Saturday, June 1, 2013

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.

Monday, May 27, 2013

New Zealand's Health Care System

Eric Crampton, at Offsetting Behavior, likes New Zealand's health care system:
Things I have never ever here had to do: 
  • Worry about whether our preferred GP, obstetrician, or specialist takes the insurance that we have;
  • Have to take the insurance recommended by our employers;
  • Have insurance tied to employment;
  • Save receipts for reimbursement later on [we just mailed the bills to the insurer];
  • Add up total health expenditures for a tax form to get a deduction;
  • Wait in really long queues (Canada);
  • Pay tons for private health insurance.
I really enjoyed this analysis and these all sound like significant improvements over the U.S. health care system.  Of particular appeal are the separation of insurance from employment and the prominence of high deductible plans in New Zealand.  And I believe that the U.S. system would function significantly better if we could accomplish these two objectives.

All that being said, a couple of potential flaws do jump out of this description.  I know nothing about New Zealand's health care system beyond what is presented here, but it seems significant and problematic that only 30% of the country subscribes to private insurance.  It's not clear to me what is covered by the public insurance system, but there seem to be some large gaps in the public insurance if a gallstone removal is not covered under public insurance.  Knowing only that gallstone removal must be paid for through private insurance (or out-of-pocket) and that 70% of the population does not have private insurance, I see the potential for some significant problems.  None of this is to argue that the U.S. health care system is "better"; just attempting to analyze some of the potential problems of New Zealand's system (of which, again, I am ignorant beyond Crampton's blog post).

Also, this is a bit of a semantic criticism, but I'm not sure it's fully accurate to say that "America has decided to make it difficult to get inexpensive high-deductible insurance coverage."  Under the ACA, the maximum limit for deductibles in 2014 will be over $6,000, triple the deductible paid by Crampton in New Zealand.

Addendum: See Eric Crampton's comment below for correction of my error in this post.

Buying low on primary care medicine

Dave Chase of Forbes on why the primary care industry is due for a renaissance:
Studies such as IBM ’s global study on the $2B they spend annually on healthcare have produced a consistent conclusion. That is, the formula is quite simple. The countries with the highest proportion of primary care have the healthiest populations and spend lower per capita on healthcare. Every government and business is budget constrained and these findings will be hard to ignore.