Monday, October 1, 2018

The cash transfers non-debate

Two working papers on cash transfers released in recent weeks provides more fodder to critics and supporters alike.

First Chris Blattman tweeted,
Can cash grants lift the poor out of poverty? How I've started to change my mind.
His latest research, with Nathan Fiala and Sebastian Martinez found,
In 2008, Uganda granted hundreds of small groups $400/person to help members start individual skilled trades. Four years on, an experimental evaluation found grants raised earnings by 38%. We return after 9 years to find these start-up grants acted more as a kick-start than a lift out of poverty. Grantees’ investment leveled off; controls eventually increased their incomes through business and casual labor; and so both groups converged in employment, earnings, and consumption. Grants had lasting impacts on assets, skilled work, and possibly child health, but had little effect on mortality, fertility, health or education.
Just a couple of days later, Craig McIntosh and Andrew Zeitlin compared the relative efficacies of cash transfers and an in-kind regular government program in Rwanda and found the following,
In Rwanda, an IPA research team rigorously evaluated the impact of unconditional cash transfers, compared to an integrated nutrition and WASH program, on the following main outcomes: household dietary diversity, child and maternal anemia, child growth (height-for-age, weight-for-age, mid-upper arm circumference), value of household wealth, and household consumption. After approximately one year, the nutrition and WASH program had a positive impact on savings, a secondary outcome, but did not impact any main outcomes. An equivalent amount of cash (a cost to USAID of $142 per household with $114 being transferred) allowed households to pay down debt and boosted productive and consumption asset investment, but had no impact on child health indicators. A much larger cash transfer—of more than $500 per household—had a wide range of benefits: it not only increased consumption, house values, savings, and assets, but improved household dietary diversity and height-for-age, and decreased child mortality.
Dylan Matthews has two excellent articles analysing each of the papers, here and here

In the context of the Ugandan program, this, by the World Bank economist and longtime sceptic of cash transfers Berk Ozler, struck me as being profoundly misleading,
Özler also raised the issue of spillovers. The point of the program was to get more people into skilled trades, like tailoring. But that doesn’t just affect the people getting the skills; it affects the other tailors already working in the area. “Creating 10 to 15 tailors at once in a parish of 10,000 people, it’s got to affect existing tailors,” he said. “Maybe some went out of business.” It’s hard to know whether the program is cost-effective without knowing what happened to those other tailors. If the program just made some people successful tailors at the expense of others, that’s not really a huge gain.
I struggle to understand what's all this fuss about. For a start, the scenario of 10-15 tailors in a population of 10,000 is just rhetoric. (Btw, this was exactly the case with the in-kind self-employment asset-transfer programs  that the likes of World Bank have financed for decades).

More substantively, every intervention that seeks to achieve significant improvements in human condition (assuming that moving out of extreme poverty is a significant improvement) over a short period (say, 3-5 years) requires significant external support. And such support invariably creates externalities, good and bad, beneficiaries and losers. The most likely immediate impact is on aggregate demand and price level, and an upward shock at that. But the village or parish is an open system, and such interventions set in motion dynamics that accommodates those shocks. The role of public policy should be to minimise the shock and to expedite the adjustment.

Any opening up to international trade has the immediate impact of benefiting some and impoverishing others. A large mall opening in a small town has the definite effect of shutting down or at the least significantly hurting small shop owners. Or a productivity enhancing farm mechanisation ends up lowering the demand for landless labour. The redevelopment of a blighted urban locality populated by low income residents causes gentrification and makes the area unaffordable for them. But do we apply the Ozlerian test to evaluate any of these? 

Readers of the blog will know that I am no fan of cash transfers. In fact, if anything, I am sceptical of cash transfers in many areas and in many countries, including India. But like horses for courses, they have a role where appropriate. 

Unfortunately, the ongoing debate on cash transfers is stuck in an unproductive equilibrium around quantitative indicators between critics and supporters. There are several meta studies, all of which distil quantitative research findings. Missing from the debate is the more sophisticated empirical studies (which goes beyond mere quantitative indicators) that look at issues of when (both context and use case) are cash transfers more likely to be effective based on considerations on state capacity, local market conditions or maturity, individual's agency, hold of vested interests, cultural and behavioural norms, and so on. Time for someone to distil all these together and write a paper, even a book. That would really be sophisticated and smart thinking about development and some practical guidance for policy makers.

A Poor Economics for cash transfers? Or is there something like, sophisticated enough, that already out there?

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