The Economist this week has an excellent article on giving cash transfers, conditionally or unconditionally, to poor people to alleviate their poverty. Calling it “possibly the single best piece of journalism on cash transfers that I’ve seen so far,” Chris Blattman—one of the scholars whose research has provided grist for this mill—laments that such writing “tends to make the Pulitzer committee fall asleep in bed.” Maybe so, but the idea is potentially transformative.
That cash conditional on sending your children to school or taking them for a medical checkup improves health and education outcomes has been established for some time now. More recently, some studies show that unconditional cash transfers could have the same effect. Chris’s work demonstrates that giving cash to idle young people leads to higher business earnings than if the money were used to run vocational training courses for these people.
In parallel, Todd Moss at the Center for Global Development and my colleague Marcelo Giugale and I (along with several others) have been exploring the idea of transferring oil revenues to citizens as cash transfers, as a way of reducing the resource curse that afflicts many resource-rich countries, especially in Africa. Gabon for instance, with a per-capital income of $10,000 has the second-lowest child immunization rate in Africa. Marcelo and I show that, with just 10 percent of resource revenues’ being transferred directly to citizens (in equal amounts), poverty can largely be eliminated in the smaller resource-rich African countries.
Furthermore, the technology for making transfers has improved significantly. Alan Gelb and Julia Clark show that biometric ID cards can be had for a few dollars each. The Indian government is rolling these out to its 1.2 billion citizens (about 300 million already have them). With these cards, cash can be transferred electronically and, possibly, through mobile phones. Not surprisingly, there is a lively discussion in India of replacing its poorly-targeted and inefficient subsidies with cash transfers.
Up to now, criticisms of the idea of cash transfers has been that poor people will waste the money on alcohol or tobacco, rather than using it to educate their children or start a business. [When I presented the idea in South Sudan, I was told that “people will use the money to take another wife (sic).”] The research largely counters this criticism. But the debate misses another important aspect of replacing traditional public expenditures, such as free schools and clinics, and subsidized energy, water, and food with cash transfers. It shifts the accountability for these services to the government. When governments provide free or subsidized goods and services, poor people have little choice but to consume what is provided. Often, the quality or even access is poor. But when they are given cash with which to “buy” these services, poor people can demand quality—and the provider must meet it or he won’t get paid. As a farmer in Andhra Pradesh, India, after subsidized water was replaced with full-cost pricing, put it, “We will never again allow the government to give us free water.”
Likewise, in resource-rich countries, the oil revenues go directly from the oil company to the government without passing through the hands of citizens. As a result, citizens may not know how much revenues there are and, worse, may not have as much incentive to scrutinize government spending, because they don’t think of it as “their money” (even though it is). With cash transfers, citizens will at least know something about the size of the revenues and, possibly, have greater incentive to scrutinize how it is being spent.
The criticism of cash transfers—which usually comes from senior government officials--may have less to do with a concern that the money will be misspent and more with the loss of discretion in government spending. Put another way, cash transfers have the potential to shift not just poverty-reducing policies but also the balance of power between government and its citizens, in favor of the latter.