Just Give Money to the Poor: the Development Revolution from the Global South, an excellent overview of cash transfers

May 24, 2010

     By Duncan Green     

Cash transfers (CTs – regular payments by the state directly to poor people) are all the rage at the moment, prompting heated debates across the development sector. As its title suggests, a new book, ‘Just Give Money to the Poor’ has no doubts about their merits. But Just Give Money coverJoseph Hanlon, Armando Barrientos (see his blog on the book here) and Hulme are academics with a long track record on development, and their conclusion is not a crude polemic, but an excellent and readable compendium of country experiences, arguments and research findings.

Summarizing the research, they say ‘Four conclusions emerge repeatedly: These programs 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 labor?’ Intriguingly, there is very little evidence that conditions have any actual impact, by the way.

The authors try to locate these discussions in the big historical picture, arguing that CTs represent a paradigm shift on a par with the creation of the welfare state in the North, and moreover constitute a ‘genuinely Southern revolution’, in response to the efforts of a failed northern aid industry. They have been pioneered by the new generation of G20 leaders – South Africa, Brazil, China, India, Mexico and Indonesia. The big shift is away from the insurance schemes preferred in northern welfare states, to direct government-funded schemes that recognize that self-insurance isn’t a viable option for poor people. Posing this as a crude ‘North v South’ argument feels rather retro in these multipolar times, but it’s certainly an interesting frame.

The book summarizes the current state of CTs as follows:

‘At least 45 countries in the Global South now give CTs to more than 110 million families. Every program is different, from universal child benefits in Mongolia to pensions in Africa to family grants in Latin America. Some grants are tiny – only $3 a month – whereas others give families more than $100 a month; some cover more than one-third of the population, and others aim only for the very poorest. The size of public spending varies from 0.1% of GDP to 4%, although most programs fall in the range of 0.4% to 1.5%.’

The four main goals of CTs are social protection and security (for the young, old, disabled); development and economic growth (CTs give poor people the security they need to invest in higher risk/return options like new crops, or migrating in search of work); breaking intergenerational poverty (by ensuring children are better nourished and educated than their parents) and rights and equity (reducing income inequality and promoting the status of women).

And one important caveat: CTs increase demand for things like schools and hospitals, but that can be pointless if their quantity or quality does not respond in turn – the book argues that ‘co-responsibilities’ between citizens and state is a better frame than ‘conditions’ on grants. The same holds for ensuring that decent jobs await this new generation of health, educated people.

The discussion I found most interesting was on the politics of CTs – when/why are they introduced? How do they spread? They usually start small, both in terms of target group and geography (eg in Brazil, India and China, they started off as regional initiatives and were then picked up by national governments); often politicians introduce them either to head off unrest during a crisis, or as vote winners before an election, but they then take on lives of their own (it would have been good to know more about when this does/doesn’t happen – what distinguishes CTs from old school patronage? Why are similar programmes introduced by governments of very different political stripe?); pensions and child benefits are the best entry points, as they rapidly win political consensus and public support.

The authors tie CTs’ new popularity with southern governments to the resurgence of interest in the developmental state, and the decline of the Washington Consensus. CTs are the basis for a new social contract between citizen and state, in situations where informalization of the economy make taxation (the historical basis of the contract) an unrealistic foundation.

There is often a fascinating conflict between the technocrats’ urge for tight targeting to ‘maximise efficiency’ and public rejection in favour of universality – in Mongolia this led to a targeted programme being replaced by a more popular (but more expensive) universal child benefit. Targeting appears particularly divisive when only a few cents divides the poor and the non-poor, as in many low income countries. In those circumstances, the nominally poor suddenly become much richer than their non-poor neighbours, which, in a lovely throwaway line ‘raises questions of witchcraft and nepotism.’

The path has been smoothest when CTs are nationally owned and driven – donor pressure appears to be counterproductive in many cases, being interpreted by local elites as having their arms twisted to give cash to lazy, feckless wasters.

How to fund it all? The authors are aid-sceptics and argue that domestic revenues should be the preferred source, but also raise an interesting alternative for the poorest countries. CTs require a big pot of cash, without donor conditions or loads of reporting red tape. What better source than a financial transaction tax?

For a comprehensive survey of practice or the policy dilemmas and choices surrounding CTs, I have yet to find a better place to start than ‘Just Give Money to the Poor.’