Giving people money gaining momentum as new anti-poverty solution

Demoh Contel (left) receives a cash transfer payment from Patrick Lamboi (far right) and David A. Kargbo (center left), who work for Splash in Freetown, Sierra Leone on June 21, 2015. (Dominic Chavez/World Bank)

Late last year, the government of Finland announced it would launch an experiment where as many as 100,000 citizens would receive up to 1,000 euros a month, starting in 2017. Those people would get cash directly, instead of other government benefits, for two years to see how well it works. There are no strings to this basic income, people can spend it as they choose.

From Kenya to the Netherlands, pilot projects are taking root and will soon test a simple idea – give cash to the poor. The idea goes by different names, including universal basic income, cash transfers and the negative income tax. Successful versions, like Bolsa Família in Brazil, are building the case to transform welfare and social safety nets.

The idea is attracting attention and support from a wide range groups and individuals. In January, the Silicon Valley startup fund Y Combinator announced plans to fund research into basic incomes. This is new territory for an organization known for backing the likes of AirBnB, HipMunk and Disqus.

“It’s true that we have systems in place to give people resources, but the bureaucracy and qualification requirements make it a very imperfect approximation of what most people mean when talking about a basic income,” wrote Sam Altman, president of Y Combinator, in a blog post announcing the research funding. “We have some examples of something close to a basic income in other countries, but we’d like to see how it would work in the U.S.”

He worries that as technology continues to improve, more people in countries like the United States will be pushed out of their jobs. Can a basic income help deal with the changes that come with the increasing automation of labor? The economic hardship for workers caused by the movement of industrial jobs away to countries like China and Bangladesh could be the proverbial canary in the coal mine.

Giving people money is not a new idea. Conservative economist Milton Friedman proposed the negative income tax half a century ago. He wanted to reform the way people paid taxes so that people living in poverty were given money. It gained enough political support that President Richard Nixon ushered in the Earned Income Tax Credit to help reduce the federal income tax burden on the working poor.

Friedman was motivated by the fact that giving people money helped eliminate government programs. The idea quickly fell out of fashion in the 1980s and 1990s as the idea that giving people money would create dependency took hold. Governments and nonprofits moved toward providing services and programs.

The success of Bolsa Família and promising results from a study in Kenya brought the idea back to where it started. In late 2013, Give Directly published the results of a study of its program that gave money directly to farmers in Western Kenya via cell phones. The team looked at a range of things like education, income, health and assets. They found that recipients benefited from the money, invested it in their families and did not waste it.

Since then, other studies have shown that giving people money helps improve people’s lives. In fact, the charity evaluation organization GiveWell lists Give Directly as one of only four charities it highly recommends. Proponents of the cash transfer do not argue that it is a silver bullet, but they do say that it should serve as a point of comparison for other program options. For example, is it easier to just give people money as opposed to doing a training program?

Successes in developing countries are prompting some to ask whether cash transfers could help people living in wealthy countries. Journalist Greg Ferenstein recently announced that he is supporting a ballot measure in San Francisco that would help establish a “basic minimum income.” In the New York Times this month, there is a favorable story about the potential for the basic income that features quotes from Y Combinator’s Altman.

As more research helps prove the value of cash transfers to the poor, the conversation will soon shift to whether politicians will support such a program. The humanitarian sector is already adopting cash as a way to meet the needs of refugees and people affected by natural disasters. They see it as a quicker, more effective and long-lasting solution to people in need. Will the U.S. follow if the Finland experiment proves to be successful?

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About Author

Tom Murphy

Tom Murphy is a New Hampshire-based reporter for Humanosphere. Before joining Humanosphere, Tom founded and edited the aid blog A View From the Cave. His work has appeared in Foreign Policy, the Huffington Post, the Guardian, GlobalPost and Christian Science Monitor. He tweets at @viewfromthecave. Contact him at tmurphy[at]humanosphere.org.