It is better to give money to the poor than to throw it away
What is happening when you give people free money? The world’s largest basic income experiment is trying to find out. Since 2018 the American charity GiveDirectly has been sending the equivalent of $22.50 per month to thousands of villagers in western Kenya. On December 1, researchers including Abhijit Banerjee, a Nobel Prize-winning economist, presented results from the first two years of the experiment.
The main idea behind universal basic income, which aims to reduce poverty, is to send money to everyone, with no strings attached, regardless of their income or they are employed. But efforts to test it, from Finland to California, have generally made payments to a number of individuals for a short period of time. The test in Kenya is unusually “universal”: it covers all adults in selected towns and lasts for 12 years.
In total, more than 22,000 people in 195 towns received money. The results were compared to a control group of around 11,000 people who received nothing. The most striking pattern was that of recipients leaving wage work on farms to open shops. When payments were scheduled for the full 12 years, the number of non-farm enterprises rose by a quarter, and their profits almost doubled. Recipients ate more protein and reported lower levels of depression. Land became more expensive, but it seems that consumer goods did not.
That’s evidence that giving people money helps them, but it’s not the best way to do it. So the researchers also compared a group of villages where payments were fed in monthly installments with other villages where the same amount was given in advance. Business outcomes were better when people received all the money at once, allowing them to make large investments. Otherwise they had to patiently collect money by keeping their stipend in local savings groups.
The findings are further proof, if needed, that poor people know what to do with their money. “Two big concerns with any of these interventions are that they make people lazy and they make them eat poorly, and you don’t see anything,” Mr Banerjee said. People said they were not drinking more alcohol, even though liquor stores were making higher profits, possibly because patrons were buying more expensive drinks.
The study has attracted the interest of officials from California, who visited some of the villages in August. Lump sum payments are already part of some pilot programs in America, such as a scheme in Flint, a city in Michigan. Next year it will give expectant mothers $1,500, followed by a monthly allowance of $500 during the first year of their child. The research is also relevant to social protection programs in poor countries, where cash transfers replace similar handouts, such as food.
But some are unhappy with the idea NGOs running social experiments on a large scale, however they are not in the mission. The documentary “Free Money”, released last year, examines the impact of GiveDirectly on one village in Kenya. The film follows joy recipients as they install clean water taps and expand their homes. It also captures the inequity of other people living just outside the scheme’s catchment area, or who are excluded by certain registrations. They question why they were unlucky people, comparing the mysterious ways of foreign patrons to the unknown acts of God.
These are the kinds of gnarly problems that plague targeted welfare programs, and which a universal principle is supposed to avoid. But if governments fail to deliver on the idea of a basic income, schemes will always be limited in scope. Those who depend on charity will never be universal. ■