Want to alleviate poverty? Give cash directly to the poor.

Ending poverty requires figuring out what the poor really need — and letting them make that decision.

Drawing from the proverb “give a man a fish, feed him for a day; teach a man to fish, feed him for a lifetime,” traditional forms of aid are based on providing resources, tools, and training as opposed to giving cash to the poor. But is that actually effective?

In Foreign Affairs, Christopher Blattman, assistant professor of political science and international affairs at Columbia University, and Paul Niehaus, assistant professor of economics at the University of San Diego and the co-founder of GiveDirectly, argue for the pragmatism of cash gifts, and find inefficiencies in traditional forms of aid.

In trying to alleviate global poverty, each year billions of dollars are funneled into programs that support “paying for cows, goats, seeds, beans, textbooks, business training, microloans, and much more,” write Blattman and Niehaus. Wealthy countries give a combined $150 billion per year in development aid, “yet the world’s poorest people receive very little of that money in actual cash.”

It’s not that traditional aid programs don’t work — in many cases, they do — it’s that such traditional programs have bloat and overhead that result in a smaller amount of money actually reaching its intended target. The efficiency of traditional aid programs is lessened by overhead costs and prices of delivering materials. When Bandhan, a local nonprofit group in India, transports cows to families in West Bengal, “cows themselves usually cost no more than a few hundred dollars each, but delivering them — targeting recipients, administering the donations, transporting the animals — gets expensive.” The $166 worth of livestock costs $331 to transport.

Blattman and Niehaus find little evidence that such costly programs have results that merit the expense. Systematic evaluation can either justify or find fault in highly-praised programs. MIT economist Abhijit Banerjee’s assessment of a microloan program, part of the microfinance movement, gaining momentum in the 1990s and early 2000s, has yielded surprising results. In 2005, local non-profit Spandana made $250 loans to hundreds of women in Hyerabad, India. When recipients were evaluated by Banerjee three years after receiving the microloans, the program was found to have “no effect on education, health, poverty, or women’s empowerment.” Business training, another prevalent form of aid, has also had little proven effect on income.

A more impactful alternative, Blattman and Niehaus argue, is direct cash assistance.

Many people harbor stereotypes about the responsibility and competency of the poor — believing (as the authors catalogue) “that men drink their cash away, that the diligent but uneducated poor struggle to make sound decisions, and that handouts make people ever more dependent on aid.” Such stereotypes make direct, unconditional cash donations a harder sell for would-be donors, in spite of the fact that such preconceptions are contradicted by the evidence.

Blattman and Niehaus find that unconditional cash transfers were effective even among drug addicts and criminals in Liberia; given $200 grants, “the recipients did not waste the money, instead spending the majority of the funds on basic necessities or starting their own businesses.” Cash transfers provide flexibility that traditional development aid lacks. By considering this opportunity cost of development programs, donors can think more critically about how far their money is going. The authors challenge donors to ask themselves: “With each dollar we spend, are we doing more good than the poor could do on their own with the same dollar?”

While cash transfers can exist without the management costs that hinder other aid programs, small-scale studies cannot predict what will happen if these concepts are implemented on a larger scale. Technology may facilitate the use of cash transfers in developing countries, but what are the implications for security and stability? Would cash transfers expand the potential for corruption by local authorities? Would an influx of cash lead to inflation? Would there be stickups at gunpoint and an increase in crime when the aid takes such a tangible, immediate form?

The authors demand a more critical assessment of current aid practices and call on the public to “hold charitable organizations accountable for the wasteful expenses they regularly incur.” Ending poverty, they suggest, may require donors and policy makers to take a harder look at current practices in order to figure out what the poor really need; there’s little point in teaching the proverbial man how to fish if he doesn’t need fish in the first place.

The Source: “Show Them the Money,” by Christopher Blattman and Paul Niehaus. Foreign Affairs, May/June 2014 issue. Photo by AusAID/Dept. of Foreign Affairs and Trade, CC BY 2.0.