Dear Editor,
I am yet to see a cogent and well-articulated argument for the proposed unconditional cash transfers (UCT). Is it to address inequality, reduce poverty, strengthen ethnic cleavages which will further fractionalize politics and stymie human development, “legalize” corruption, or is it merely to give the people a raise many of whom refuse to work? The first PNC regime spoke about making the “small man” the “real man,” but ended up further impoverishing him and driving him to foreign climes. The current PNC regime probably seeks to do something to the “household,” perhaps to generate splinter households so that each gets US$5,000? No one really knows but Guyanese are a resourceful and crafty people.
Many of the recent letters support or are leaning towards supporting UCT to all households. Among other things, we are told that it is the best way to share a fraction of the forthcoming oil largesse. If the idea is merely to “share” (“gee-way” as my dad would say) and not to invest in the development of the country, cash transfers are the way to go. But why must a desperately poor country sacrifice its human development prospects to indiscriminate wastage of its oil wealth in the name of sharing? As I see it, there are no good reasons for UCTs. On the other hand, conditional cash transfers (CCT) in particular have positive effects on consumption and nutrition for beneficiaries, on their health and their children’s schooling. Cash transfers, especially of the CCT variety, can increase investment, address liquidity constraints and credit market failures under certain conditions.
I argued against UCT in previous letters (SN, 10 January 2016; SN, 10 August 2018; GT, 16 August 2018). Here are additional reasons why I do not support UCT. First, such transfers, be it US$5,000 or any other amount, will leave inequality untouched. For example, and just as a thought experiment, assume there are 5 households in an unnamed country named and that the incomes of these households are US$3,560, US$ 4,700, US$10,200, US$25,300, and US$50,450. Then mean income is US$18,842, which is 5.3 times as big as the income of the poorest household. The absolute income gap between the richest and poorest household is US$46,890. Now assume each household gets a US$5,000 cash transfer as an unconditional handout from the country’s oil revenue. Then the absolute income gap remains absolutely unchanged. The dole did not affect income inequality in any way. While there is no recent estimate of income inequality, which is usually higher than consumption inequality, there are indications that it is high and rising. Inequality is a punitive tax on economic growth and thus human development, but it can also lead to social discontent and spill over into civil strife. Since the transfer will leave inequality unchanged, each year the Government would “gee-way” at least US$1.1 billion, which is around 31 percent of 2018 GDP. That’s a huge amount, which could be invested in, among other things, roads, bridges, electricity, airports, education, health and nutrition, transportation, and the removal, or at least reduction, of bureaucratic red tape that infuriates and sickens the poor and consumes a fair portion of her time and resources. In the context of Guyana, cash transfers of such magnitude, which is a form of redistribution, is simply a colossal wastage of scare financial resources that will leave inequality unchanged and heighten discontent.
Second, such large financial flows are likely to impact markets, employment and prices. For example, large transfers will cause household demand for goods and services to surge. In turn, this will have varying economic impacts depending on whether it reaches markets that have the elasticity needed to respond efficiently and rapidly enough to prevent prices from increasing and whether such transfers leak out in rising volumes of imports. The most likely scenario is that price effects, especially if they are big, would compromise the benefit of cash transfers for both recipients, whose real income might not increase as expected, and non-recipients, who will see their purchasing power affected.
Third, how would a cash transfer affect domestic production and factor markets? Since the annual cash transfer will be larger than per capita income (US$4,635 in 2018), it will most likely negatively affect the desire to work – people will have more time to “drink” and “gaff”- and labour supply, which will cause the wage rate to rise, which, in turn, will drive up inflation. Based on my own knowledge of agriculture – rice planting and farming -, Cash Transfers will negatively affect this sector in the sense that it will heighten the desire not to take up agriculture, which is happening already. None of my several nieces and nephews have any love for agriculture, where I learnt what a life of poverty is. If agricultural production falls for a combination of reasons, it will drive up the prices of domestic goods and increase imports, feeding inflation. These destructive effects can lead to misallocation of resources between the traded and non-traded sectors, as well as an increase in the real exchange rate, particularly if a large fraction of Cash Transfers are leaked out on imports, which is very likely.
The bottom line of the above arguments is that the overall impact of cash transfers on GDP is thin, even if it harms some and benefit others. Why? Because the multiplier effect is small for all but the richest recipients who are able to divert part of the transfers from consumption to investment.
Fourth, the last count of the number of households in the country was done by the 2012 Census: 210,124. Judging from the last few censuses, the size of the household is getting smaller and it is likely that there are many more households today than the last census counted. Would large cash transfers splinter households into several smaller ones to optimize the “capture” of such transfers? Pervasive and massive corruption since the 1970s has led to a breakdown of moral restraints – morality is the lack of opportunity -, which suggests that Guyanese will devise ingenious ways to con the system. Before long, I am afraid, we shall add “household capture” alongside “state capture.” Fifth, on a more practical issue, how will the proposed US$5,000 reach each household? Will the government write a check to each household, do an electronic transfer, a voucher to be cashed at the bank …? The infrastructure to facilitate such annual transfers simply does not exist or is rudimentary at best, which opens the way for massive corruption. By the time transfers are completed, a given household will get less than US$5,000, sucked away by abuse of office for personal aggrandizement.
I strongly believe that, instead of splurging billions of US dollars on unconditional cash transfers, such resources should be invested in nutrition, health and education, and to upgrade our antiquated, dilapidated and fifth-class infrastructure. The idea is to invest now to secure for our children and grandchildren a brighter future than one a few madmen and rapacious entrepreneurs bequeathed us.
Yours faithfully,
Ramesh Gampat
