Paradigm shift: from development programs to cash transfers

This terrific blog post on cash transfers from Chris Blattman has sparked a lot of discussion in the development blogosphere over the past week:

So we don’t know a lot about giving cash to the very poor and unemployed, or how to help people shift from agriculture to cottage industry–the structural change so fundamental to modern economic growth. 

Enter our study. We look at a large, randomized, relatively unconditional cash transfer program in Uganda, one the government designed to stimulate this kind of job growth and structural change. 

The Ugandan government did what dozens of African governments are doing under the guise of “Social Action Funds” and “Community Driven Development”: they sent $10,000 to a group of 20 or so young people who applied for it. This is about $400 a person, equal to their annual incomes. 

To many people, this sounds like a crazy development strategy. We don’t trust the poor (let alone a bunch of rural 25-year olds) to spend that kind of money responsibly. We want to tie their hands, or make the decisions for them, or at least make them dig useless ditches for three months in exchange for cash.

We wanted to know. So we worked with the government and World Bank to randomize the grants, and followed nearly 2500 people two and four years afterwards. 

So is it time to stop giving people skills? Not entirely. Part of the reason these Ugandan youth did well is that they invested some of their grants–maybe a third–in skills training. But mostly they invested the grant in tools and inventory and inputs. It was their choice. 

I used to think skills and capital were like right and left shoes: one’s not so useful without the other. Now I think of capital like the shoes and skills like the laces: if I have capital, i can jog a good pace, but I can’t really run unless I have the skills. But first I need the shoes. (And cash can buy me both.)  

The problem is: too many programs just hand out laces. Old, ratty laces that don’t even fit people’s shoes. I don’t know why we do that. Maybe because we academics and NGO workers and elite government officials all live in a world where we ourselves invest in skills because there are things out there called firms and bureaucracies that have capital, and will pay us to use it. 

The poorest don’t have firms ready to hire them. Perhaps we need to stop projecting our own labor markets and biases and low opinions of our own self-control onto the poor, and show them the money.

Here’s the “surprise”: Most start new skilled trades like metalworking or tailoring. They increase their employment hours about 17%. Those new hours are spent in high-return activities, and so earnings rise nearly 50%, especially women’s.

I wonder if we're in the midst of a paradigm shift on this issue.  I've followed this debate in the blogosophere, but have yet to read many of the academic papers on the issue, yet I'm very surprised at how few serious thinkers seem to be coming to the rescue of the aid industry.

From what I've read, the cash transfer believers seem to have the more compelling arguments on their side.  This is something that's been building for awhile, first with the skepticism of Easterly and then Moyo over the traditional aid model, and now with the increasing swell of studies showing the success of cash transfer programs.  In fact, one of the reasons that I shifted from the field of aid and economic development more generally to the field of global health was that the global health sector seemed to provide a lot more opportunity to do good whereas a lot of the aid programs were of questionable usefulness.  I'm looking forward to seeing how this debate plays out in the coming years.