One year, instead of buying my dad the usual unattractive necktie for Christmas, we bought him a goat. He loved the goat, mainly because it was not for him but given in his name to an impoverished family in Kenya.
Many of us know the holiday rite, by now as predictable as the turning of the seasons: making donations to the poor overseas on behalf of loved ones, aided by gift catalogs from nonprofits like Heifer International, World Vision, and Compassion International that reveal happy pictures of children hugging sheep.
That Kenyan goat launched a Christmas tradition for my family. Over the years, we’ve graduated from goats to dairy cows to water buffaloes. But there is a corollary to our tradition. While my parents would purchase a farm animal for the poor in a family member’s name, they would often give the same family member a cash gift to spend however they liked. It raises the question: Do we trust each other with cash more than we trust the poor?
Gift catalogs are popular not just because of their playful optimism (what could be more fun than buying baby chicks for little girls?), but also because they resolve an unspoken dilemma we feel about giving money to the poor. Money obviously gives recipients the greatest freedom of choice, but they might misuse it. A goat feels safer.
As an economist and a Christian, I too feel this dilemma. Part of it comes from seemingly competing New Testament values. While Jesus teaches us “give to everyone who asks you” (Luke 6:30) and that “it is more blessed to give than to receive” (Acts 20:35), he also created boundaries against manipulation (Matt. 12:46 ff., 16:23, Luke 23:8–9).
Do we trust each other with cash more than we trust the poor?
Likewise, Paul encourages Christians to “be generous on every occasion” (2 Cor. 9:11) and writes that “God loves a cheerful giver” (2 Cor. 9:7). But he also warns the Thessalonians against charity to the indolent: “For even when we were with you we gave you this rule: The one who is unwilling to work shall not eat” (2 Thess. 3:10).
There is a biblical tension between generosity and accountability, part of the more universal tension between mercy and justice. It is a tightrope that faithful Christians must learn to navigate. But part of the Christian life is learning to hold potentially competing values in this tension as we discern what is appropriate to a particular context. As part of our path to spiritual maturity, we are not only to expand our hearts but develop our minds.
The type of “in-kind” giving that gift catalogs promote is a way of dealing with what in economics jargon we call “moral hazard,” where a receiver might spend money in ways distasteful to the giver. So people may give in-kind gifts when they don’t trust someone with money. I might give my daughter a bike for Christmas because I know that she wants a bike. But I also might give her a bike because, if I gave her money, she could use it to buy a video game console, which for me would be an odious outcome.
In the United States, we have institutionalized this in-kind response to urban poverty since President Lyndon Johnson enacted the Food Stamp Act of 1964. Its successor, the Supplemental Nutrition Assistance Program (SNAP), provides 44 million Americans an average of $125 per month in food assistance. Similarly, our response to international poverty is often to send surplus grain or, at an individual level, a farm animal. Perhaps we think the poor might waste our donation on cigarettes and liquor. But is it really true?
Economists have long wondered how the poor actually handle receiving sums of cash. It turns out that Indian casino profits offer some clues. UCLA economist Randy Akee, a colleague of mine at UC Berkeley’s Center for Effective Global Action, has studied the effects of cash windfalls from Indian gaming on Native Americans.
Akee and his co-authors looked at Eastern Cherokee reservation families that, in 1996, began receiving an average of $4,000 per person every year from a casino profit-sharing arrangement. Comparing Cherokee children to those of their non–Native American neighbors, the authors found that this added income caused the Cherokee children to complete an average of one additional year of education. The cash transfers also reduced the chances of teenagers committing a crime by 22 percent, likely a result of less crime committed by their parents.
Another study published last year looked at the long-term effects of an early US effort to give cash to the poor, the Mothers’ Pension Program, which ran from 1911 to 1935. Children of the program’s beneficiaries ended up being better-educated adults, significantly healthier, and earning higher incomes than children from mothers who couldn’t access the program.
Despite the documented benefits, Americans worry that providing cash to the poor may discourage work. The values of hard work and self-reliance run long and deep in our country, defining characteristics of American culture. As early as 1840, Alexis de Tocqueville noted in his classic Democracy in America:
Among a democratic people (in America), where there is no hereditary wealth, every man works to earn a living. . . . Labor is held in honor; the prejudice is not against but in its favor.
While laudable, our values of hard work and self-reliance influence our approaches to giving, both individually and as a society. Behavioral economist Pamela Jakiela showed how in her fascinating experiment comparing people in Kenya with people in the United States. She gave subjects in both countries a moderate amount of money—some had to earn it by performing a task, while others were simply given the money. Then each subject had to make a decision: How much from what they received would they give, under no compulsion, to another randomly chosen subject?
Perhaps not too surprisingly, the Kenyans were considerably more generous than the Americans. More interesting was that how much the Kenyan subjects gave away didn’t depend on whether they had earned the money or not. In contrast, the Americans were not only more miserly in their giving overall, they were even more tight-fisted when they had worked for the money.
There is a biblical tension between generosity and accountability, part of the more universal tension between mercy and justice.
Some economists believe that a culture of giving in places like Kenya may hold back economic progress. After all, why work so hard if you’re expected to give so much of your earnings away? That Americans feel entitled to spend whatever we earn on ourselves probably does make us work harder. But it also significantly influences our feelings of responsibility to our neighbor.
For example, our culture of self-reliance makes many of us recoil from the kind of full-fledged welfare state common in Europe. This may partly stem from the widespread perception that our welfare programs enacted in the 1960s, however well-intentioned, bred an underclass of welfare-dependent slackers: If we give the poor cash, it will cause them to work less and develop irresponsible habits.
New research in labor economics has tried to find out if there’s truth to this stereotype. Princeton economist David Price and his coauthor Jae Song recently studied the long-term effects of the 1970s Seattle-Denver Income Maintenance Experiment, which gave thousands of randomly selected families in the two cities a guaranteed annual income of nearly $26,000 for three to five years. Any income the families earned beyond that was heavily taxed.
After receiving the cash, adult work hours dropped by 12 percent, and the households earned $1,600 less per year on average than households that didn’t receive the free income. Moreover, even decades after the experiment ended, recipient households continued to earn $1,800 less per year and were even more likely than others to apply for disability benefits.
Partly in response to the perception that US welfare programs dissuaded people from working, reforms were enacted during the Clinton administration in 1996 limiting welfare benefits. Economists found that participation by the poor in the labor force increased significantly after the reforms, especially among immigrant families and in states that enacted more stringent reforms. So in the United States, there is some evidence that cash-based welfare programs undercut the benefits they create for children by discouraging parents from working. But is this true for the global poor overseas?
An increasingly popular approach to fighting poverty in developing countries is the use of what are called “conditional cash transfer programs,” in which mothers get money each month so long as they keep their children in school and give them regular health checkups. The approach has been shown to be effective at educating poor children. It also provides additional cash for families to buy food, pay rent, and cover other household needs. The world’s first big conditional cash transfer program, Progresa in Mexico, was so successful that the World Bank and other funders have replicated it in dozens of other developing countries.
If giving cash with conditions is so successful, others began to wonder, could cash handouts with no strings attached be just as effective at reducing poverty? In 2009 Paul Niehaus, an evangelical Christian working on his PhD in economics at Harvard, joined with several classmates to create GiveDirectly, a nonprofit with the simplest anti-poverty strategy imaginable: transferring cash directly to the ultra-poor.
I first met Niehaus when he visited the University of San Francisco and explained to a bunch of faculty and graduate students how GiveDirectly works. The charity sends donors’ cash to ultra-poor communities in Kenya and Uganda, where the average recipient lives on $0.65 a day. Local staff identify individual households to receive cash based on the quality of the materials used to build their homes, a common measure of economic well-being.
Because the organization was founded by a group of Harvard and MIT graduates, it unsurprisingly harnesses an assortment of nerdish technologies that reduce overhead costs to less than 7 cents on the donated dollar. GiveDirectly utilizes image verification, global positioning system (GPS) data, satellite imagery, and crowd-sourced labor to validate identities and protect against corruption. Donor cash is transferred to poor families through East Africa’s digital money network called M-Pesa, a mobile phone–based payment system so common and affordable that even nomadic herders use it. Recipients receive three payouts of electronic cash in a year, totaling about $1,000. In this way, GiveDirectly now transfers millions of dollars per year to the ultra-poor in Kenya, Uganda, and Rwanda.
When I first heard about GiveDirectly, I thought it was an elegant but incredibly audacious idea. Like most economists, I have a fetish for carrots and sticks. But these cash transfers had no carrots and no sticks. Wouldn’t the poor misuse free money?
Perhaps we think the poor might waste our donation on cigarettes and liquor. But is it really true?
As Niehaus said in a recent interview with Inc, “One of the untold stories in international development is that, for the first 50 or so years of working to try to end global poverty, we didn’t test our ideas experimentally. It was only in the first part of this millennium that we began to do that in a significant way. Things that we thought we knew for sure—like giving people cash doesn’t work—were finally being tested.”
GiveDirectly was especially keen on this type of testing. It subjected its approach to a rigorous study published recently in the Quarterly Journal of Economics, a top economics journal. One year after receiving a transfer of donated money, households in the test saw a 58 percent increase in household assets. Recipients used the cash to start small businesses, or even more commonly in rural areas, to increase the size of their herds—exactly what we would hope to see in rural East Africa, where herds are a measure of wealth, a source of consumption, a means of insurance, and a sign of prestige.
The evidence on cash transfers, Niehaus feels, is strikingly positive. “As a development professional it causes you to step back and say, ‘Are the world’s problems really problems that need me, or should we actually be giving more of the control over to the poor and letting them decide?’ ”
GiveDirectly’s website features unfiltered stories of cash recipients told more or less in real time. When I checked the site, the most recent story was about Joyce, a 32-year-old widow living in Kenya. Before receiving the cash transfers, Joyce was chronically sick but could not afford the necessary medicine. “My happiest part of the day is in the morning when I wake and see that I am alive,” she told GiveDirectly workers. Joyce cares for an orphaned niece whom she adopted, but she had no money to buy the girl shoes or the school uniform required for her to attend school.
Joyce used the first cash payment to buy medicine, which helped her get well. She used the second payment to buy school clothes and pay school fees for her niece and to cover funeral expenses after the death of her sister-in-law. She decided to save the rest for the future. As I peruse through other GiveDirectly stories, I see people making improvements to their homes, buying materials to replace leaky roofs, buying something more comfortable to sleep on than a dirt floor. Many are buying goats and cows, but in this case because they feel it is the best use of their money.
World Vision says cash can be up to 30 percent cheaper to distribute than other types of aid.
The GiveDirectly study also found that cash recipients were less stressed and had better mental health. The number of nights that children went to bed hungry decreased by a remarkable 42 percent. Families bought more of nearly everything—except in one category: “temptation goods” such as alcohol and cigarettes. A 2014 World Bank meta-study of cash transfers to the poor across Africa, Asia, and Latin America found the same thing. Poor families virtually never bought more temptation goods as a result of cash transfers.
In the developing world, giving cash to the poor not only keeps kids nourished, healthy, and going to school, it appears to encourage work, investment, and entrepreneurialism rather than discourage it. Indeed, a recent study by economists at MIT across six developing countries found no discernable evidence that cash transfers discouraged work among the poor overseas.While there is evidence that a significant fraction of the cash given on the street to homeless people in the United States is used to buy alcohol and narcotics, there is almost no evidence to support this claim when cash is given to the poor overseas. Instead, there is a mountain of evidence that cash transfers to the poor in the developing world avoid the same side effects that traditional welfare programs may have in places like the United States.
Cash transfers have enough evidence in their favor that World Vision, the largest Christian nonprofit development organization, gives cash as an integral component of its work in more than 20 countries across Africa, Asia, the Middle East, Latin America, and the Caribbean. The organization says cash can be up to 30 percent cheaper to distribute than other types of aid and has committed to delivering half of all its humanitarian assistance through cash in places where it is safe and where locals can buy food and other vital goods (which is not always the case in high-risk areas).
“Cash transfer programming needs to be seen as one of the tools to address poverty and inequality,” said Belete Temesgen, a senior advisor for World Vision’s cash programs, some of which give the poor money with conditions and others with no strings attached. “It is a powerful tool to help poor families sustain their livelihoods, expand resilience, and reduce migration.”
World Vision’s use of cash and cash-like vouchers has skyrocketed in recent years, from only $3.7 million in 2012 to $110 million in 2017. Most of the money it distributes is meant to help the poor buy food after disasters or in volatile situations like famines or fleeing war. And while most of its cash transfers are funded by government aid or other grants, World Vision sometimes funds transfers from child sponsorship dollars if a sponsorship program is affected by an emergency that requires immediate relief, Temesgen said.
The benefits can be immediate. One Congolese cash recipient living in a Rwandan refugee camp told researchers that before getting the cash, “we lined for days” waiting for low-quality food. “Cash transfer has made things much easier. The money is sent to all our mobile [phones] the same day, and we are able to buy a variety of fresh and nutritious food.”
There is clear evidence that cash transfers reduce poverty.
Like those helped by GiveDirectly, poor families receiving cash from World Vision are free to make their own choices about how to spend it, and many do. In one of its Zimbabwe programs, for example, 1 in 5 recipients chose to save the money or to pay for something other than food: items like soap, education, medical expenses, and farm goods.
To be sure, some questions remain about the approach. Would providing ongoing cash transfers foster dependency? GiveDirectly is currently testing the idea of indefinite transfers, providing a minimum basic income to thousands of families in Kenya for over a decade. Time will tell whether continuously providing cash transfers will help them escape poverty or create a culture of dependency.
No one thinks cash transfers are an elixir for global poverty. There are complex and critical macroeconomic issues that cash transfers cannot fix: corrupt governments, for example, or the provision of clean water, electricity, and other public infrastructure.
But the evidence compiled thus far has made me a believer in temporary cash transfers to the overseas poor. At least in the short and medium terms, there is clear evidence that they reduce poverty. Cash transfers circumvent the costly bureaucracy that has built up around so many different types of “in-kind” programs. There is a mountain of hard evidence that they do not discourage work among the poor overseas and that the money they receive is not squandered on temptation goods.
Finally, cash transfers avoid a patronizing approach endemic to so many programs, in which “experts” make decisions for the poor instead of empowering the poor to make the best decisions they can for themselves. In this way, they respect and cultivate human dignity, giving the poor control over their own choices. This kind of approach that relieves human suffering and fosters empowerment among the poor is worth our support and should enable us to give cheerfully, especially during the season of giving.
Bruce Wydick is professor of economics at the University of San Francisco and visiting professor and research affiliate with the Center for Effective Global Action at the University of California at Berkeley. His most recent CT cover story was “Want to Change the World? Sponsor a Child.” (June 2013).
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