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Why Giving Cash Helps Alleviate Poverty
CHRISTOPHER BLATTMAN is Assistant Professor of Political Science and International Affairs at Columbia University. Follow him on Twitter @cblatts. PAUL NIEHAUS is Assistant Professor of Economics at the University of California, San Diego, and Co-Founder of GiveDirectly. Follow him on Twitter @Give_Directly.See more by Christopher BlattmanSee more by Paul Niehaus
Every year, wealthy countries spend billions of dollars to help the world’s poor, paying for cows, goats, seeds, beans, textbooks, business training, microloans, and much more. Such aid is designed to give poor people things they can’t afford or the tools and skills to earn more. Much of this aid undoubtedly works. But even when assistance programs accomplish things, they often do so in a tremendously expensive and inefficient way. Part of this is due to overhead, but overhead costs get far more attention than they deserve. More worrisome is the actual price of procuring and giving away goats, textbooks, sacks of beans, and the like.
Most development agencies either fail to track their costs precisely or keep their accounting books confidential, but a number of candid organizations have opened themselves up to scrutiny. Their experiences suggest that delivering stuff to the poor is a lot more expensive than one might expect.
Take cows. Many Western organizations give poor families livestock, along with training in how to raise and profit from the animals. Cows themselves usually cost no more than a few hundred dollars each, but delivering them -- targeting recipients, administering the donations, transporting the animals -- gets expensive. In West Bengal, India, for example, the nonprofit Bandhan spends $331 to get $166 worth of local livestock and other assets to the poor, according to a report by the rating agency Micro-Credit Ratings International. Yet even this program sounds like a bargain compared to others. In Rwanda, a study led by the economist Rosemary Rawlins found that the cost of donating a pregnant cow, with attendant training classes and support services, through the charity Heifer International can reach $3,000.
Such programs surely reduce poverty: having a cow is undoubtedly better than not having one. But they also carry an opportunity cost, since the money spent on procuring and delivering the cows or other assets could instead go directly to the poor. Bandhan, for example, could give twice as many households cash grants equal to the local price of the livestock it now gives as it does actual livestock. And in place of each cow it provides, Heifer could give $300 -- roughly half of Rwanda’s per capita income -- to ten poor families.