggestion is that you should stop blindly resisting these invasive redistributive measures (in the same manner as you should stop complaining about the weather) but instead joined the debate on how to fix things. Maybe you can instead of blindly lashing about against entitlement programs address government inefficiency? Maybe you could do a scientific analysis of what spectrum of social services would cost least, served to satisfy the respective clients most, reduced criminal activities and increased individual productivity most? Please let’s get out of the trenches and build a better society not based on endless prejudice and kneejerk hostility towards people with less fortune backgrounds, but maybe you could make robust suggestions on managing society as to make it all a bit more civilized.

      * http://www.thelightsinthetunnel.com/
      * http://www.marshallbrain.com/robotic-nation.htm
      * http://www.marshallbrain.com/robots-in-2015.htm
      * http://en.wikipedia.org/wiki/Producerism
      * http://www.articlesbase.com/environment-articles/unemployment-problem-952277.html
      * http://www.statemaster.com/graph/eco_wel_cas_tot_rec_percap-caseloads-total-recipients-per-capita
      * http://www.heritage.org/research/reports/2004/01/understanding-poverty-in-america
      * http://www.politicususa.com/en/gop-demonize-unemployed
      * http://www.dailymail.co.uk/news/article-1240348/Suicidal-despair-1-3-young-jobless-Tragic-human-cost-recession-revealed.html
      * http://econpapers.repec.org/paper/eslilrdps/031.htm
      * http://www.youtube.com/watch?v=yr4wzrOpn6I&feature=PlayList&p=F819FABAF723EA14&playnext=1&index=2
      * http://articles.moneycentral.msn.com/learn-how-to-invest/The-real-unemployment-rate.aspx?f=255&MSPPError=-2147217396
      * http://www.dailyfinance.com/story/careers/what-is-the-real-unemployment-rate/19556146/
      * http://employeeissues.com/unemployment_benefits.htm
      * http://www.jstor.org/pss/30025993

      “This paper examines the tradeoffs inherent in guaranteed income proposals. Its perspective is international, using the Luxembourg Income Study and asking whether economic efficiency suffers when governments make greater efforts to protect the poor. Using two different measures of productivity growth, we find no big tradeoff between equity and efficiency. That is, during those times and in those countries where greater efforts were made to protect the incomes of the poor, productivity growth does not seem to be affected very much. This gives some hope that efficiency concerns are not a fatal objection to guaranteed income plans.”

  3. Metafire says:

    Yeah, sounds like a pretty interesting and useful book. It reminded me of a BIG project in Namibia I have read about recently: http://www.bignam.org/
    http://www.bignam.org/page5.html

    The findings of that project totally agree with the usual positive results mentioned in this blog post.

    I think, it’s pretty ironic that developing nations may be the first ones to implement really serious BIGs. It seems that income inequality is a more important enabling (!) factor than overall wealth of a nation. Huge income inequality means that the extremely rich could help out the extremely poor quite easily.

    – May the futures elevate us!