Popularity of Cash Transfers Could Create New Paradigm

Popularity of Cash Transfers Could Create New Paradigm

The growing popularity of direct cash transfers to people in need could eventually force donors and development organizations to rethink their approach to poverty alleviation, The Atlantic reports.

Admonitions to avoid direct relief for the poor go back at least as far the Gilded Age and Andrew Carnegie's "Gospel of Wealth," in which the Scottish-American industrialist declared "indiscriminate" almsgiving to the poor "one of the serious obstacles to the improvement of our race." Over time, Carnegie's views helped shape the technocratic model of philanthropy that came to dominate the twentieth century, one in which individuals with advanced professional training and credentials are empowered to decide how charitable resources are best used to address poverty.

But a report (44 pages, PDF) from the Center for Global Development and the Overseas Development Institute cites rigorous research showing cash transfers to be an inexpensive and "highly effective way to reduce suffering" and something that should be thought of "as the 'first best' response to crises." Indeed, Nobel Prize-winning economist Amartya Sen made the case for cash transfers as a response to humanitarian crises as early as 1981, while Latin American governments began implementing conditional cash transfer programs in the 1990s. Following the 2004 Indian Ocean tsunami, a number of large aid agencies began to experiment with cash transfers as an alternative to in-kind assistance, and subsequent evaluations have found that whereas a lot of in-kind aid is wasted, poor people tend to spend cash responsibly on what they need most. That conclusion is backed by a four-country study which found that direct cash transfers could benefit nearly 20 percent more people than a similar amount of food aid, at no additional cost.

The mounting research evidence combined with advances in digital payment systems, widespread cell-phone ownership, and increased access to financial services helps explain the growing popularity of GiveDirectly, a nonprofit that has aggressively promoted the efficacy of direct cash transfers to poor people. Moreover, cash transfers have shown great promise as an evaluative tool. Respected charity evaluator GiveWell, among others, has begun to use such transfers as a baseline against which to compare other charities, while GiveDirectly co-founder Jeremy Shapiro likens the potential of cash benchmarking to index funds, in that someday it could force aid organizations to actually demonstrate that their favored approaches to poverty alleviation are doing more good than just giving the money to the poor directly.

Cash "keeps us honest," Radha Rajkotia, the senior director of economic recovery and development at the International Rescue Committee, told The Atlantic. "It helps really hone in on how we might design our programs differently so that we might reduce time and cost and be just as effective."