Is it nuts to give to the poor without strings attached?

Bernard Omondi lives in a small Kenyan village in a rural district called Siaya that sits right on the Equator and is almost impossible to get to. He has spent years working on and off as a day laborer, moving stones on construction sites, and commuting long distances over rough dirt roads. When he could find work, he made about $2 a day. When he couldn’t, his two sons sometimes went hungry. Then one morning last year, Omondi woke up to an unusual text message. “When I saw the message, I jumped up,” he recalled. “My wife said, ‘Bernard, what is it?’ ” He told her he had just been given $500 with no strings attached. “ It’s here! ” he said.

A month earlier, Omondi told me, a couple of strangers showed up in his village, and explained that they worked for a charity, GiveDirectly, that gave money to poor people without any preconditions. They had chosen this area, they said, because it was among the most impoverished they could find — most people grew vegetables on small plots, lived in dirt-floored houses and worked sporadically at informal jobs. The poorest people in the village, the strangers explained, would be eligible to receive $1,000, about a year’s income for a family, spread over two payments. Not surprisingly, many villagers were incredulous. Some thought a politician was trying to buy their votes; others presumed it was some sort of trick. “My friends didn’t believe it at all,” Omondi said. “They told me, ‘They will come for it one day.’ ” 

A charity that gives away money, as opposed to, say, offering agricultural training or medicine, does seem a bit unusual. That’s partly because governments and philanthropists have emphasized solving long-term economic problems rather than urgent needs. But in the past decade it has become increasingly common to give money right to the very poor. After Mexico’s economic crisis in the mid-1990s, Santiago Levy, a government economist, proposed getting rid of subsidies for milk, tortillas and other staples, and replacing them with a program that just gave money to the very poor, as long as they sent their children to school and took them for regular health checkups. 

Cabinet ministers worried that parents might use the money to buy alcohol and cigarettes rather than milk and tortillas, and that sending cash might lead to a rise in domestic violence as families fought over what to do with the money. So Levy commissioned studies that compared spending habits between the towns that received money and similar villages that didn’t. The results were promising; researchers found that children in the cash program were more likely to stay in school, families were less likely to get sick and people ate a more healthful diet. Recipients also didn’t tend to blow the money on booze or cigarettes, and many even invested a chunk of what they received. Today, more than six million Mexican families get cash transfers. 

Dozens of countries imitated Mexico’s example and their results inspired the founders of GiveDirectly, a handful of graduate students at Harvard and M.I.T., who were studying the economics of various developing countries. They chose to situate the charity in Kenya because it was a poor country with a well-developed system for sending money to anyone with a cheap cellphone. But they also planned to differentiate their charity; whereas most of the government programs give people money for as long as they qualify, GiveDirectly offers people a one-time grant, spread over the course of several months, and without any requirements. 

“I’m hopeful about GiveDirectly’s model, but what they’re doing is very different from what some of the research has suggested is really working,” Chris Blattman, an economist who teaches at Columbia and who studies cash transfers, told me. “They’re just giving away money with no strings. It’s just manna falling onto your mobile phone.” An outside group is studying GiveDirectly’s impact; final results are expected later this year. 

 A few months after the group sent out its second round of payments to Omondi’s village, I spent two days walking around the area in Siaya where GiveDirectly is working. I didn’t find anyone who drank their money away or started sitting around waiting for the next handout. Although people did like to gossip about what their neighbors did with the money. One man actually pointed to a nearby house, and told me that the owner had nothing to show for his windfall. I later learned that the man, whose first wife had died, used the money to pay a dowry so he could remarry. 

Lots of people, in fact, used the money in productive ways. An inordinate number, it seemed, used it to replace their thatched roofs, which are not only lousy but also weirdly expensive, as they need to be patched every few months with a special kind of grass. A metal roof costs several hundred dollars, but lasts for 10 years, making it a much better investment. Omondi was among those who bought metal roofs. He also purchased a used Bajaj Boxer, an Indian-made motorcycle that he uses to ferry people around, for a small fee; he is also currently paying off a second motorcycle, which he rents out. Now Omondi makes about $6 to $9 a day in his taxi operation, several times his previous income, and he works almost every day. Several of his neighbors also used the money to start businesses­. One man bought a mill and charges villagers to grind their corn. Others became microretailers, buying goods like soap and oil at wholesale and reselling them at a markup.

But while Omondi and his neighbors have metal roofs, their houses still have dirt floors and no running water or electricity. And their prospects for making it to the middle class are pretty bleak. “You give people cash to start a business or expand their business, and in a lot of cases, they shoot forward,” Blattman says. “Then they start screeching to a halt when they hit the next constraint.” If Omondi wanted to further expand, he’d probably find it hard to get a small-business loan from a bank. The problems holding Omondi and his neighbors back — underdeveloped financial systems, bad infrastructure — are the generic but defining problems of the developing world, and they won’t be fixed by a one-time windfall. 

Even if they can’t necessarily build thriving businesses, or pave their floors, the poorest Kenyans can, even for a time, enjoy the tangible relief of being a little less poor. At its most basic level, after all, GiveDirectly’s work is an attempt to test one of the simplest ideas in economics — that people know what they need, and if they have money, they can buy it. Taken to its logical conclusion, this suggests that giving away money may often be more helpful to people than giving them cows, or medicine, or training or whatever. “This puts the choice in the hands of the poor, and not me,” Michael Faye, one of GiveDirectly’s co-founders told me. “And the truth is, I don’t think I have a very good sense of what the poor need.” 

Source