Experimenting with cash transfers

There is an adage that if you want to help the poor you do not give them fish but teach them how to fish. Suddenly this adage has been turned upside down by a new approach to how to alleviate poverty. You give them cash.

It is being done by the Aquino government and has raised a ruckus. Well, for one it is a new thing. It is a departure from received wisdom. Second, the Aquino government is not the originator of cash transfers to tackle poverty. It is being done in other countries as the “latest fad of the international development industry.”

It is a strategy for reducing poverty in about 40 countries among them Mexico, Brazil and lately also in India. Its success has been patchy depending on other factors like the efficiency of the government and the availability of infrastructure so the money is spent wisely by the donors. In other words, it is an experiment with risks and dangers.

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Jayati Ghosh from India says it is not a solution if done by itself. “Cash transfers cannot and should not replace the public provision of essential goods and services, but rather supplement them.” India began the program almost simultaneously as the Philippines.

I’ve seen many letters in Facebook as well as newspapers that uniformly criticize cash transfer as a useless strategy to help the poor. It just breeds dependents.

The cash transfer strategies differ from country to country and as expected it succeeds in some and fails in others. Some give cash to the very poor if they use the money to keep their children in school.

But who’s monitoring if the conditions are followed? Lacking schools and other social services the cash transfer may become a vicious circle. You can keep giving money to the poor and end up with nothing to show that it improved their lives because the government has not provided the goods and services to pay with the money.

It seems naïve to give people money and like magic believe they will not be poor anymore. In theory yes but not in practice and that’s probably what is making various Filipino economists and policy makers worried. To whom is it being given? How much is given? Who is monitoring that it is matuwid na daan. And what about the administration costs? Does it justify the program?

In Mexico it is called Oportunidades and in Brazil Bolsa Familia. These two countries have successful cash transfer programs. Bolsa Familia is given to families with less than the threshold monthly income. They are required to use the money for such primary needs as health care and schooling. In theory cash transfer is good but without proper monitoring and lacking goods and services, I doubt that it can work in the Philippines at the present time as it has in Brazil and Mexico.

It is not known that the idea did not come from the Aquino government. It is a program recommended by such institutions as the World Bank and the IMF. In a way it is an experiment.

I agree with Gosh that the issue is not whether or not to oppose cash transfers in general but how it fits in an overall strategy of development and poverty reduction in each country.

“Cash transfers cannot and should not replace the public provision of essential goods and services, but rather supplement them. However, the current tendency is to see this as a further excuse for the reduction of publicly provided services, and replace them with the administratively easier option of doling out money,” adds Gosh.

You can’t really expect it to be successful if there are not enough schools for the children to attend. In India, as it is in the Philippines, it is a risky venture because there is no overall program for development.

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On the other hand, Tina Rosenberg is convinced that paying the poor is how to beat poverty. She cites Brazil’s Bolsa Familia as a success. Before the cash transfer program she says Brazil was probably the most unequal country in the world.

“Today, however, Brazil’s level of economic inequality is dropping at a faster rate than that of almost any other country. Between 2003 and 2009, the income of poor Brazilians has grown.

Poverty has fallen during that time from 22 percent of the population to 7 percent. Contrast this with the United States, where from 1980 to 2005, more than four-fifths of the increase in Americans’ income went to the top one percent of earners. Productivity among low and middle-income American workers increased, but their incomes did not. If current trends continue, the United States may soon be more unequal than Brazil,” writes Rosenberg.

The payments mostly go to women because they are more likely than men to spend the money on their families.

Brazil is just one of several countries experimenting with the cash transfer program for development. Among the 40 countries it has been the most successful according to this report.

Rosenberg says this is likely the most important government anti-poverty program the world has ever seen. It is worth looking at how it works, and why it has been able to help so many people.

A family living in extreme poverty in Brazil doubles its income when it gets the basic benefit. Bolsa Familia has reduced poverty in Brazil. But research has only recently revealed its role in enabling Brazil to reduce economic inequality.

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So it really differs from country to country. Few who are criticizing the program in the Philippines know that the program came from the World Bank and the Inter-American Development Bank. According to one report the two financial institutions are behind the cash transfer idea and work with individual governments giving technical help and loans. The programs differs in each country. In countries in Latin America, nutrition is emphasized. But in Tanzania it is more political and gives cash transfers to communities that behave.

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Back to the Philippines it seems that we must have a monitoring system for these cash transfer program so we know where it is going and how it is being spent otherwise it is right that many should be skeptical.

I suspect it is the same rationale for giving financial help to the MILF and the ABB. But who is to tell how it will be spent without adequate feedback on the cash grants. Worse, hard working people who lack capital may just throw in the towel and say it pays to be rebels, they get cash and we get nothing.