Chris Blattman on giving cash to the poor as the equivalent to being given shoes and laces:

So is it time to stop giving people skills? Not entirely. Part of the reason these Ugandan youth did well is that they invested some of their grants–maybe a third–in skills training. But mostly they invested the grant in tools and inventory and inputs. It was their choice.

I used to think skills and capital were like right and left shoes: one’s not so useful without the other. Now I think of capital like the shoes and skills like the laces: if I have capital, i can jog a good pace, but I can’t really run unless I have the skills. But first I need the shoes. (And cash can buy me both.)

The problem is: too many programs just hand out laces. Old, ratty laces that don’t even fit people’s shoes. I don’t know why we do that. Maybe because we academics and NGO workers and elite government officials all live in a world where we ourselves invest in skills because there are things out there called firms and bureaucracies that have capital, and will pay us to use it.

There’s a lot that I like about this report from Chris Blattman. I especially love his concluding thoughts above. Although this post was published back in May, I have been thinking about it ever since I penned my response to GiveDirectly’s twist on development assistance.

Blattman’s study with the Ugandan government isn’t surprising in its conclusions. The poor, given the means, are almost always going to invest in their future. Much like everyone else. The poor aren’t a sub-standard class of people with an inability to make educated decisions. The  middle class the world over got to where they are because they had access to skills training, education, a ready job market and functional government social services. Northern Uganda, where the study was conducted, quintessentially lacks all the above socio-economic support structures. Any amount of direct support is invariably going to produce positive results. When you are at the bottom of the economic ladder, your only option is up. It surprises me that it took a study to realize this when it should be common sense.

What is also surprising about the study, is that there’s no mention of the remittances model – arguably the largest direct cash transfer system to the poor in the world. According to a 2008 Bank of Uganda study [PDF], the country’s diaspora sent home $732 million in remittances. “…a good proportion of cash remittances (41.1%) were spent on savings and investment with building works accounting for 21.2%.”

Remittances enjoy much more freedoms in how they are spent by the recipients. The direct payment mechanism in Blattman’s study, though billed as “unconditional,” came with some loose strings attached:

The grants were unconditional, with two qualifications. First, the transfer was framed as an enterprise start-up program and (although it was understood there was no official monitoring of compliance) youth had to submit proposals for how they would invest in a trade. Second, partly for administrative efficiency, youth had to apply in small groups. Funds were distributed as a lump sum, which the group distributed among members, or spent together.

Bank of Uganda’s 2012 [PDF] study of direct cash transfers by the diaspora, showed the breadth of sectoral spending by recipients. The money, though sometimes targeted, was spent more holistically. In other words, the $813 million in remittances were spent to address the most pressing social issues in order of importance, with consumption support taking the top spot:

The largest proportion (58.2 percent) of cash personal transfer receipts during 2011 was used for consumption, compared to 37.3 percent spent on non-consumption items. In terms of individual contribution, general household expenses9 dominated at US$187.7 million (25.3 percent), followed by education at US$176.9 million (23.9 percent), and health with US$37.7 million (5.1 percent)

In the non-consumption category, 18.1 percent (US$ 134.5 million) of total personal transfer receipts were used for building works followed by 10.9 percent (US$80.7 million) used for business related activities. Other non-consumption items such as land purchase, farming, purchase of motor vehicles and savings contributed 8.3 percent or US$61.4 million of the total receipts.

The poor fed and clothed themselves first, then invested in their futures. Who hasn’t bought groceries, paid rent and a new outfit before going out and looking for a job. It’s only natural.

Personally, I’ve seen how powerfully remittances can transform someone’s life over a four-year period. 3 of my siblings received their university degrees in Uganda because of my remittances. Over that time, as I struggled with each direct payment and cringed at the cost of transfer at a Western Union counter, I could see the improvement in lifestyle that investment in higher education produced. Most notably, was a ten-fold improvement in self-confidence and better communication skills. All three are productive members of Uganda’s society. One is leading a start-up. Another is in social services. Another, is attempting to revolutionize the very education system that empowered him.

I’ll entertain Blattman’s shoe analogy a little further. Sure you can walk and jog further with shoes and laces, respectively. But I’d argue that you can do more than that if you weren’t trying to run in a jungle. Giving cash directly to the people is one thing, but I think it’d be a lot better if the government spent an equal amount of money clearing the jungle of ineffective social services, thereby paving the way for higher returns on the direct payments, be they from the government or the Diaspora.

via Dear governments: Want to help the poor and transform your economy? Give people cash. | Chris BlattmanChris Blattman.

UPDATE:
Scott Gilmore just tweeted this direct resource payment paper by Shantayanan Devarajan and Marcelo Giugale at the Center for Global Development. Titled “The Case for Direct Transfers of Resource Revenues in Africa – Working Paper 333,” it argues that resource-rich countries should consider paying cash dividends directly to their population:

… this paper shows that by transferring a portion of resource-related government revenues uniformly and universally as direct payments to the population, some countries could increase both private consumption and the provision of public goods, and thereby reduce poverty and enhance social welfare.

The CGDev also looks into direct payment of resource revenues. It should be noted that the two latter studies  are dealing with a narrow set of countries that have a resource revenue curse.

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