The Pandemic Depression
The Global Economy Will Never Be the Same
In a Foreign Affairs article last year, we wrote what we hoped would be a provocative argument: “Cash grants to the poor are as good as or better than many traditional forms of aid when it comes to reducing poverty.” Cash grants are cheaper to administer and effective at giving recipients what they want, rather than what experts think they need.
That argument seems less radical by the day. Experimental impact evaluations continue to show strong results for cash grants large or small. In August, David McKenzie of the World Bank reported results from a study of grants of $50,000 on average to entrepreneurs in Nigeria that showed large positive impacts on business creation, survival, profits, sales, and employment, including an increase of more than 20 percent in the likelihood of a firm having more than ten employees. Also this year, Chris Blattman and Stefan Dercon, the chief economist at the United Kingdom’s Department for International Development, found that $300 grants to young men and women in Ethiopia led them to start small enterprises, raised their incomes by one-third, and lowered by half the likelihood of them taking sweatshop jobs harmful to their health. With more research the scale of these impacts will become clearer. But for now the bottom line is clear: more cash is needed.
As the body of empirical evidence supporting the value of cash transfers has grown, calls for increased use of such grants have also multiplied—to the point that some are calling cash a fad. In an assessment of cash transfers, World Bank President Jim Kim has said that “the results have been astounding.” The United Kingdom’s Department for International Development convened a panel, in which two of us participated, to study the use of cash in humanitarian contexts. The panel's top recommendation: “Give more unconditional cash transfers.” Another was to “systematically analyze and benchmark other humanitarian responses against cash.” In fact, the 2015 Conservative Party Manifesto itself includes a commitment to “help people in the UK give or lend money directly to individuals and entrepreneurs around the world.”
For all the broad support for cash transfers, not that much cash is being transferred.
But if there is a fad here, it is to talk about giving money to the poor. Action lags behind. The Overseas Development Institute estimates, for example, that at most six percent of humanitarian assistance is delivered in the form of cash transfers, and even this figure is potentially inflated as some organizations report vouchers for in-kind goods, such as livestock or food, as “cash-based” assistance. Although systematic data are lacking, the proportion is unlikely to be higher for other forms of official aid or charitable giving. For all the broad support for cash transfers, not that much cash is being transferred.
FROM THEORY TO REALITY
To be sure, the transition to cash poses logistical challenges. It requires locating millions of people who live in remote or unstable parts of the world and who hold limited identifying documents, registering them with financial institutions, and paying them. Things can easily go wrong—India, Indonesia, and Sri Lanka have all seen high-profile attempts to give cash grants falter after logistical problems, in some cases with serious political ramifications. To avoid such setbacks, governments and NGOs need to invest in skilled management and in scalable technical tools to support these programs. This is what led two of us to co-found Segovia Technology to create hiqh-quality technology for the management of these programs.
But the deeper challenge involves the way the development sector funds aid to begin with. Cash fits everywhere and nowhere within the current system. For example, USAID receives funds from Congress that are earmarked for use toward specific outcomes, such as health or education. To justify delivering as cash a dollar earmarked for health, for example, USAID has to argue that it would have meaningful health benefits even though the recipients will almost certainly spend a large share of it on other, equally valuable things. The humanitarian system is similarly organized around “clusters” for nutrition, health, shelter, and so on. When donors use cash as a tool within these individual silos, chaos can result—as, for example, in the case of Syrian refugees, who have been targeted with as many as 30 distinct programs offering cash for children’s winter clothes, for legal assistance, for hygiene kits, and so on. To achieve more sensible outcomes, we need budgeting that puts the recipients at the center and holds implementing organizations responsible not for specific needs, but for helping specific people. That will take time.
To catalyze action, we propose that donor governments create a fund devoted exclusively to supporting cash transfer programs. The fund would accept competitive applications from organizations—both private and social sector—that wish to conduct transfers. It should give priority to organizations with a demonstrated track record on a set of well-defined metrics, such as cost, speed, and targeting accuracy. And it should prioritize organizations that propose to conduct randomized impact evaluations of cash transfers—and especially evaluations that would fill a gap in our understanding about their impact, inform the design of such programs, or allow us to better compare alternative interventions with simply giving cash.
Such a fund would have two effects. For organizations that already deliver cash transfers, it would incentivize further investment in improving their systems as they compete for grants. And for organizations and individual decision-makers on the fence, uncertain about the role of cash transfers in their field, the fund would significantly reduce the cost of experimentation.
A cash fund would offer an attractive profile of risks and rewards. Since most of the fund’s capital would ultimately be delivered as cash transfers, among the most tested and cost-effective approaches available, there would be relatively little downside to the investment. And the potential upside is large, if the fund expands the ability of aid organizations and governments to deliver cash and improves the decision-making processes that determine where and how to distribute resources. It would also stimulate new experimental evidence on the impact of both cash and in-kind transfers—which is itself a global public good.
At the UN General Assembly last week, Pope Francis called on the assembled nations to do more to help the millions of impoverished people worldwide: “To enable these real men and women to escape from extreme poverty, we must allow them to be dignified agents of their own destiny.” Cash transfers provide an opportunity to do this more effectively than ever. Enough talk, more action.