Archive for the ‘Social Protection’ Category

The time for making poverty history is now

12 May, 2010

In rich countries a handful of dollars does not go very far, indeed most people in the UK wouldn’t think twice about spending this on a cup of coffee.  But one in five people in the world today has no choice but to survive on less than US$2 a day, and 1.5 billion people struggle to live on less than US$1. The vast majority of those affected are children, each an individual story of unfulfilled hope and potential.

Few would dispute that ‘a world free from poverty’ is the overwhelming challenge of the 21st century. The crucial issue is how to achieve this. In Just Give Money to the Poor:  The Development Revolution from the Global South (Kumarian Press, 2010), Hanlon, Barrientos and Hulme discuss a wave of new thinking on development that is sweeping across the South. Instead of relying on a large and expensive aid industry to find ways to ‘help the poor’, it is better to transfer money and resources directly to the households in poverty so that they are able to find effective the most effective ways to escape from poverty.

This is the premise behind social transfer programmes such as Mexico’s Oportunidades, Brazil’s Bolsa Familia, South Africa’s Child Support Grant, and India’s National Rural Employment Guarantee Scheme. They all provide regular transfers of money to households in poverty with the aim of improving their nutrition, making sure children go to school, and ensuring that expectant mothers have regular check-ups.

This does not rule out the need for investment in economic growth and basic services. Small transfers to very poor households help provide access to new economic opportunities and vital health and education services. Without such transfers, the costs of transport, school uniforms, medicines, and job search could well be prohibitive.

Social transfer programmes do not throw money from helicopters. They carefully select and monitor recipients, ensure they are well informed about objectives, and track outcomes. In Latin America, transfers are paid directly to mothers thus strengthening their voice within the household. The responsibilities of the government and the households are carefully discussed at registration.

Despite attempts by the aid industry to take credit for these initiatives, social transfer programmes are most often national responses to local problems. Brazil’s Bolsa Familia began as a municipal programme in Campinas in 1994/5 and is built on domestic learning and experience of what works to reduce poverty. India’s National Employment Guarantee Scheme, which guarantees one hundred days labour on demand to unemployed rural heads of household, also builds on a careful assessment of similar programmes in Maharashtra and elsewhere.  . Social transfer programmes have high set up costs and for this reason international assistance is important in low income countries. Nonetheless, sustainability and legitimacy requires domestic political support and finance in the medium term. Giving money to households in poverty is a ‘Southern project’, as the considerable diversity of programmes around the developing world demonstrates.

Important challenges remain, especially in low income countries lacking the capacity to design, deliver, and finance social transfer programmes. In many countries their institutionalisation is precarious. The existing social transfer programmes need to be seen as a first stage in the development of  strong and stable institutions,  able to protect poor and vulnerable populations in the South from the volatility and crisis of the global economy on. Acknowledging these challenges, the book makes the important point that knowledge on how to eradicate poverty is already freely available if only we care to learn from the South.

Armando Barrientos – Professor and Research Director, Brooks World Poverty Institute

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Coping with Global Inflation

29 September, 2008

Our readers don’t need reminding that Inflation has been on the rise globally (although the present financial crisis could knock that on the head). The poor are being hit hard by rising food prices – the price of rice in Asia has doubled, causing real distress in countries without effective social protection. Africa is scrambling to respond.

Macro-economists in central banks and finance ministries are worried people. Today looks alarmingly like 1979-81: inflation pushed up by the second oil price spike and recession looming. That combination of inflation and recession – stagflation – is the worst scenario for policymakers. Inflation requires demand restraint, recession requires demand expansion – and policy-makers have a difficult time in choosing which direction to go down. The early 1980s are a warning of what can happen. Real interest rates (the interest rate minus the inflation rate) turned from negative to positive – pushing up the real cost of borrowing for firms already hit by weakening sales. Eventually the oil price collapsed, bringing inflation down with it, but also distress for over-borrowed oil producers such as Mexico and Nigeria. That then set the stage for the debt crisis that took a full decade to work itself out, with massive social fall out, and poverty spiking higher (the 1980s were Latin America’s “lost development decade”).

So what should today’s policy-makers do? The Centre for Development Policy and Research at SOAS has a new Development Viewpoint out on global inflation. The author, Terry McKinley, argues that they must be clear on the causes, otherwise the response could make the situation worse. Since the sources of recent oil and food inflation are ‘globalised’, developing countries cannot hope to maintain low domestic inflation by the standard practice of raising domestic interest rates, argues Terry. Such a misguided “monetarist response” would only heighten the risks of recession, he concludes. Go here for the paper, a timely contribution to the present debate — and a warning from the past.

US Financial Crisis Hammers the Poor

18 September, 2008

Former IMF chief economist, Ken Rogoff worries that the dollar is headed for another dip in today’s FT (go here). He says:

“If the US were an emerging market country, its exchange rate would be plummeting and interest rates on government debt would be soaring”.

Instead the dollar has strengthened over the last month. But he doesn’t think this will continue. Rogoff is worth listening to: over the summer he said a major US financial institution would fail before the end of the year (reported here). And this has now come to pass (with more on the way?).

What does the financial crisis mean for the poor? Earlier in the year we commented on the big rise in the number of people using America’s food banks (see our February and US archives). The US government buys surplus food for distribution through organizations like America’s Second Harvest — and these are facing heavy demand in areas worst hit by the house-price collapse.

Given the US slowdown, unemployment will rise further. With few if any savings, plus the cost of health care (and the fact that many Americans are uninsured), unemployment can quickly push people into poverty. The US prides itself on social mobility (the rags-to-riches story that all those self-help books play upon). But only 6% of children born to parents with a family income at the very bottom move to the very top (see the Economic Mobility Project here). It’s actually a very static society, especially for African Americans.

Unemployment is, in turn, pushing up the default rate in the already hard-pressed mortgage market. This adds to pressure on mortgage-bonds and the balance sheet of the financial sector.

Putting in place effective safety nets for those on low-incomes could help establish a floor under house prices (and thereby indirectly help the dollar, which is Ken Rogoff’s concern). Since many low-income families were lured into mortgages they cannot now afford through so-called ‘teaser rates’ (low interest rates to suck them into debt) they deserve as much help as the banks — if not more.

But we fear that any help will be squeezed out by the fiscal costs of the financial crisis itself (not to mention the continued cost of Iraq: see Joe Stiglitz here on the ‘three trillion dollar war’). And it is very likely that the US will exercise even less voice in international development, since its bilateral and multilateral aid commitments will come under budgetary pressure as any new administration (be it democratic or republican) will focus on domestic priorities first. The bottom line: it’s not just America’s poor who are hammered, but the world’s poor as well.

Should Cash Transfers Come with Conditions?

1 September, 2008

Or in other words, do governments know best? Best, that is, for poor people. If so, then adding conditions to a cash transfer alters household behaviour in ways that might help them escape poverty faster. Linking cash transfers to school participation is an example. Conditional cash transfers (CTTs) are on the rise (see this new book by BWPI’s Armando Barrientos and David Hulme, as well as the CPRC Kampala conference on social protection next week).

One view is that households know what’s best for themselves. So adding conditions to cash transfers to poor households is redundant. But collecting information is costly (in both time and money). Therefore households are unlikely to have full information. If so, then conditionality could steer them in a direction that they would go if they were fully informed. For example: Governments are likely to have a better understanding of the benefits of immunization than households, so conditioning the transfer on immunization will help.

Knowing whether conditionality does deliver tangible gains is vital. One reason is that conditionality by its nature implies monitoring, and monitoring has a cost. If conditionality does not deliver a gain then the money spent on monitoring might better go to increasing the size of the cash transfer itself (and even if there is a gain, it needs to be one big enough to justify the administrative cost of imposing conditionality).

So how do we capture the behavioural effect? It’s tricky, because behaviour can’t be directly observed. A new IPC one pager reports on the latest work by Alan de Brauw and John Hoddinott which aims to get around this problem (go to IFPRI for the full paper). They found that some households in Mexico’s PROGRESA (now called Oportunidades) did not receive the forms necessary to monitor their children at school, so their cash transfers were in effect unconditional. Their school enrollment is compared to the (majority of) households who were monitored.

Result? If the household was not monitored then its children were less likely to attend school on average. This effect is significant but modest. However, the absence of conditionality really kicks in when children should be moving from primary to secondary school. School attendance was severely reduced when children were making the transition to lower secondary school. These effects are even stronger when the household head is illiterate. De Brauw and Hoddinott conclude that:

“… debates over “to condition or not to condition” are overly simplistic. In the case considered here, there is clearly little benefit to conditioning transfers based on enrollment in primary school. However, in terms of increased school enrollment, there are large benefits associated with conditioning transfers at entry into lower secondary school”.

Hence, you can get a lot more bang from your CTT buck by focusing in on situations where altering household behaviour has the biggest effects — in this case encouraging more households to send their kids to secondary school.

Creative Capitalism?

8 August, 2008

If you feel that capitalism could create something better, or that it’s just fine as it is, then check out the Creative Capitalism discussion here. Contributors include: Nancy Birdsall, Esther Duflo, Bill Easterly, Michael Kremer, and Martin Wolf among many others.

The site expands on Bill Gates’ talk about creative capitalism in his 2007 Harvard commencement speech, and at the last World Economic Forum. In Time, he says:

“Capitalism has improved the lives of billions of people — something that’s easy to forget at a time of great economic uncertainty. But it has left out billions more. They have great needs, but they can’t express those needs in ways that matter to markets. So they are stuck in poverty, suffer from preventable diseases and never have a chance to make the most of their lives”

Many of those are the chronically poor. Read the 2008-2009 Chronic Poverty Report here. We recommend increased social protection: put money into the hands of the poor through measures like contingent cash transfers. Then they have more resources with which to shape the markets and societies in which they make their livelihoods and their lives. But watch out for the counter-attack by some of the world’s wealthy who don’t want the poor to challenge their political power: not everyone is as generous as Bill Gates.

Surging Food Prices — Globalization’s Downside

4 February, 2008

Globalization is often said to be good for the poor. The jury is in fact still out. But for certain, many of the poor are now being hit by rising global food prices — FAO’s food price index was up 37% in 2007, on top of the 14% increase in 2006 — and globalization is the cause.

How so? Asia’s demand for food is surging along with robust economic growth and urbanization. And with oil close to $100 a barrel — again due to strong global growth — the world’s farmers are turning land over to corn and sugar for ethanol. The New York Times summarises it all here.

Folk are getting worried. Over on the ODI blog Simon Maxwell reports from Davos that World Bank President Robert Zoellick and World Food Programme (WFP) Head Josette Sheeran are both running initiatives to highlight the ‘forgotten MDG’ (No.2 — Halve, between 1990 and 2015, the proportion of people who suffer from hunger).

Anxious governments are keeping a close watch over food inflation; it’s politically dangerous — especially to authoritarian states. The urban poor may join street protests organized by political dissidents. And the rural poor often can’t produce enough to eat (if they are farmers) — while the poorest are often labourers without any land at all. Rural discontent is a big worry for the Chinese government (many rural people have not shared in China’s globalization-driven economic boom). Food riots have now taken place in Indonesia and Pakistan (See the FT report here).

Some governments are stepping up price controls; China, Russia and Thailand have all capped basic food staples. Malaysia is planning to stockpile basic foods. Venezuela is threating to expropriate food companies that hoard.

We have been here before; the 1970s saw the widespread adoption of price controls (that then create black markets, and decrease producer incentives, thereby exacerbating shortages) and large government subsidies to contain the consumer price of food (fiscally ruinous unless you have generous oil revenues). Governments often swear that these measures are temporary — but they are politically very difficult to remove once in place. For the poor, better measures are social protection and targeted nutrition interventions (consumer food subsidies often benefit the rich more than the poor since the rich consume more food — especially meat, including animals fed with subsidized bread).

Eventually food output should rise to dampen at least some of the price rise (although this effect could be muted by the switch of crop land to corn for ethanol). But the chronically poor have very few means to cope: being largely unskilled they find it hard to get compensating wage increases when food prices rises; many are women with young (and hungry) children; and many are too old or too sick to find work. So even if production does rise eventually, the chronically poor could get badly squeezed by rising food costs. They can’t wait.

This is not just a problem for the poor world. The US government buys surplus food for distribution through food banks such as America’s Second Harvest — but these purchases are now at a 26-year low as farmers switch to biofuel crops. So the food banks face shortages — at a time of rising unemployment and a stalling economy.

Here in Britain we have much the same story. Except now its got caught up with another debate about food quality (see our recent post about the history of British food).

Talking chicken, a free-range bird costs £6, while one eking out its miserable life in a battery-farm goes for 3 quid. But many poor families can afford only the latter. And they get berated by middle-class foodies for not feeding their families well. Jay Rayner in The Guardian worries that “We have managed to confuse our foodie obsessions – a set of lifestyle choices for the affluent – with a wider and much more serious debate on public nutrition that affects the very poorest in society”.

Of course you can go vegeterian (a good idea in itself), but British bread prices are up following a 15% rise in the price of flour (a standard loaf cost 52p in 2000; now its nearly £1). There is no escape.

Mobilizing for a New War on Poverty

3 February, 2008

With the US teetering on the edge of recession, rising unemployment, and a precipitous fall in house prices, poverty is moving up the political agenda. And inequality too, since the land of opportunity is generating more openings for those in the middle and higher income ranges than at the bottom.

The brand new Stanford Center for the Study of Poverty and Inequality (SCSPI) has a free policy magazine, Pathways. It asks: how might a new war on poverty be fought?

Tim Smeeding sets the scene. Of 21 nations with comparable data, the overall poverty rate varies from 5% in Finland to 20% in Mexico. The US poverty rate is 17%, the second highest of the 21, and the highest of all rich nations. The comparison with the UK is startling; policy action over the last ten years has reduced UK child poverty to 11% which, while still too high, is much lower than the US at 18%. Britain has cut its child poverty rate to 45% of the 1999 level, while US kids saw no such gains. What the Brits have done, the Yanks can too.

Hillary Clinton, John Edwards, and Barack Obama contribute to the first issue. Priority reading to find out what might happen if the next occupant of the White House declares a new war on poverty.

Social Protection Can Raise Agricultural Growth

6 December, 2007

Social protection is now a fast-moving story (see our recent post on Brazil’s Bolsa Família). The rural poor are especially vulnerable to income-shortfalls — reflecting their shortage of assets, dependence on rain-fed agriculture, and a lack of insurance mechanisms. Farm workers with nothing but their wage (in cash and kind) are at high risk, making them often chronically poor (see the Chronic Poverty Report). By reducing risk, well-designed cash transfer programmes can encourage poor people to venture into new (and better) livelihoods. Injecting cash into the local economy also stimulates demand, much of which is spent on local goods and services. The multiplier effects then further encourage the growth of output and employment. A recent ODI briefing paper on ‘Linking Social Protection and the Productive Sectors’ from their social protection team argues that agricultural policy is in disarray in many countries and that a revitalized agriculture needs new approaches; social protection and its ability to reduce vulnerability and promote growth should be a major part of any new national policy. At the same time, some social protection programmes are better than others. The Chars Livelihoods Programme in Bangladesh gets high marks from the ODI briefing paper as does Mexico’s Oportunidades but India’s National Rural Employment Guarantee Act (NREGA) suffers from not providing enough skill enhancement (thereby diminishing its potential growth-enhancing effects) and some dishonest local practices.

Brazil’s Bolsa Família – it works

6 December, 2007

Everyone has been watching Brazil’s conditional cash transfer programme, Bolsa Família, since its 2004 launch. It covers 11 million families, providing a monthly transfer to poor households with children up to 15 years old and/or a pregnant woman and a monthly transfer to extremely poor households (irrespective of their composition).

Does it work? Fabio Veras Soares et al. at IPC have now done a thorough evaluation. Key questions are answered: is it well-targeted? (yes, by and large); does it reduce poverty? (yes, especially extreme poverty); does it reduce inequality? (yes); does it improve education outcomes? (yes for attendance, but educational attainment remains a problem); does it improve child nutrition? (maybe); is it a disincentive to work? (no). So, by and large, a positive evaluation. A key result is that Bolsa Família does encourages higher labour force participation by both men and women, rather than shirking as critics allege.

Cash transfer programmes are up and running across Latin America; in Chile, Colombia, Ecuador and Mexico (see CPRC and ODI for regular updates). Still, many eligible households are not yet covered—this is the challenge ahead.