No, Seriously, Free Money

This three-part series by Aidan Craney, PhD candidate at La Trobe University, examines the different perspectives towards finances of people in donor and recipient countries.  It looks at current debates about how to improve the efficiency of donor dollars and how to assist poor people in less-developed states to escape extreme poverty.  See here for the first blog in this series.

9 April 2015

In 2013, Chris Blattman caused a stir in development economics circles by declaring that skills training for poor people in less-developed nations is a waste of money (I’m paraphrasing) and that access to cash is the foundation to alleviating poverty.

Image: Easy access to cash in Suva
Image: Easy access to cash in Suva

Now, tied aid and conditional aid have been debated ad nausea at institutional and enterprise levels, but have been somewhat ignored at the micro level.

Personally I think this is an extension of the poor as undeserving mindset that has people crowing on social media about the need to drug test welfare recipients.

It’s the same with development: if we’re coughing up the cash, we want a say in how it’s spent.

The catch, Blattman finds, is that unconditional cash transfers produce better outcomes in terms of alleviating extreme poverty. In a case study in Uganda where young people were given a hand-out equivalent to an average yearly income, the majority invested the money in their own human capital to an end result of increased wages by nearly 50% – ‘especially women’s’.

This idea isn’t new. In fact, it’s old-school Keynes meets development theory and practice.

It should be noted that there is conflicting evidence on conditional cash transfer efficacy and there is an argument that for certain indicators, such as child health, conditionality does produce better results.

However, when related to poverty alleviation, giving without obligation is gaining traction as an idea and practice. The basic premise being that poor people know their situation better than the people giving them money AND their motivations are transparently self-improvement, rather than donors, for whom self-interest remains the elephant in every room.

It’s not rocket-science but, hey, maybe that’s why it’s being ignored.

So we know that we don’t know what motivates poor people to engage in economic transactions at scale and that donors and development professionals spend money with worse outcomes on poverty alleviation than poor people spend money themselves. So how can we improve means of getting money into the hands of the poor?

Stay tuned for the final blog in this series next week. @AidanSeamus

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