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.