Cold, Hard Cash Works Better than Welfare

Giving money directly to the poor is one of the best ways to raise education levels and lift people out of poverty, a study by the University of Otago shows. Development economist Dr Sarah Baird and her team were studying the impact of two new initiatives – conditional cash transfers (CCTs) and unconditional cash transfers (UCTs) – on developing countries’ families and their communities.

Rather than relying solely on a complex social welfare bureaucracy, governments began giving money directly to households – sometimes with conditions attached; other times not. The schemes started around 2000 in Latin America and, on the back of success, spread around the world.

Charities, such as Give Directly, have sprung up to further spread the new counterintuitive gospel that the desperately poor are not profligate basket cases, on whom a cent spent is wasted.

In Uganda, lump sums of US$10,000 (a staggering amount for that country) were given to groups of around 20 people. Recipients spent a third learning a trade and much of the rest on tools, stock and setting up a business. They worked longer hours than previously and average earnings rose 50% in four years.

Baird’s team concentrated on education outcomes from 26 CCTs, five UCTs and four programmes that ran a mixture of conditional and unconditional cash transfers.

The CCTs imposed obligations around children attending school and, Baird reports, this group saw a 41% rise in school enrolment. By comparison, UCTs delivered only a 23% rise. If the CCT conditions were tough, enrolment rose 60%. The benefits persisted after the cash stopped.

But for every benefit, a cost. In Malawi, CCTs and UCTs were run in tandem and girls from families with unrestricted cash were less likely to get pregnant and more likely to marry later than girls’ families whose cash was dependent on school attendance.