Can Cash End Poverty?

Alleviating poverty, by all measures, isn’t a simple proposition. But could it be that the answer is a lot simpler than we all thought?

Is it possible that direct cash transfers – individual grants – with no strings attached are the best way to help poor people no longer be poor?

This is the question Christopher Blattman asks in a recent New York Times op-ed. Blattman is an associate professor in the political science department and at the School of International and Public Affairs at Columbia.

Cash has been a major tool in the fight against poverty across the globe, writes Blattman. “There have been randomized trials of cash grants to poor Mexican families, Kenyan villagers, Malawian schoolgirls and many others. The results show that sometimes people just eat better or live in better homes. Often, though, they start businesses and earn more.”

A growing body of data suggests that the conventional ways we use to alleviate global poverty – training programs, in-kind donations, even microlending – are not as effective as previously thought. “These days, it’s about providing evidence of change – especially change that justifies the price of bringing it about,” Blattman wrote in Foreign Affairs. These methods just aren’t providing the evidence.

One common argument against direct cash transfers is that the beneficiaries will use the money to buy so-called “temptation goods” instead of using it for, say, vocational training, food and shelter, or even capital investment in a small business.

This kind of thinking echoes the decades (or longer) belief that poor people have flawed judgment and need experts to tell them how to hoist themselves up out of poverty.

A recent World Bank review of studies from Latin America, Africa and Asia found these fears unfounded. The World Bank reviewed 19 studies that examined the impact of cash transfers on temptation goods, and 11 studies that surveyed the number of respondents who said they had used transfers for temptation goods. The World Band concluded that “almost without exception, cash transfers had no significant impact on the purchase of such items as alcohol and tobacco.”

But, as we noted earlier, poverty is a thorny and complex problem. A shortage of cash is not always the only symptom of poverty. Sometimes health or education, among other things, play a critical role in the poverty cycle. Some advocates call for a conditional cash transfer, with some strings attached. Not all families value education for their children in the same way or fully realize the importance of vaccinations for everyone, for example. Requiring vaccinations or education before a cash transfer may alleviate poverty for more people than unconditional cash transfers, asserts Berk Ozler, an economist who has looked at cash transfers for the World Bank.

But what about poverty within the U.S.? Can cash lift a chronically homeless woman in a city out of poverty the same way it might a family in a tin roof village in rural Kenya?

It’s hardly conclusive that unconditional cash transfers are the best solutions abroad, writes Tyler Castle in Values and Capitalism. “But domestically, I’m convinced that such a policy would be outright foolish.”

In the U.S., Castle argues, material deprivation is not the chief aspect of domestic poverty. “Income inequality among families and households has increased fairly significantly since 1970. This seems to suggest that social, rather than economic factors, are responsible for the rise in income inequality in America.”

It may be more comfortable for affluent Americans to attribute poverty to moral failings, and therefore use a paternalistic approach to poverty relief, but the evidence simply doesn’t bear think line of thinking out.

In the 1970s, the U.S. experimented with a “negative income tax” that guaranteed an income to thousands of randomly selected low-income recipients. “The results suggested that the cash transfers improved test scores and school attendance for the children of recipients, reduced prevalence of low-birth-weight kids, and increased homeownership,” according to Charles Kenny, a senior fellow at the Center for Global Development. What’s more “early analysis of a 2007 cash transfer program in New York City suggested that transfers averaging $6,000 per family conditional on employment, preventative health care, and children’s educational attendance led to reduced poverty and hunger, improved school attendance and grade advancement, reduced health-care hardships, and increased savings,” Kenny wrote.

Blattman, writing in the Times, said he used to think that poor people in the U.S. were different than the poor in developing countries. “The average person in Uganda is impoverished; it’s easy to believe he would make good decisions with cash. But a homeless person in New York is not average. Substance abuse is pervasive. Maybe panhandlers here are different from the global poor,” he wrote.

Instead of taking his assumptions at face value, Blattman investigated deeper. He gave 1,000 Liberian men who were homeless or made their living dealing drugs $200 each. “Almost no men wasted it,” he concluded. “In the months after they got the cash, most dressed, ate and lived better.” A year later, however, the men were back where they started. “Two hundred dollars was not enough to turn them into businessmen.”

Blattman raises the question: “If homeless people and drug users in Liberia don’t misuse cash, why would we expect the homeless in New York to waste it?”

In 2010, Jim Rankin, a reporter for The Toronto Star, was similarly curious. He handed out five $50 prepaid Visa and MasterCard gift cards to panhandlers. “What did they buy? Mostly food. Some phone minutes and clothes. A couple bought liquor as well.”

Promising studies have also been done with families in poverty in New York City. The Opportunity NYC Family Rewards program sent $8,700 to thousands of families over three years. The result: “self-employment went up and hunger and extreme hardship went down, at least while the cash transfers lasted.”

Are New York City’s homeless that much different than its poorest families, or even homeless men in Liberia? Blattman isn’t entirely sure. But it’s time to at least give cash a chance, he concludes. It’s time "for donors to stop thinking of unconditional cash payments as an oddball policy and start seeing them for what they are: one of the most sensible tools of poverty alleviation.”