Cash and Global Poverty

As a person trying to find a way to devote time and effort to charitable causes, there are a lot of different things to consider before making a decision: Where should I volunteer? Where should I donate? Where should I work?

But here, I want to examine a much smaller question: If I was committed to giving money, right now, to charitable causes focusing on global poverty, where should I donate?

I am not saying that donation is the best way to do charity, nor that people should donate right now, nor that global poverty is the best use of your money or time. But if we granted all of these assumptions, what do we do next?

This brings us into the domain of the Randomistas, who look carefully at different interventions aimed at helping people in developing countries. This is harder than it may seem, since many well meaning efforts can go awry. Some programs can have positive effects:

Individuals who received 2 to 3 additional years of childhood deworming experience an increase of 14% in consumption expenditure, 13% in hourly earnings, 9% in non-agricultural work hours, and are 9% more likely to live in urban areas.

But some can be disappointing:

A randomized evaluation in rural Kenya finds, contrary to the previous literature, that providing textbooks did not raise average test scores

A main issue here is that doing good experiments is extremely hard. Properly controlling trials, correcting for confounding effects, and ensuring that positive results due to random chance requires a dedicated set of researchers. Additionally, the effects of different interventions are very sensitive to context. Programs that work in southeast Asia may be useless in sub-Saharan Africa.

But there is one intervention which we have a lot of evidence for and is very robust: cash transfers. Cash transfers have demonstrated efficacy in dozens of places with different wealth levels, cultures, and governance. Few interventions are so well supported by evidence and so robust to changes in context. Additionally, cash transfers often beat other interventions.

This robustness is heartening because things are changing all the time, especially in the developing world. For example, we wouldn’t want to buy a bunch of malaria bednets and then have a vaccine for malaria be developed. As economies grow and cultures change, peoples needs will change. With cash transfers, recipients are able to adapt to changing circumstances, unlike with other interventions.

In other words, poor people can buy what they need instead of receiving goods chosen on their behalf. In this framing, providing goods like bednets or textbooks is somewhat paternalistic; this should raise our skepticism of the benefits of these programs relative to cash transfers.

Additionally, many other interventions require research to determine if they are effective and to determine how best to scale up. Collecting evidence is expensive, and this reduces the percent of the money which actually reaches the poor.

Following this line of reasoning, if we actually asked people in developing countries whether they wanted to continue randomized trials or to receive cash from those trials, what would they choose? Has anyone asked this question before? I would find it a little concerning if no one has.

I don’t want to overstate this point because the value of fine-tuning an intervention can be higher than the cost of research, but the cost of new research does militate in favor of already-well-understood cash transfers.

While giving cash is better than a lot of other interventions, what about the very best interventions? Many of Givewell’s top charities might outperform basic income, so why not just give to those?

Cash has other benefits beyond what is typically studied. First, giving many people cash can incentivize entrepreneurship and innovation in poor countries. By increasing the size of the market in poor countries we can greatly increase the rate of innovation directed towards markets in the developing world.

Currently, there is a lot of focus on western engineers making products for people in poor countries. But this is somewhat backwards, how do western engineers know what consumers in poor countries need? Like other interventions, this is a somewhat paternalistic approach, deciding what innovations to provide to other people instead of allowing them to invent on their own. What would poor people build if they had more cash to fund their own enterprises?

In addition to this, the existing inequality between rich and poor countries means that research is skewed towards the needs of rich countries. More capital in developing nations will encourage new inventions tailored to emerging markets, many of which will be unexpected from a western viewpoint.

Second, utilizing enough cash may successfully remove a poverty-trap. Oftentimes local institutions in poor countries make it hard to move to opportunity, start a business, or obtain enough capital to grow. This confluence of different factors which prevent personal growth needs to be addressed for a program to have a lasting impact. It is possible that cash transfers might fix this problem in some cases, allowing recipients to get “over-the-hump” and on the path to self sufficiency.

Third, consistent income to poor countries might help raise mobility inside and outside of those countries. For example, when the GDP per capita of poor countries rises, emigration rates increase. This has beneficial knock-on effects for the global economy, moving workers to more productive areas. Higher mobility between countries is also an important step towards open borders and the Archipelago.

Fourth, growing economies can help support better institutions in developing countries. Larger incomes, increased mobility, and higher innovation lead to higher tax revenues for governing bodies, allowing them to fund public goods, enforce laws, and build functional institutions. Additionally, having tax revenue derive from citizens themselves makes these institutions more accountable to the people, the opposite of a resource curse. With financial resources and basic needs met, citizens can engage politically, building better governance.

These arguments imply that the effects of cash transfers may be better than their already impressive track record makes it seem.

But these warm feelings towards cold hard cash suggest a new challenge: What about interventions which raise income? For example, interventions such as deworming may increase lifetime income by 13% in the long term. This would provide a greater increase in income than simply using the money for cash transfers.

Though the evidence on the long term income effects of these programs is sparse (and debatable), I think it is fair to consider the least convenient possible world where these programs really do increase income more than straight cash.

In this case, I have to concede the point: if we had robust evidence that these programs outperformed cash transfers in net present value terms, they would necessarily be better than cash transfers, for all of the reasons presented above, in addition to the quality of life improvements that these programs provide independent of money.

But this exception is part of a larger rule: looking at the direct effect on peoples wallets should be one of the most important outcome measures for any intervention in the developing world. Money has the power to directly fix many of the issues that poor people face, whereas changing health or education levels are of value because of their secondary effects on quality of life and income.

I think for all of these reasons, direct cash transfers are (still) an underrated tool for alleviating global poverty. This passes a common-sense test: if poverty is defined by a lack of money, why not just give some away? Considering income effects is a quantifiable way to make direct comparisons between diverse interventions, and this should be a major part of the toolkit in development research. In addition, more research should investigate the long term financial effects of different programs.

Of course, charitable organizations are loathe to focus on these effects of their interventions, since they do not give donors a warm fuzzy feeling. “Our charity increased incomes by 13% twenty years in the future” is a result only an accountant could love. But, for the reasons given here, the financial effects of different programs should be on the forefront of altruist’s minds, if not their hearts.

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