Instead of more traditional foreign aid giving programs, cash grants are a valid alternative.

Seeding change: seeds or change?

by Elaine Schwartz    •    Aug 5, 2014    •    882 Views

What do you think about fighting poverty by just giving people cash?

When Chinese recycling millionaire Chen Guangbao tried to give NYC’s “poor and destitute” people $300 plus lunch at a fancy restaurant, during the meal (steak and sesame-crusted tuna) the organizers said, “No money.” Worried the cash would be misused, they said their lunch guests would be the beneficiaries of the $90,000 from the donor. But they would decide how it would be spent.

While their attitude was typical, some academic research indicates it might not be valid. Through randomized trials in Mexico, Kenya and Malawi, the results of cash grants range from successfully improving daily diet and living conditions to more business startups. In a Ugandan trial, 900 extremely poor women received business planning instruction for 5 days with $150. A year and a half later, they had doubled the incomes of a control group. In other cash grant trials, recipients spent their money on the types of food, shelter, tools and training they would have gotten from aid organizations.

Sort of like a Wall Street index fund, cash has the lowest overhead. Whereas programs that formally structure giving have to pay for more staff and travel, cash giveaways require a simpler model. To give a cow, for example, you need to find the recipients, allocate the donations and then deliver the animal. In one West Bengal, India program, a $166 cow costs $331 to give. In Rwanda, Heifer International had to spend $3000 when they gave away a pregnant cow because of the training and support services the gift necessitated. In a Ugandan cash giving initiative, organizers concluded that while follow-up advice enabled recipients to earn more, its cost exceeded the benefit it created.

I know. Probably like me, you are not convinced but neither are the scholars who have studied the cash-grant approach to foreign aid. They just say, let’s give it a chance and continue to assess the outcomes.

Our bottom line: How best to eliminate poverty returns us to cost and benefit–a tough approach when what you are doing “feels good” but might not “do good.” For cash grants, the spin is different. It does not really feel good but it could be doing good.

The luncheon funded by recycling millionaire Chen Guangbao was June 25 at Central Park’s Boathouse Restaurant. Below is a copy of the NY Times June 16 ad for the event.

from Quartz

Sources and more...I was first introduced to the vagaries of cash grants in an insightful discussion between Econtalk's Russ Roberts and Christopher Blattman, a scholar from Columbia University. That took me to an Op-Ed by Dr. Blattman, an article he co-wrote in Foreign Affairs, a Quartz piece on the homeless dinner, and some of our econlife posts on the alternatives: Jeffrey Sachs's Millennium Villages, the Bolsa-Familia Conditional Cash Grant program and micro-loans.

Leave a Reply

Your email address will not be published. Required fields are marked *

« »