17 February 2010

More arguments for aid as direct cash transfers to individuals

Following up from my recent comment on Owen’s lack of emphasis on cash transfers reluctance to more vocally advocate cash transfers in his recent CGD paper "Beyond Planning" (required reading) (also - is there a better way of saying giving aid directly to poor people? “Cash transfers” is rubbish), I noticed that this is especially odd given his stated position that aid should not be seen as being temporary.
“the richest people in the world have a duty to support the poorest people in the world – whether they are in the same country or not – as a matter of social justice rather than charity. This is a principle that we accept within our own countries – few of us think that we should aim to exit altogether from national insurance, state pensions or unemployment benefits in our own countries. The same principle should apply globally: there will always be people who are relatively rich and people who are relatively poor, and we should be aiming to evolve institutions which are effective at transferring income from the best off to the worst off around the world. And we will be doing that for the foreseeable future.”
If this is true – then why is international aid funnelled through governments whereas domestic aid is given to individuals? (yes I know that there is large implicit domestic aid through social service provision but that is not the comparison which Owen is making – which is with national insurance and unemployment benefits). Why do we trust people in our own countries to choose how they want to spend their money but not people in poor countries? Why do we think we are better able to know how individuals across the planet want to spend their money than people in our own countries? Are we being just a teensy bit patronising and racist? Now there are probably good political economy reasons for why we have to pretend that aid is temporary – but if you are going to argue that aid should be a permanent subsidy – then should you not also be arguing for it to be given to individuals rather than governments? Especially in places where governments are particularly unaccountable to their populations?

There is an argument that public-sector aid can be transformative – creating sustainable improvements so that aid can then be withdrawn. But then as Banerjee notes, we generally aren’t very good at knowing how to do big transformative development.
“Perhaps making growth happen is ultimately beyond our control … Perhaps, we will never learn where it will start or what will make it continue. The best we can do in that world is to hold the fort till that initial spark arrives: make sure that there is not too much human misery.”
So if;

a) we agree with Owen ethically and are committed to continue to supply aid indefinitely, and/or

b) we believe Banerjee that actually we have no clue how to do big grand macro development,

then surely, we dispense with inefficient governments and NGOs and go straight to the citizen? At least with a bit more than the 0.2% (I just made that up) that currently goes from all aid to PROGRESA-type schemes? And yes to please those who think most people are irresponsible and need to be told how to spend their money (you know who you are J xx), then make it somehow conditional like PROGRESA.

Frankly, given the documented successes of PROGRESA-type schemes I am confused why more aid is not given directly to beneficiaries rather than being mediated through multiple inefficient bureaucracies. Is it really just because it would put too many development experts out of a job? Isn’t that what we are aiming for anyway with all the talk of sustainability?


Ranil Dissanayake said...

Isn't it obvious? Quite apart from 'big macroeconomic transformation' there are various structural constraints to development that exist at levels above the individual and direct cash transfers do not deal with them. A very basic example could be: not enough teachers, because there aren't enough teacher training centres (unable to produce enough teachers), and also because the MoE is not good at allocating teachers to state schools. Unless you give enough cash in a CT for people to go abroad to study teaching (if places which teach the local curriculum exist abroad, which in any case would be much more expensive) a direct cash transfer would not affect any of these things.

Similarly, many central problems of business exist above the individual. How would cash transfers solve the problem of the Zanzibar's or Sudan's lack of electricity. If you depend on tax revenues being collected to install a grid, you still need to support the establishment of a working tax structure and tax collection system, and it would take much longer to put together.

Lee said...

Thanks as ever for the intelligent criticism.

OK so how about using education vouchers, to increase demand, funding and profits for private schools, who could then afford to pay their teachers a bit more and invest more in their training?

More broadly I'm not saying that there should be no aid for public goods at all, just that there seems to be an absurd lack of balance at present.

Owen Barder said...


It is a bit harsh to say I am not vocal in advocating for giving people cash.

For example, on January 11 2010 I wrote:
"My starting point for giving people more choice would be that we should give more aid in the form of cash directly to the poorest people. I think this is a good presumption and where this is not our preferred way of giving aid, we should explaiin why not"

On May 24 2009 I wrote:
"Buying the food locally would be better, but best of all might be something even more radical. Why not give the money itself to people who are hungry?"

As Ranil says, there are obvious reasons why this is not the right answer all of the time, but I am with you in thinking it is a good answer more of the time.


Lee said...

Thanks for responding. You are absolutely right, that comment is badly worded and unfair. I meant to refer to the paper, in which it did seem that you very briefly mention cash handouts as an option for getting feedback, but then drop it and spend the rest of time discussing other options. Is that fair? Was there any reason?

Owen Barder said...

Only that this was a paper less about specific aid modalities (e.g. the advantages of cash transfers versus other other ways of giving aid) and more about the governance of the aid system as a whole, and the need to change the incentives in it.

I would expect a shift to giving cash to be an outcome of a better organised aid system (because people will see that it is more effective than the alternatives).

Just calling for more use of cash transfers as a better way to give aid would be falling into the same trap as previous efforts to improve aid - it would be calling for us to move away from the existing equilibrium rather than trying to change the determinants of that equilibrium.


Sam Lampert said...


Isn't a lot of aid already provided as a a fungible resource? For example, USAID estimates that 59% percent of its 2009 aid for Sudan ($679.7M including money spent in Eastern Chad) was food. While its easy to focus on the Juba-based NGOs and aid money that never leaves the US, it's not the whole picture.

Also, since GoSS spends 51% of budget on payroll, there is already a substantial cash transfer. (Although, since there is no social welfare, you could argue that it should be a larger percentage; in the US 56% of the proposed 2010 budget will be spent on pension, health and welfare benefits. I'm guess that the percentage in other OECD countries is even higher.) Aid-funded payroll and HR reforms help GoSS get more control over that spending and provide the tools to continue the transfers in the future.


Lee said...

@Owen - I think you are treading a thin line distinguishing contracting out from being a modality to a change in governance.

@Sam - Wow 59% on food, that is stunning, where did you find that? Is it food in kind? And didn't you say you had a blog, is it secret?

Sam Lampert said...

I found it in the January 2010 monthly update. I kinda blew me away too. http://www.usaid.gov/locations/sub-saharan_africa/countries/sudan/docs/jan10_monthly_update.pdf

One note of caution, I believe that the 59% includes aid to Darfur.


Lee said...

Interesting how the narrative disucsses various other projects but makes no mention of the 59%.

zee said...

I'd love to be the fly on the wall in that conversation:

Minister for Intl Development from the Kingdom of Ukaidia: We've decided that since you like untied aid so much, we're going to untie a big chunk of it from your government apparatus as well, and give it straight to your citizens. You might have to sell off a few of your mercedes. Sorry about that.

Prime Minister of the Republic of Hipc: More of your imperialist conditionality! Go to hell.

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