A new charity GiveDirectly has been launched, which lets you directly transfer money to households in Kenya, with no strings attached. It offers people a one-time grant, spread over the course of several months, and without any requirements. It’s aim is to empower the poor to set their own priorities, and is seen as a powerful tool for boosting incomes and promoting development.
GiveDirectly attempts to test one of the simplest ideas in economics—that people know what they need, and if they have money, they can buy it. (NY Times)
In the most minimalistic definition of the term, poverty is a lack of money, and GiveDirectly would be a tool for poverty alleviation. Although this removes all the complexities in the dynamics of poverty, GiveDirectly argues,
Money with no strings attached not lonely directly raises the living standards of those who receive it, but it also increases hours worked and labor productivity, seemingly laying the groundwork for growth to come. (Slate)
The research and inspiration come from a 2008 initiative in Uganda’s very poor northern areas, where the government announced plans to give roughly a year’s worth of average income (about USD 382) to young people aged 18-34. Small groups applied for grants and were asked to provide a statement about how they would invest the money in a trade. But the money was explicitly unconditional—parceled out as a lump sum with no compliance monitoring.
The recipient group was analyzed versus a control group before, after 2 years and after 4 years and results showed that the one-off lump-sum transfer had substantial long-term benefits to those who received the grants. As promised, they invested in skills and business assets and were therefore more likely to practice a skilled trade. Consequently they were able to earn more compared to the control group, and saw a 49% boost after 2 years and 41% after 4 years.
One of the most interesting results from the Ugandan experiment is that recipients of the grants worked 17% more hours worked, suggesting a bridge to economic opportunity. Grant winners increased both the quantity and quality of labor supplied, suggesting at least some spillover effect to the broader community.
GiveDirectly chose Kenya because it was a poor country with a well-developed system for sending money to anyone with a cheap cellphone.
However, there are obvious limitations as to how far up the development ladder you can climb with this strategy. Grants are awarded to the poorest of the poor, and although GiveDirectly provides small-scale relief, these boosts may be an appreciated reward (even if only temporary), but prospects of making it to the middle class remain bleak.
You give people cash to start a business or expand their business, and in a lot of cases, they shoot forward. Then they start screeching to a halt when they hit the next constraint. (NY Times)
The problems holding the poorest back (underdeveloped financial systems, bad infrastructure) are the generic but defining problems of the developing world, and they wont be fixed by a one-time windfall.
I find GiveDirectly to be an interesting new initiative, and even if I would argue that certain aspect seem shortsighted, one-off grants could assist in small-scale local development and the attainment of skill sets for the recipients. I look forward to following GiveDirectly’s future developments.