How to empower the poor? How the success of a small charity highlights the important role of the local public sector

 LPSI Blog by Jamie Boex
 November 27, 2013

 Money falling from the sky
 What is the development impact of unconditional cash transfers? Do they empower the poor?

The efforts of a charity called GiveDirectly have recently caught public attention for helping poor people in the developing world in an unusual way: by giving poor households money with no strings attached.

The impact of the unconditional cash contributions was analyzed by a rigorous study, showing that the transfers increased food consumption, reduced hunger, increased investment in livestock, housing, and capital assets, and did not increase spending on alcohol and tobacco. There were two areas where the study did not find significant improvement: even though households spent more on health and education, the analysis did not find a corresponding improvement in school attendance rates or on health outcomes.

If the global development community is serious about ending global hunger and extreme poverty around the world and about empowering the poor, then the efforts by GiveDirectly should be used as an opportunity for introspection by global development organizations about how to accomplish this objective as quickly and as efficiently as possible. Three immediate lessons jump out.

First, most fundamentally, the experiment highlights the importance of (conditional or unconditional) cash transfers as a viable policy option for poverty reduction. This GiveDirectly experiment in Kenya confirms something that is common knowledge to social policy experts in the United States and other industrialized countries for over half a century: sustainable poverty reduction is best accomplished by providing subsidies to households in need, rather than by large-scale government programs or in-kinds hand-outs provided by government officials. For instance, food assistance in the United States was transformed in 1939, when food handouts by the U.S. Department of Agriculture were replaced with 'food stamps' (coupons) that allowed low-income households to purchase their own food from regular grocery stores (albeit with some limitations). Today, the Supplemental Nutrition Assistance Program (SNAP) offers nutrition assistance by providing millions of eligible, low-income individuals and families with debit cards which can be used to purchase food and necessary groceries.

To the extent that it is the ambition of the World Bank, USAID and other organizations to reduce poverty [*], then there is seldom any technical obstacle to achieving this objective effectively through basic (conditional or unconditional) cash transfer programs. If these programs were possible to implement with paper-and-pencil technology in rural counties in the United States in the 1930s, then there should be no problem relying on such programs in Kenya and in other developing countries, many of which can increasingly rely on cell-phone banking to make direct cash transfers to the poor.

Second, the slow adoption of cash transfers in the global development community contains an important lesson about the political economy of development. The GiveDirectly example demonstrates an effective, evidence-based way to deliver assistance to needy individuals and families in a low-cost, high-impact manner. In fact, government-run conditional cash transfer programs in Brazil, Mexico and other countries can serve as models for developing countries around the world.

Unfortunately, the global development community rarely bases the design of its development interventions on rigorous evidence-based analysis or on transferable good practices. Instead, many international development agencies and financial institutions support public sector-driven, top-down poverty reduction programs for which the development impact and value-for-money are questionable. The design of these development programs is frequently driven by the donor organizations' counterparts in the partner country's government, who have an institutional interest in funneling development interventions through their own line ministries rather than maximizing the efficiency or impact of development spending on the ground.

Indeed, in a recent blog, Shanta Devarajan at the World Bank notes in this regard that "the criticism of cash transfers-which usually comes from senior government officials-may have less to do with a concern that the money will be misspent and more with the loss of discretion in [central] government spending." An important aspect that is overlooked by Shanta's comments is the complicit role that development agencies have in the slow adoption of more effective development strategies as a result of their own political economy considerations: is it really the case that the World Bank and other international development agencies are unwittingly captured by domestic bureaucratic or political interests, or is it simply more convenient for officials within these development organizations to play along with the host government in order to get a project off the ground fast?

Third, recognize that all human development is local. Although the cash transfers provided to poor Kenyan households had a significant impact on their livelihoods, consumption and overall wellbeing, the 'surprise' of the unconditional cash transfer study was the absence of a corresponding impact on improved school attendance or health outcomes.

The absence of such an impact is easily explained: while an increase in household income may impact the demand for health services and education, it does little or nothing to improve the supply (access to, and quality) of public schools and public health services. Thus, if access to adequate public education and good health services are preconditions to long-term poverty reduction and empowerment, then it is insufficient to merely provide resource to poor households; it will be equally important to empower people over the public sector, so that the public sector provides them with the services that they need.

This points to a fundamental-yet often overlooked-truth in global development: even if the global development community is able to lift all of the world's poor out of poverty, sustainable development will not occur unless the public sectors in countries where we work are transformed and become responsive to the needs of the communities that they are supposed to serve. As long as we address global development goals through projectized mechanisms and parallel systems rather than by fixing the underlying dysfunction of the public sector in developing economies, we are merely treating the symptoms rather than addressing the underlying disease. In other words: achieving 'real' development requires (a) empowering the local level of the public sector (by giving local officials resources, discretion and incentives to perform) and (b) empowering people over the local level (to make sure local officials are responsive and accountable).[*]

The role of the local public sector in improving pro-poor services. In most developing countries, the absence of an effective supply of public education and public health services is arguably not a resource problem: it is a governance problem instead. For instance, whereas in a country like South Africa, 94% of public health resources find their way to the subnational level for the funding of hospitals and the delivery of front-line health services, in most countries in Africa and Asia, no more than 40% of health resources is given to local (or regional) governments for the delivery of public health services. The remainder of public health resources in these countries is spent by central government officials, whether on central line ministry functions, on central government-run hospitals, or on health programs that are delivered in a top-down manner. This centralization of discretion and resources in the delivery of front-line service may, again, have less to do with a concern that the money will be misspent by local stakeholders and more with the desire not to lose discretion and power at the central level.

The resulting centralization of decision-making space and financial resources, however, prevents local officials and service providers from being responsive to the needs of their communities. The development community's current response-to bypass the public sector in order to meet an MDG indicator-does not fix the underlyng problem of over-centralization of discretion and resources and simply does not lead to sustainable development.

The key policy question facing development organizations therefor is not whether to "support decentralization or not" in the delivery of public services, but rather, how to support improving the capacity and coordination among public stakeholders at different levels of government in order to increase the efficiency, equity, responsiveness and sustainability with which public services are delivered at the local level.


Note 1: For instance, see a related article in The Economist or listen to a report on the project on National Public Radio (NPR).

Note 2: Despite the prominence given to poverty reduction, it should be noted that reducing poverty is only one of the objectives of the global development community. Ensuring effective markets, efficient government institutions and democratic development are equally important in achieving long-term, pro-poor development.

Note 3: I acknowledge that this is easier said than done. This is why the Local Public Sector Initiative is dedicated to promoting international development and strengthening public sector governance worldwide by advancing the understanding of the local public sector.