Just Give Money to the Poor

I was honored to be asked to write the Foreword to Just Give Money to the Poor: The Development Revolution from the Global South by David Hulme, Joseph Hanlon, and Armando Barrientos of the University of Manchester. This book, published by Kumarian Press last year, argues for the new and provocative idea that, as the title suggests, simply giving money to the poor, and letting them spend it as they see fit, is the best way to combat poverty. Forget conditions, forget having to “earn” assistance – they argue that the poor know best what they need, and that they are actually quite good at managing their money.

As you can see from my Foreword below, I think this is an interesting and important book, and it also makes a novel contribution to the work of my colleagues Jamie Zimmerman and Jamie Holmes in the Global Assets Project, who suggest linking a savings account to any cash transfers – conditional or not. You also can hear one of the authors, David Hulme, discuss the book in an event the Global Assets Project organized last September.

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Over the last decade, three new and compelling ideas have emerged to reduce poverty in developing countries.  

The first is that the poor need access to savings and asset accumulation services, not just—and possibly more than—access to credit. CGAP, a World Bank affiliate, states that. “When savings accounts in financial institutions serving the poor outnumber micro-loan accounts seven to one, one thing is certain: microfinance clients want savings services.” And, commensurate with that, advocates of asset development for the poor, also a novel idea, have asked, “Savings for what?” spawning new programmes and policies worldwide to enable the poor to leverage their savings for land, livestock, homes, businesses, and the like.

The second is conditional cash transfers, or CCTs, which reward the poor with cash payments if and only if they do the kinds of things governments, NGOs and other non-poor donors want them to do—keep their kids in school, take them to the doctor, eat the right foods, etc. CCTs made their debut in Mexico in 1997, and have since spread throughout Latin America and to Africa, Asia, Central Europe and the United States as well.  Research results have demonstrated many positive economic, social and health outcomes associated with CCTs, so they are likely to spread even further.

The third new idea—the subject of Just Give Money to the Poor: The Development Revolution from the South—may be the most simple, and radical, of all. In their inspiring, well researched new book, Joseph Hanlon, Armando Barrientos and David Hulme argue that simply giving money to the poor—no strings, no conditions, no kidding—may be the most promising approach not just for avoiding hardship and reducing poverty, but for long-term development as well.

The authors present data from direct cash transfers programmes around the world and conclude that (1) they are affordable for governments and other donors; (2) recipients use the money efficiently; (3) they reduce immediate hardship and poverty effectively; and (4) they hold potential to reduce longer-term poverty by facilitating both economic and social development.

However, not all cash transfer programmes are created or implemented equally, so these four outcomes are most likely to be achieved if the programmes are “fair and assured”—that is, is there agreement among citizens and policymakers about who is eligible to receive the cash, and can those recipients be assured of regular, monthly payments?  In fact, Hanlon et al. offer five principles for those aiming to adopt cash transfer programs worldwide: Fair; Assured; Practical (is the civil service and banking infrastructures sufficient to administer the programme?); Not Pennies (are the cash payments large enough to make a difference?); and Popular (are the programs politically acceptable?).

The authors don’t deny the importance of a good education, health services, and access to financial services and productive assets, but wisely observe that “the biggest lesson has been that people must have the minimum of money to take advantage of the schools, health facilities, and land. And if they do have that money, they can take the lead in their own development.”

The authors are refreshingly honest about the limitations of cash transfer programmes, as well the areas of intense debate: targeting and conditions. That is, while it’s agreed that the programmes should be well targeted and, therefore, politically acceptable, achieving that in practice is challenging. Moreover, as much as the authors passionately argue for un-conditional cash transfers—fully and admirably trusting the poor to make the best decisions with the money—they acknowledge the powerful donor and policymaker preference (especially outside the global South) for reciprocity. “Not only must you be among the ‘deserving’ poor; you’re also going to use our funds in ways that we see fit for your well-being” is the common command, hence the popularity of conditional cash transfers. Thankfully, the authors don’t short-change these important questions and debates, but offer good examples and data to make their case for targeted but un-conditional transfers.

Similarly, Hanlon, Barrientos and Hulme buck another powerful and related trend in academic and policymaker circles worldwide: towards “soft paternalism” and the larger “behavioural economics” framework behind it. The premise of this anti-neo-classical theory of economics is that human beings are anything but rational when it comes to decisions about their health, wealth and happiness; in fact, we often make decisions against our self-interest and cannot, therefore, be trusted. Because of our general inability to look out for ourselves, policymakers and other are going to make decisions for us—“nudge” us to do the right things, construct a “choice architecture,” and establish “default” settings to help ensure that we make the “best” choice. The Obama Administration is smitten by this approach, and new academic centres have sprung up at Harvard and elsewhere to apply this thinking to poverty, pensions and pot-bellies around the world.

It’s hard to imagine a premise more offensive to the authors of Just Give Money to the Poor. Hanlon et al. trust in the poor, trust in their ability to make decisions to promote their own well being, and trust that donors (whose strategies over the last generation are reviewed in the book) will continue making poor decisions on behalf of the poor.

Now, I happen to believe that the behaviouralist approach holds real promise, for many of the experiments thus far are encouraging. However, concerns are surfacing about the loss of freedom this approach implies—that paternalism has gone too far. Specifically, regarding Just Give Money to the Poor, there is a real debate as to whether poor people are just lacking money and will largely make the right choices with it, or if they also need paternalistic nudges to push them toward being healthier and happier human beings. I don’t think we know that yet, nor have we debated it enough to know.

However, wherever you might fall on the freedom/paternalism or trust/non-trust or conditions/non-conditions or credit/savings spectrums, we owe a great debt to Joseph Hanlon, Armando Barrientos and David Hulme for writing Just Give Money to the Poor. For they have enriched the important and timely poverty debate with their brave, powerful, well documented and often counter-intuitive arguments for direct cash transfers to the poor—a debate on which the lives and livelihoods of hundreds of millions of people depends.