31 August 2011

More on Budget Support, Cash-on-delivery, and Cash Transfers

Ranil makes some valid criticisms of my (over?) enthusiasm for new and shiny forms of aid.

Notably, that COD does not dispense with conditionality, just shifts it from process to results. I would still argue that this form of aid is potentially more respectful than process conditionality. It is more transparent and more upfront about the conditionality. There is even an explicit contract involved, rather than arbitrary judgement calls on eligibility (Malawi?).

Furthermore, the taxpayer audience point is a really important one here - COD wins hands down. Budget support will never be able to satisfy rich country taxpayers that there is no waste or corruption going on. Many people think that their own government wastes much of their money, never mind a foreign government with no accountability to them.

Nonetheless, this is an unproven technology, which clearly shouldn't just replace all traditional aid. But I do see it as an evolution.

I am more optimistic about cash transfers. Basically, I just don't see how there is any scope for mis-spending money which goes directly to someone who earns less than $1.50 a day. As long as we are confident that they do indeed get the money, I don't even see the need for an impact assessment. They just get the money that they were desperately short of.

Giving money to the poorest could tautologically eradicate income poverty. And if it is technically feasible and affordable, which it kind of is, I basically think we should just do it already, regardless of concerns about long-term constraints to national economic development, or access to education, health, security, and other public goods. I'm still not sure if Charles Kenny meant his $100 billion as a serious proposal, but why the hell not? It's really just peanuts in the grand scheme of things.

And I don't think we should be afraid of permanent handouts. We don't talk about exit strategies to redistribution within the UK. In Owen's words;
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 wost off around the world. And we will be doing that for the foreseeable future.
It sounds radical, but its really just some pretty old school liberal philosophy. Free markets are fine as long as everyone gets a fair shot, and you don't get a fair shot when you are born into extreme poverty. So as a matter of ethics there should be transfers from the richest to the poorest, for them to provide enough for their children to eat. No child should go hungry just because their parents don't earn enough.

And the evidence? How about Brazil lifting 20 million people out of poverty in just six years through Bolsa Familia? Has there ever been a better anti-poverty program?


Nathan Yaffe said...

On cash transfers: I'll
add another Owen tidbit to the conversation. From his 2009 paper, "Beyond
Planning: Markets and Networks for Better Aid," he has this quote:
"the reason we have aid agencies rather than transferring money directly
to the poor is to mediate the different interests of the donor and the
recipient; to reduce the problems of incomplete information; to reduce
transactions costs; and to obtain the benefits of scale."


I have two brief thoughts,
inspired by this quote, about cash transfers vs. other forms of aid:


1) Benefits of scale - when I was in Ethiopia, it seemed that some of
the old-school, traditional infrastructure projects were having the biggest
development impact. I wouldn't have fully appreciated the impact of connecting
rural farmers to markets via functioning roads if I hadn't seen it first hand.
I'm curious if you see CTs as complementary to projects like these, or as the
replacement for them.

More generally, it seems that the polar opposite of the Bolsa
Familia poverty reduction model, is the “benevolent autocrat” model √° la Rwanda
or Ethiopia. Not that we would want to replicate it elsewhere, but if it IS
effective, that seems to have implications for the discussion of which
approaches work.

2) Aid agencies as mediators of different interests – it seems to me
that wholesale embrace of CTs dramatically reduces, or even eliminates,
bilateral donors’ ability to represent their interests. While it would be nice
to say that the only thing we’re thinking about when we give aid is
reducing poverty, that’s manifestly untrue. And it strikes me that it’s totally
unrealistic to think bilateral donors will ever give up their prerogative to represent
their interests using aid agencies.

If that’s indeed true, it seems that the relevant question is how to
foster the right types of relationships (http://www.oxfamblogs.org/fp2p/?p=2621)
to have the capabilities-enhancing, poverty-reducing effects of CTs (assuming for the moment that they're the most effective type of aid...).

I know this is a ranging response, but I would love to hear any thoughts/critiques/pushbacks in reply.

Ryan said...

On cash transfers as well, you are totally ignoring the opportunity cost of giving direct cash transfers versus indirect transfers. $100 given directly to an individual is $100 not spent on bednets (my favorite giveaway, as you know *irony*). It is easy to imagine a world where individuals do not make decisions that maximize their long term welfare. Given the choice between a world where people do spend money wisely and a world where people don't, I would chose the world where they do. But this preference is irrelevant; we need to evaluate to see which world we actually live in.

I note the following: 
in kind grants worked better than cash at increasing business profits in one of two instances where they have been horse raced http://blogs.worldbank.org/impactevaluations/if-you-want-her-business-to-grow-don-t-just-give-her-cash
People love to jump on the results of unconditional cash transfers and are slow to update their beliefs when those results prove false http://blogs.worldbank.org/impactevaluations/working-papers-are-not-working

Breanna said...

Interesting post! I completely concur with your optimism on cash transfers, and I'm not sure why the interest in innovation is so often misconstrued as evangelism.  If there is one thing I have learned about relief and development, it's that there is no "magic bullet".  Especially in the case of cash transfers, which can only work if there are sufficient conditions to allow people to meet their needs via local markets or build livelihoods. 

So I think the "cash transfers versus..." debate is not the best use of our time, because it's not about replacing "traditional" aid with cash transfers, but about broadening our options for implementing the most effective responses based on a wider consideration of needs. 

When it comes to opportunity cost of alternative distributions, the tantalising and terrifying reality of cash transfers is that they challenge the traditional (read: patronising) role of the aid worker - and by extension, the donor - to make the decision about what people "really need".  Which is a whole different discussion - but one I equally enjoy!

Ranil Dissanayake said...

Good response. A few points:

1) GBS under the current form and COD both suffer from the possibility of cessation in the event of catastrophically poor governance (even when other results are being achieved). Your example of Malawi actually proves this point; Malawi did not receive a cut in GBS based on it's PAF, but based on extraordinary circumstances. There's nothing to suggest the same extraordinary circumstances under a COD regime would not result in a cessation of future GBS (which is what was cut in Malawi - they did not retroactively apply sanctions based on poor governance).

2) The wasting of money point is certainly more valid for COD; however, for direct cash transfers, just because it goes to individuals doens't mean people won't think it's wasted. How many times have you heard people complain about welfare payments or giving money to the homeless on the grounds that 'they'll spend it on drink / drugs / sky tv / other things they don't need'.

3) Giving money to the poorest *RELIEVES* income poverty, it does not eradicate it unless we can show that it has a systematic and long term effect. I would love this to be true, but I can't see any country that didn't need some structural changes to move out of poverty.

4) If permanent cash transfer flows are the only solution to poverty, I would be in favour of them. But you and Owen conflate two things. But this isn't the case; given a constraint on finances for development, the first priority should be to sustainably eliminate poverty through economic development; this would be everyone's first choice, and no country wants to be permanently relying on the charity of others. Redistribution in the NI, NHS, welfare state structure is different: it's redistribution not primarily poverty reduction. Absolute poverty exists in britain and the US and other developed countries but is very rare - and it has one rationale for intervention. Inequality is universal and redistribution has a different rationale - one based on the structure of our societies and economies, our need for some social cohesion and so on and so on, as well as absolute norms of justice. Basically, I think as a poverty reduction method, simple redistribution should be avoided; as a means of creating a more just society, it's to be embraced - and that it's important to keep this distinction in mind.

Mattcollin said...

Is it worth pointing out that Bolsa Familia and pretty much every successful large-scale CCT were internally-driven programmes. There's a bit difference between the government of country X deciding it is politically and economically feasible/desirable to have a large scale cash-transfer system, and a massive-aid driven system which is imposed (or at least nudged) onto recipient countries. One might be worried that that programs which aren't endogenously-driven might not be as successful in the long-run.

rovingbandit said...

Agreed, but its surely worth a shot attempting something serious and large-scale?

rovingbandit said...

I think my enthusiasm is driven by 2 things;

Disgust at watching so much waste first hand (by governments and aid agencies), and

Some conception of justice. 

So maybe not totally rational.

Anyhow thanks for all the comments, its all very thought provoking. 

rovingbandit said...

I really struggle with this. But evaluation doesn't tell us much about large-scale delivery systems. And I think I have a bit of an aversion to paternalism. To be decided. 

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