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Just Give Money to the Poor? A Surprisingly Effective Solution to Poverty

Half the world's population lives below the poverty line, despite extreme free-trade policies that were supposed to "lift all boats." It's time to try something new.
 
 
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Who’s responsible for the poor?

Back in the reign of the first Queen Elizabeth, English lawmakers said it was the government and taxpayers. They introduced the compulsory “poor tax” of 1572 to provide peasants with cash and a “parish loaf.” The world’s first-ever public relief system did more than feed the poor: It helped fuel economic growth because peasants could risk leaving the land to look for work in town.

By the early 19th century, though, a backlash had set in. English spending on the poor was slashed from 2 percent to 1 percent of national income, and indigent families were locked up in parish workhouses. In 1839, the fictional hero of Oliver Twist, a child laborer who became a symbol of the neglect and exploitation of the times, famously raised his bowl of gruel and said, “Please, sir, I want some more.”

Today, child benefits, winter fuel payments, housing support and guaranteed minimum pensions for the elderly are common practice in Britain and other industrialized countries. But it’s only recently that the right to an “adequate” standard of living has begun to be extended to the poor of the developing world.

In an urgent new book, Just Give Money to the Poor: The Development Revolution from the Global South, three British scholars show how the developing countries are reducing poverty by making cash payments to the poor from their national budgets. At least 45 developing nations now provide social pensions or grants to 110 million impoverished families — not in the form of charitable donations or emergency handouts or temporary safety nets but as a kind of social security. Often, there are no strings attached.

It’s a direct challenge to a foreign aid industry that, in the view of the authors, “thrives on complexity and mystification, with highly paid consultants designing ever more complicated projects for ‘the poor’” even as it imposes free-market policies that marginalize the poor.

“A quiet revolution is taking place based on the realization that you cannot pull yourself up by your bootstraps if you have no boots,” the book says. “And giving ‘boots’ to people with little money does not make them lazy or reluctant to work; rather, just the opposite happens. A small guaranteed income provides a foundation that enables people to transform their own lives.”

There are plenty of skeptics of the cash transfer approach. For more than half a century, the foreign aid industry has been built on the belief that international agencies, and not the citizens of poor countries or the poor among them, are best equipped to eradicate poverty. Critics concede that foreign aid may have failed, but they say it’s because poor countries are misusing the money. In their view, the best prescription for the developing world is a dose of discipline in the form of strict “good governance” conditions on aid.

Joseph Hanlon, a senior lecturer in development at the Open University in Milton Keynes, and Armando Barrientos and David Hulme, professors of poverty and development studies, respectively, at the University of Manchester, England, and directors of the Brooks World Poverty Institute there, back up their conclusions in Just Give Money with a wealth of studies on cash transfer programs, many of them conducted by the skeptical foreign aid community, including such global micromanagers as The World Bank and International Monetary Fund.

According to The World Bank, nearly half the world’s population lives below the international poverty line of $2 per day. As the authors of Just Give Money point out, that’s despite decades of top-down, neo-liberal, extreme free-trade policies that were supposed to “lift all boats.” In Africa, South Asia and other regions of the developing “South,” the situation remains dire. Every year, according to the United Nations, more than 9 million children die before they reach the age of 5, and malnutrition is the cause of a third of these early deaths.

Just Give Money argues that cash transfers can solve three problems because they enable families to eat better, send their children to school and put a little money into their farms and small businesses. The programs work best, the authors say, if they are offered broadly to the poor and not exclusively to the most destitute.

“The key is to trust poor people and directly give them cash — not vouchers or projects or temporary welfare, but money they can invest and use and be sure of,” the authors say. “Cash transfers are a key part of the ladder that equips people to climb out of the poverty trap.”

Brazil, a leader of this growing movement, provides pensions and grants to 74 million poor people, or 39 percent of its population. The cost is $31 billion, or about 1.5 percent of Brazil’s gross domestic product. Eligibility for the family grant is linked to the minimum wage, and the poorest receive $31 monthly. As a result, Brazil has seen its poverty rate drop from 28 percent in 2000 to 17 percent in 2008. In northeastern Brazil, the poorest region of the country, child malnutrition was reduced by nearly half, and school registration increased.

South Africa, one of the world’s biggest spenders on the poor, allocates $9 billion, or 3.5 percent of its GDP, to provide a pension to 85 percent of its older people, plus a $27 monthly cash benefit to 55 percent of its children. Studies show that South African children born after the benefits became available are significantly taller, on average, than children who were born before.

“None of this is because an NGO worker came to the village and told people how to eat better or that they should go to a clinic when they were ill,” the book says. “People in the community already knew that, but they never had enough money to buy adequate food or pay the clinic fee.”

In Mexico, an average grant of $38 monthly goes to 22 percent of the population. The cost is $4 billion, or 0.3 percent of Mexico’s GDP. Part of the money is for children who stay in school: The longer they stay, the larger the grant. Studies show that the families receiving these benefits eat more fruit, vegetables and meat, and get sick less often. In rural Mexico, high school enrollment has doubled, and more girls are attending.

India guarantees 100 days of wages to rural households for unskilled labor, paying at least $1.25 per day. If no work is available, applicants are still guaranteed the minimum. This modified “workfare” program helps small farmers survive during the slack season.

Far from being unproductive, the book says, money spent on the poor stimulates the economy “because local people sell more, earn more and buy more from their neighbors, creating the rising spiral.”

Pensioner households in South Africa, many of them covering three generations, have more working people than households without a pension. A grandmother with a pension can take care of a grandchild while the mother looks for work.

Ethiopia pays $1 per day for five days of work on public works projects per month to people in poor districts between January and June, when farm jobs are scarcer. By 2008, the program was reaching more than 7 million people per year, making it the second largest in sub-Saharan Africa, after South Africa. Ethiopian recipients of cash transfers buy more fertilizer and use higher-yielding seeds.

“In other words,” the book says, “without any advice from aid agencies, government, or nongovernmental organizations, poor people already knew how to make profitable investments. They simply did not have the cash and could not borrow the small amounts of money they needed.”

Just Give Money is lucidly written, but it bogs down when it explores the complex ins and outs of designing cash-transfer programs. In effect, the authors are combining a book for general readers with a book for policymakers. But there are helpful summaries for the layman at the end of every chapter, and some of the debates are fascinating.

For example, there’s the question of whether mothers who receive grants should be required to attend health talks and perform community work, as they are in Mexico and Brazil. On one hand, these rules could be viewed as reinforcing the view that mothers must sacrifice themselves for their children. On the other, studies show that many of the women had been confined at home by their husbands and welcomed the chance to get out.

Just Give Money does not put much stock in micro-credit programs that loan money to the poor in developing countries. Many people are too poor to take on the risk of paying back a loan, the authors say. They find fault with the U.N.’s Millennium Development Goals, too, saying these have “kept governments at arm’s length from the economy.”

A better way for donor countries to help, the authors suggest, is to give aid as “general budget support,” funneling cash for the poor directly into government coffers.

Cash transfers are not a magic bullet. Just Give Money notes that 70 percent of the 12 million South Africans who receive social grants are still living below the poverty line. In Brazil, the grants do not increase vaccinations or prenatal care because the poor don’t have access to health care. A scarcity of jobs in Mexico has forced millions of people to emigrate to the U.S. to find work. Just Give Money emphasizes that to truly lift the poor out of poverty, governments also must tackle discrimination and invest in health, education and infrastructure.

The notion that the poor are to blame for their poverty persists in affluent nations today and has been especially strong in the United States. Studies by the World Values Survey between 1995 and 2000 showed that 61 percent of Americans believed the poor were lazy and lacked willpower. Only 13 percent said an unfair society was to blame.

But what would Americans say now, in the wake of the housing market collapse and the bailout of the banks? The jobs-creating stimulus bill, the expansion of food stamp programs and unemployment benefits — these are all forms of cash transfers to the needy.

Just Give Money says cash helps people “see a way out,” no matter where they live.

 
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