(Un)conditional Giving

New social assistance programs fight hereditary poverty
The idea is simple: give small cash payments to the poor in exchange for keeping their children in school and taking them for regular medical checkups. What the idea represents, though, is incredibly novel: by attaching conditionality to the money that poor families receive, they must invest in human capital. This means making exactly the kinds of investments that target the intergenerational transmission of poverty.

These types of programs, called conditional cash transfers (CCTs), go by different names in different places. The conditions and program designs differ, but most invest in education and nutrition. The program in Mexico, Oportunidades, was begun in 1997. It offers a family with a child in primary school and a child in middle school $123 a month. Students also receive money for school supplies, and those who finish high school receive a grant of $330. Today, the program covers 5.8 million families, about 30 percent of the population. Brazil’s Bolsa Familia covers 50 million Brazilians, about a quarter of the country. Families living in extreme poverty receive a base payment of $40 a month with no conditions. The additional payment for a child attending school ranges from $13 to $19 a month.

The sums seem small, but it substantially improves the living standards of its beneficiaries. A family living in extreme poverty in Brazil doubles its income with the basic benefit. It allows them to buy basic necessities, such as food. This benefit is easy to measure and observe. The success of longer-term goals such as helping the poor to escape self-perpetuating poverty are harder to measure, though evidence suggests they are smart investments. Professor Nzinga Broussard, of the Robert Day School of Economics and Finance, comments, “It is commonly accepted that investments in human capital are one of the most effective ways to prevent the intergenerational transmission of poverty. There is strong evidence that investments in education and health in adolescence improves labor market outcomes later in life.”

Overall, such programs have largely been seen as successful. “I think these programs are as close as you can come to a magic bullet in development,” said Nancy Birdsall, president of the Center for Global Development, “They’re creating an incentive for families to invest in their own children’s futures. Every decade or so, we see something that can really make a difference, and this is one of those things.”

A range of evidence supports this belief. An International Food Policy Research Institute evaluation found that children who took part in Oportunidades were healthier, better nourished, and stayed in school longer than those in a control group. The number of children entering middle school in rural areas has increased 42 percent. High school enrollment has risen by 85 percent. The poverty rate fell between 2000 and 2002, despite a recession in which real income per head declined by about 3 percent. Bolsa Familia helped to contribute to a decline in poverty from 22 percent to 7 percent in Brazil’s population between 2003 and 2009. Despite initial fears, the sums are small enough that for the most part poor people have not responded to cash payments by cutting back on paid work.

As an added bonus, the fiscal cost to governments is fairly modest. Bolsa Familia costs about a third of 1 percent of Brazil’s GDP. CCTs generally target the poor more effectively than public pensions, social insurance, or indiscriminate subsidies. Rigorous evaluations are built in, as administrators need to know if participants comply with the conditions. This lends these programs more credibility and makes them more attractive to the middle and upper classes that finance them.

Politicians like CCTs because the poor represent an influential voting bloc, though almost any social assistance scheme is no different in this respect. CCTs are different in that they have largely avoided a tendency of new governments to do away with predecessors’ social programs. With support and funding from the World Bank and Inter-American Development Bank, many such programs have successfully become institutionalized. As long as they are successful, they are here to stay.

Of course, CCTs are no panacea for poverty. Governments do not always plan for the increased demand for schools and health services. Sometimes the only way to meet the demand is to drastically reduce quality. CCTs may increase school attendance, but if educational standards fall it serves little use.

CCTs have improved the lives of millions. Over 40 countries now have a conditional cash transfer program, including nearly every country in Latin America. However, governments of developing countries must not be content with the progress already achieved; CCTs can be reformed and made better. And ultimately, they are no replacement for the best solution to poverty: rapid economic growth.

Nick Rowe is the Port Side's National Editor.

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Published with support from Generation Progress. genprogress.org

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