Let’s shift our attention away from the so-called “developing nations” where the average person is poor, to the poor of the developed and emerging nations. In developing nations, the central issue is how to raise the general level of productivity of the economic system. The issue is a lack of development and industrialization. Put simply, the economy simply doesn’t produce enough goods and services to enable the population to live a higher standard of living. This is the historical problem that all economies have faced and that the developed countries overcame in the 19th and 20th centuries.
But today in both developed and emerging market countries, there is still plenty of poverty. In the midst of unprecedented riches, income, and productivity, there are numbers of people who aren’t sharing in the benefits. What can or should be done to improve the well-being and living standards of poor people in developed countries? This is more a question of how the economic system distributes both opportunity and the product of the economy.
Addressing poverty in developed countries is no less controversial or ideological than addressing the poverty of less developed nations. One approach has been that of government-facilitated redistribution of income. In In a future post I’ll discuss some of the general approaches to addressing poverty in rich nations. Here I want to talk about one particular approach: giving money directly to poor people. In popular parlance this is called welfare. The economic essence is that the government taxes people with higher incomes and distributes economic benefits to poor people, effectively raising their living standard by supplementing their income. In the U.S. there are many forms of welfare such as SNAP (formerly called food stamps) and a myriad of other state and Federal programs. Most have specific qualification requirements (it’s not enough to just be poor) as well as behavioral requirements (keep looking for a job, for example). Further, many programs, such as SNAP, strictly regulate how the assistance can be used.
Now, north of our border in Canada, the Globe and Mail reports that Canadians are considering a flat cash-grant, no strings attached, as an alternate approach to addressing the needs of the poor. It’s not a new concept. It’s used in many developed nations, but it’s relatively new to North America. And, it’s controversial. The controversy largely centers on questions of whether the poor, if given just cash, no-strings-attached, can be trusted to spend the money properly. Part of the issue is what’s “proper”? Who determines? The giver of the aid? Or the recipient, who presumably knows their needs best. The Globe and Mail reports that the evidence seems to indicate that, yes, the poor can be trusted. We see this excerpt from their article
In Quebec, a government task force went further, recommending a minimum guaranteed income starting at $12,000 for everyone in the province.
Economists continue to bounce the idea around. Two years ago, Canadian researchers started their own chapter of the Basic Income Earth Network (a group founded in Belgium in 1986) to co-ordinate an ongoing discussion. Some say it might actually accomplish what political rhetoric has been promising for years: the eradication of poverty.
An international success story
In the past decade, the number of poor households in the world receiving direct financial transfers has grown rapidly. European nations such as France and Austria, which spend slightly less than one-fifth of their gross domestic products on cash transfers to low-income citizens, have had far more success reducing poverty than Canada has.
But the shift has largely been led by developing nations. These programs – now in at least 45 countries, helping 110 million families – range from social pensions and education stipends in South Africa to Brazil’s Bosla Familia guaranteed grant to families. Some come with conditions, such as sending children to school or the doctor, but many do not. Studies have shown significant benefits, in particular that kids get healthier.
What’s more, argues Joseph Hanlon, a development scholar and co-author of a recent book called Just Give Money to the Poor, research has not proved conditions are needed. In general, people spend the money on food and their children, and invest a portion of what remains toward improving their incomes. In a region in Namibia with an unconditional basic income grant, child malnutrition dropped from 42 per cent to 10, and school dropouts dropped to almost zero.
In a controlled study conducted by the World Bank, researchers found that giving cash transfers to families in Malawi increased school attendance of girls and young women by the same amount whether or not a condition was attached.
Essentially, Dr. Hanlon says, people will make the right choices without an aid worker peering over their shoulders. “Poverty is fundamentally about a lack of cash. It’s not about stupidity,” he says in his speeches. “You can’t pull yourself up by your bootstraps if you have no boots.”
So, what do you think? Can the poor be trusted? Should cash be the best way to address income redistribution in “rich” countries? Why? The article cites other countries and their experiences with cash-grant programs (often called “Guaranteed Income” or “Basic Income” programs). Can you find any and describe them?