Helping poor countries develop is really, really hard. The history of foreign aid, from governments and the World Bank and NGOs alike, contains some real success stories, but it also contains stuff like PlayPumps, a plan backed by then-first lady Laura Bush to use merry-go-rounds as water pumps, which wound up requiring children to engage in hours upon hours of drudgerous "play" to deliver as much water as promised. No one has found the definitive model for how to grow a poor country into a rich one, or, more relevantly, how to speed up growth in poor countries that are already growing.
But if putting countries on a sustainable growth path is hard, making them less poor is easy: You can just send over money. And that's exactly what more and more philanthropists and aid organizations are starting to do. Case in point: Good Ventures — the foundation founded by Facebook and Asana cofounder Dustin Moskovitz (net worth: $9.6 billion) and his wife, Cari Tuna, who oversees its day-to-day operations — just gave $25 million to GiveDirectly, a charity that sends unconditional cash grants of about $1,000 each to desperately poor people in Kenya and Uganda. Of their gift, $16 million to $19 million will be part of those transfers.
To put that another way: One of the richest people in the world has decided to just hand over at least $16 million to some of the poorest people in the world, to use as they see fit.
Why just giving cash to the poor is so radical
There are a few reasons this is a remarkable strategy. One is that cash transfers are among the best-studied approaches to fighting global poverty, and the results are very positive, with various studies finding that just handing out money increases consumption, encourages investments in important assets like metal roofs, encourages more people to start working, boosts earnings, and doesn't lead to more spending on things like alcohol or tobacco. GiveDirectly's strategy stands out as among the most evidence-based of any charity working on global poverty.
But it also stands out because it's, in theory, more or less infinitely scalable. There are other very good, evidence-based ways to help the world's poorest people, such as supplying free anti-malarial bednets and providing deworming pills. But they tap out at some point. We could reach a point, if all goes well, when everyone in regions where malaria is prevalent will have free access to bednets treated with insecticide that can kill mosquitos and thus save lives. We could reach a point when everyone at risk of worm infection has gotten deworming meds. But we're very, very unlikely to reach a point in which transferring $1,000 from an affluent American to a poor person abroad ceases to make the world a better place. Money will always be more valuable to the poor than to the rich, and so cash transfers will always have the benefit of redirecting money to where it's most needed.
And indeed, about $6 million to $9 million of the gift is expected to go to marketing and fundraising, so GiveDirectly can scale its model aggressively. And of the $16 million to $19 million left for transfers, a sizable amount will be spent in cooperation with other NGOs and government organizations, the idea being that if GiveDirectly can spend a relatively small amount demonstrating to richer groups that cash transfers can work, those groups will pour in considerably more resources in the future.
The limits and promise of cash
Cash transfers aren't panaceas. No country has ever gone from poor to rich based primarily on foreign charity. Stable and trustworthy institutions, a viable export strategy, and other factors are crucial considerations as well. But what cash can be is a benchmark. Oftentimes in public policy, the counterfactual against which proposals are evaluated is "Would this be better than literally doing nothing?" If you think about it, that's a really low bar. What would be better, GiveDirectly cofounder and UC San Diego economics professor Paul Niehaus and Columbia economist Chris Blattman have argued, would be to ask, "Does this program do more good than would be done if we took its budget and just gave it to poor people as cash?"
In some cases, the answer may be yes! It seems quite plausible that distributing bednets, for example, is a more cost-effective way to fight poverty than handing out cash. But a lot of interventions will fail that test. Given that we know cash can be effective, redirecting billions of dollars spent every year on projects not supported by evidence to cash transfer operations could be a huge win that materially improves the lives of millions of people. GiveDirectly's $1,000 grants are larger than the GDP per capita of Uganda. It's more than doubling some people's incomes. That's huge, regardless of the structural effects.
The use of knowledge in developing societies
Perhaps the most profound benefit of cash as an intervention, though, is that it's just about the least paternalistic form of aid there is. That's valuable both because it respects the dignity of aid recipients, and because it doesn't require rich donors to have detailed understandings of what's happening on the ground, the lack of which has doomed many a well-intentioned aid effort before. Most senior policymakers at USAID or the World Bank have never experienced the kind of extreme poverty that billions of people worldwide have to endure. Nor have I, and as a result I have no idea what I would spend a cash transfer from GiveDirectly on if I were living on less than $2 a day in Uganda. Would I buy a bednet? Maybe! Or maybe I'd buy an iron roof. Or school tuition for loved ones. Or cattle.
But you know who does have a good sense of the needs of poor people in Uganda? Poor people in Uganda. They have a very good idea of what they need. Do they sometimes misjudge their spending priorities? Certainly; so do we all. And bednets and deworming treatments appear to be underpurchased relative to the actual need for them. But generally, you should only give something other than cash if you are confident you know the recipients' needs better than they do. With the exception of bednets, I'm not confident of that. So I, personally, give a considerable amount to GiveDirectly.
As the World Bank's Jishnu Das once put it, "'Does giving cash work well' is a well-defined question only if you are willing to say that 'well' is something that WE, the donors, want to define for families whom we have never met and whose living circumstances we have probably never spent a day, let alone a lifetime, in." The development community has historically been all too willing to define "well," and has all too often gotten it wrong. Cash transfers offer a way out of making that common, and devastating, error.