A Little Too Idealized

Anyone remember the ending of Pleasantville?

Lee, who is a big proponent of direct cash transfers, has suggested that the erosion of Direct Budget Support might not be such a bad thing. He says:

Cash-on-delivery is a close relative of budget support, but it does even more for empowerment and respect, as it manages to do away with all the process conditionality required for budget support, by paying only for results. No need to worry about PFM systems. Either the government delivers for its people, or it doesn’t, no need for us tell them how to do it.

Cash transfers to individuals goes one step further from respect and empowerment for developing country governments, to respect and empowerment for poor individuals. It seem so obvious, when our goal is to make poor people less poor, to just give them the cash, especially when it is feasible at low overheads (see GiveDirectly) and globally affordable (see Charles Kenny).

He goes on to say:

So for just one hundred dollars a year each we could eradicate extreme poverty.

(emphasis in the original).

Lee’s point is that new aid mechanisms might be more valuable than traditional modes of support, but he idealises his preferred mechanisms beyond reason.

Firstly, cash-on-delivery aid is in and of itself a massive and binding conditionality. If the deliverables are all in easily measured sectors, such as health, or education, or in big donor concern areas like governance, all COD does is make all aid conditional on achievement in these areas. It’s very likely that COD will wind up being associated with far more stringent conditionality than budget support or any other method of disbursing aid to date, where conditionality is weaker and negotiated across a range of issues with developing country Governments. Just as current GBS systems serve to distort local priorities towards those that donors want to reward, so will COD – but much more directly. If anything, it seems less founded on trust and respect than a standard GBS system with a performance assessment framework.

Secondly, Lee’s assessment of direct cash transfers makes the implicit assumption that all long-term constraints to economic development are either found at the individual level or can be solved by atomized action by individuals, thereby making further implicit assumptions about the transactions costs to joint action by individuals. Basically this suggests that a direct payment to individuals will solve all of the causes of poverty, which puts enormous faith in the market to provide education, health, security and other goods that have in no country in the world been provided effectively in their entirety by private enterprise.

The final statement is basically suggesting that the solution to world poverty is a permanent system of handouts, which I doubt anyone really sees as an ideal solution. If we decide this is the only thing for it, it’s a profoundly pessimistic conclusion, one for which I see little evidence – plenty of countries have escaped poverty without permanent subsidization from the world’s rich.

I’m not suggesting that COD or cash transfers should be discounted – both will probably form part of a good balance of aid modalities – but the suggestion that traditional forms of aid can be entirely replaced by them, before any unambiguous evidence suggests this is a little hyperbolic.

2 thoughts on “A Little Too Idealized

  1. Ranil Dissanayake

    September 1, 2011 at 9:52am

    In response to Lee’s response, I posted the following on his blog:

    “Good response. A few points:

    1) GBS under the current form and COD both suffer from the possibility of cessation in the event of catastrophically poor governance (even when other results are being achieved). Your example of Malawi actually proves this point; Malawi did not receive a cut in GBS based on it’s PAF, but based on extraordinary circumstances. There’s nothing to suggest the same extraordinary circumstances under a COD regime would not result in a cessation of future GBS (which is what was cut in Malawi – they did not retroactively apply sanctions based on poor governance).

    2) The wasting of money point is certainly more valid for COD; however, for direct cash transfers, just because it goes to individuals doens’t mean people won’t think it’s wasted. How many times have you heard people complain about welfare payments or giving money to the homeless on the grounds that ‘they’ll spend it on drink / drugs / sky tv / other things they don’t need’.

    3) Giving money to the poorest *RELIEVES* income poverty, it does not eradicate it unless we can show that it has a systematic and long term effect. I would love this to be true, but I can’t see any country that didn’t need some structural changes to move out of poverty.

    4) If permanent cash transfer flows are the only solution to poverty, I would be in favour of them. But you and Owen conflate two things. But this isn’t the case; given a constraint on finances for development, the first priority should be to sustainably eliminate poverty through economic development; this would be everyone’s first choice, and no country wants to be permanently relying on the charity of others. Redistribution in the NI, NHS, welfare state structure is different: it’s redistribution not primarily poverty reduction. Absolute poverty exists in britain and the US and other developed countries but is very rare – and it has one rationale for intervention. Inequality is universal and redistribution has a different rationale – one based on the structure of our societies and economies, our need for some social cohesion and so on and so on, as well as absolute norms of justice. Basically, I think as a poverty reduction method, simple redistribution should be avoided; as a means of creating a more just society, it’s to be embraced – and that it’s important to keep this distinction in mind.”

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