Just how do we end poverty? For years, development economists have fought over this question. On one side, Jeffrey Sachs, director of the Center for Sustainable Development at Columbia University, advocates for the critical importance of education, health care, infrastructure and democratic governance. On the other side, William Easterly, professor of economics at New York University, suggests a very different line of thinking. The global poor, he argues, should be allowed to decide for themselves what they want and need.
There’s evidence to show that cash transfers really work.
An array of other experts say that we can end poverty in our lifetime by giving poor people cash, in what economics lingo refers to as “cash transfers.”
Cash transfers have become an increasingly popular concept in the last couple of decades, says Heath Henderson, professor of economics at Drake University. This is because cash transfer programs — such as Mexico’s Progresa (later called Oportunidades, and then Prospera) and South Africa’s child support grant — have been effective tools for alleviating poverty. In other words, there’s evidence to show that cash transfers really work.
“These programs served as a proof of concept that many other countries sought to replicate,” says Henderson. Indeed, since those programs logged their promising results, national governments and the U.N. alike have tried to copy their models.
And ordinary people with just a little money to spare can contribute to charities such as Give Directly.
Is solving poverty really so simple?
‘Different Households Have Different Needs’
One issue that aid and development programs have struggled with is how to get people what they want and need to improve their lives. As David Evans, senior fellow at the Center for Global Development, tells OZY, “If you just provide food or solar panels or chickens, then you’re implicitly suggesting that this is what all poor households need to get ahead — when, in fact, different households have different needs.”
Western donors and even national governments often find it difficult to predict what each person, household or community needs most. Says Evans, “Cash lets them fill those needs as they see fit.”
If you just provide food or solar panels or chickens, then you’re implicitly suggesting that this is what all poor households need.
- David Evans, senior fellow at the Center for Global Development
Evidence indicates that such transfers then have positive effects on recipient households’ food expenditures, savings and asset accumulation. In other words, cash donations can help people put aside resources for the future or for an emergency — a key step in overcoming the cycle of poverty.
Interestingly, cash might even be more effective than non-monetary donations that are tailored to a specific need, such as nutrition. Evans points to a study that compared the nutritional impact of a cash transfer program in Rwanda to another program that provided food. The results, says Evans, suggested that cash transfers boosted children’s consumption more than the nutrition program did. Not bad for an intervention that was nothing more than cold cash.
Such results might help allay some donors’ fears that recipients will waste donated money on what are known as “temptation goods,” such as alcohol and tobacco.
“There is not a single study in which people who receive cash transfers spend a higher proportion of their income on alcohol or tobacco,” says Evans. In fact, he says, it appears to be the reverse: People who receive cash transfers tend to spend a smaller share of income on temptation goods relative to comparable households. (Along with co-researcher Anna Popova, Evans’ research shows this tendency might be the result of cash transfers putting more purchasing power in the hands of women.)
Another concern about cash transfer programs is that they might discourage recipients from working. However, economics Nobel Prize winner Abhijit Banerjee and several others studied seven different cash transfer programs across six countries, and they found “no systematic evidence that cash transfer programs discourage work.” (This also appears to hold true in the U.S., where many studies have refuted the pervasive myth that generous unemployment benefits during the height of the COVID-19 pandemic encouraged people not to work.)
Cash transfer programs don’t make people lazy, says Evans, just as they don’t drive people to fritter away their money on alcohol.
Cash transfers appear to be effective for alleviating poverty — but cash cannot solve every problem. It will not help a person who needs medical attention in a place without adequate hospitals or doctors. As Henderson argues, the infrastructure so badly needed in the developing world will not be built through cash gifted directly to local households in need.
Research also suggests that cash transfers aren’t effective for improving educational outcomes, such as completion of schooling or test scores — although they do help reduce child labor, making school attendance more likely.
Simply giving cash seems to be among the best endeavors that national governments, the U.N. and ordinary donors have tried in the shared effort to help neighbors in need.
Evans and Henderson both emphasize that cash cannot be the lone solution for poverty. Henderson makes this point by telling the story of a visually impaired man he interviewed in Rwanda.
“While it is quite possible that a non-disabled person could use a cash transfer to pay for their school tuition,” and therefore potentially climb out of poverty, Henderson says, “this same opportunity might not be available to disabled people if schools can’t accommodate them.”
Indeed, there are limitations to what cash can accomplish, says Evans.
Yet such limitations do not invalidate the overall benefits. Simply giving cash seems to be among the best endeavors that national governments, the U.N. and ordinary donors have tried in the shared effort to help neighbors in need.
What do you think is the best way to give to those in need?
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