Guyana and the wider world
Within the international economic community there is a growing consensus that the worst is over. It is expected that the global economy will turn the corner and come out of the financial and economic crisis during 2010. Already it is projected that the vast majority of G20 countries (17 at the last count) might see their recessions end in the final quarter of this year. It is against this background of growing optimism and hope that I have been exploring the crucial lessons, which should be learnt from recent global experiences in coping with this exceedingly complex and painful crisis that burst on us a year ago.
Last week I discussed conditional cash transfers as an innovative way of providing social protection to the poor, and in particular, the poorest of the poor at times of grave developmental setbacks. This, I suggested, is the second main lesson, which should be learnt from the present crisis that would be immensely useful in dealing with future crises. This week I shall discuss more fully some of the pros and cons of this new developmental mechanism.
Pros and cons
The truth is for a large number of persons (perhaps a majority) giving cash to poor people as a means of fighting poverty makes them pause. The reason for this is partly due to the fact that they have negative images of ‘dependency’ developing from cash handouts to poor people. Additionally, some persons actually believe that they know better than poor persons how to spend money on their behalf and so would prefer to spend it for them. While there may be other reasons for hesitation, I suspect these two are primary.
The cash payments in these schemes, however, recognise that poor people have a better sense of what they need and would choose to spend money on. The issue is, therefore, to tie their receipt of cash payments to a definite set of poverty reducing actions. This is the basis for making these payments conditional.
Some examples from actual practice should help to clarify the principles at work. Requiring households/individuals who take cash payments to attend medical clinics for vaccinations, pre- and post-natal care, HIV/AIDS testing, dental and opthamalogical testing for infants and children improve the health status of these persons. By building up their human capital, they are better endowed to fight poverty on their own behalf and that of the community/country in which they live. Other types of requirements often include fulfilling targets connected to education, the environment, community networking and so forth.
Because of these features conditional cash transfers focus on fighting poverty both in the short term (through immediate cash payments to relieve growing distress) and the long term (building up human, social, and cultural capital). Recognition of these features is responsible for much of the success and acclaim attributed to this mechanism as a new tool for fighting economic difficulties. It has become a key part of expenditure in several developing countries’ stimulus packages.
There are many other features of this mechanism, which are of particular merit at times of economic recession. One of these is that lacking assets and access to readily available credit, cash transfers to poor people are quickly translated into expenditure on consumption and/or investment items. This is precisely what is needed at times of economic recession, a quick increase in spending.
Irony
The irony is that for decades traditional social safety nets in rich countries have operated on the same principle when persons made jobless are given cash (unemployment) benefits to help tide them over difficult times. As I pointed out last week, these payments are approvingly described as ‘automatic stabilizers’ in the economy. They rise, when the economy fails to grow and sustain job expansion. In similar fashion these conditional cash transfers, depending on their magnitude and coverage, have the potential to become pro-poor stabilizers in developing countries. They should rise when economic downturns put pressures on the poor, and in particular the poorest of the poor.
Experience has shown that to be successful conditional cash transfers require very careful targeting. By this is meant clear determination of the communities where they apply, their duration, those who qualify, the criteria for establishing qualification for the schemes, requirements for exiting the schemes, and their financing. Such careful targeting places a heavy premium on the regular compilation of social and economic data and the extensive use of surveys backed up with up-to-the-minute socio-economic databases.
Evaluations
What do evaluations of conditional cash transfer schemes show? A recent World Bank Evaluation Panel found a strong correlation between these schemes and reduced poverty rates. At the same time they found that the two most widely used conditional requirements, health and education, did not reveal marked improvements in the health status or educational achievement of beneficiaries. However, this mixed result has been contradicted in other evaluations, which found considerable success.
Thus the United Nations review of the World Social Situation (2005) found success in reducing inter-generational transmission of poverty and a growing popularity for these schemes. Specific impact evaluations of these schemes in Latin America and Africa also show very good results. Several schemes were found to have a positive impact on education, health, and nutrition outcomes for the poor; the last moreso, when the schemes are linked to the availability of cheap food supplements.
These evaluations have also found that these schemes do not encourage dependency. That is, they have no negative impact on labour supply from poor communities. Indeed, large scale conditional cash transfer programmes have helped to reduce income and wealth inequality. In particular, they have narrowed poverty gaps and reduced the severity of poverty by being disproportionately helpful to the poorest of the poor. In this sense these schemes have overall helped poor households to manage risk and cope with the distress heaped on them by the global crisis.
Next week I shall conclude this discussion, before turning to the third and final lesson to be learnt from this crisis, which is, how to address global trade as part of national solutions.