Episode 494: What Happens When You Just Give Money To Poor People? : Planet Money A study discovers what happens to farmers in Kenya after they get a windfall. Also: giving money to thieves and drug addicts in a country that's much worse off than Kenya.
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Episode 494: What Happens When You Just Give Money To Poor People?

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Episode 494: What Happens When You Just Give Money To Poor People?

Episode 494: What Happens When You Just Give Money To Poor People?

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  • <iframe src="https://www.npr.org/player/embed/243967328/244022713" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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DAVID KESTENBAUM, HOST:

Jacob, earlier this year, you and I were walking around these dirt paths in western Kenya.

JACOB GOLDSTEIN, HOST:

We were there for a story we did for Planet Money and for This American Life about this charity called Give Directly that was doing something that is both simple and really kind of unusual. They were just giving money to poor people, no strings attached.

KESETENBAUM: In one of these little villages, we ran into this guy, Bernard Omondi. He was in our story this summer. He lives in a small mud hut. He has no running water, no electricity. And he told us about the day the money arrived. He says he got a text message on his cellphone.

BERNARD OMONDI: (Through interpreter) It was sent very early in the morning. I was still in my bed. I jumped up. My wife asked me, Bernard, what is it? Then I told her the guys of Give Directly have sent us the money. It's here.

KESETENBAUM: He got a thousand dollars in all, which was more money than he'd ever had in his life.

GOLDSTEIN: That charity that gave him the money, Give Directly, was started by four young guys just out of school who had studied economics. And they made this simple really very logical pitch for what they were doing. They basically said everybody has their own particular needs. If you give them money, they can buy whatever they need most.

KESETENBAUM: There was this one big question hanging over the whole project, though. We heard it from people in Kenya who had worked in the charity sector their whole lives. And we heard it from this woman Carol Bellamy who used to run UNICEF. And the concern was this - if you give people money, how do you know they won't waste it?

GOLDSTEIN: In fact, Bellamy gave us this whole list of ways people might waste the money.

CAROL BELLAMY: Cigarettes, alcohol, weapons, just gambling it away - all the kinds of things that you don't want to have happen with money that just you find in your pocket.

KESETENBAUM: The guys who started the charity Give Directly told us you should check back in with us because there is this independent study being done, an experiment, really, that should answer this question.

GOLDSTEIN: A couple of weeks ago we got an email. The results are in.

Hello and welcome to Planet Money. I'm Jacob Goldstein.

KESETENBAUM: And I'm David Kestenbaum. Today, an all new show for you - what happens when you give farmers in Kenya more money than they've ever had? Also giving money to street thugs and drug addicts in a country that's much worse off than Kenya. To get a handle on how the people who got money from Give Directly spent it and what effect it had on their lives, researchers went into these villages and you know how someone sometimes comes to your door and says I'm doing a survey can you answer a few questions? This is more than just a few questions.

JOHANNES HAUSHOFER: It's a fairly long interview that takes for a single household on average about six hours.

GOLDSTEIN: That's Johannes Haushofer one of the researchers. He's an economist at MIT's Poverty Action Lab. And it turns out in six hours, you can ask a lot of questions.

KESETENBAUM: Did you buy any livestock? Did you make money from the animals? How much money did you make?

GOLDSTEIN: How many days have your kids gone without food in the last month? How many days have you gone to bed hungry?

KESETENBAUM: How much money did you spend on firewood, on electricity, on clothes, on alcohol?

GOLDSTEIN: And this last item, alcohol - the researchers realized it's kind of a sensitive issue and people might not always give an honest answer. So they ask the question in a couple of different ways to try and get at the truth. And they ask different people in the household about it.

KESETENBAUM: In all the researchers surveyed about 1,000 households. Some of the households got money. Some of them did not. They did that so that the researchers could tell how much did getting money really change people's lives?

GOLDSTEIN: And here's what they found. By and large people did not waste the money, and their lives got better, significantly better.

HAUSHOFER: We don't see people spending the money on alcohol and tobacco, and, instead, we see them investing in their kids' education. We see them investing in health care. They buy more and better food. We see violence go down. We see psychological well-being go up.

KESETENBAUM: The number of days children in these families went hungry dropped by 42 percent.

GOLDSTEIN: Some people use money to start small businesses which allowed them to earn more. Incomes went up on average by 38 percent. Bernard Omondi, the guy we heard from at the beginning of this show - he'd been just scraping by doing manual labor. When he got the money, he bought a motorcycle and started basically a little taxi business driving people around.

KESETENBAUM: There were a couple of areas where the researchers did not see improvement. Despite the fact that people were spending more money on health and education, people still got sick just as often. And school attendance rates for their kids didn't really change. One other quick thing we should note about the study while Johannes, the researcher you heard from, is at MIT and does not have a connection to Give Directly. His co-author a guy named Jeremy Shapiro does. He helped start Give Directly, though, he does not work there now. And Johannes insisted that did not bias the results in any way.

GOLDSTEIN: So we ran the findings of this study by Carol Bellamy. She's the former head of UNICEF. She's the one who was worried that people would waste the money. David, you called her up and asked her what she thought.

BELLAMY: Well, I must say the results were quite positive.

KESETENBAUM: I mean, does it make you less skeptical than you were?

BELLAMY: It does. I was impressed with the return on investment was more positive than I would have anticipated.

GOLDSTEIN: So bottom line - the results out of Kenya - really positive and encouraging. But there's a reason that this charity, Give Directly, did this study in Kenya.

KESETENBAUM: That it's a stable place (laughter).

GOLDSTEIN: Yeah. And we saw this when we were there, right? Like, it feels very safe. You know, clearly it's very poor, but it's not violent. The government is basically stable. You know it's not in the middle of a civil war.

KESETENBAUM: There was this amazing cellphone banking system that I wish we had here. It allows to send money to anyone anywhere instantly. That's how that guy Bernard Omondi and everyone in the program got their money on their cellphones.

GOLDSTEIN: So it works in these rural villages in western Kenya. But what if you tried giving away money in some place completely different? What if you tried it in a country that's still recovering from an ugly civil war? And instead of doing it in the countryside, you did it in the city? And what if you went to the city and sought out people like thieves and drug addicts and just gave them money?

KESETENBAUM: What happens then? That is what Chris Blackman wanted to know. He's a researcher at Columbia University. He told us about this project he's been working on giving money away in Liberia, a country that is in much worse shape than Kenya.

CHRIS BLATTMAN: We deliberately targeted the absolute lowest strata of society. We went to the notorious slums and the notorious market areas, and we deliberately looked for the guys who were in the worst professions. Some of them are like car loaders to help you load your stuff into your car. They help you carry things with rented wheelbarrows. And the (unintelligible) use that as an opportunity to pickpocket you. There's guys who are trying to park your car. There are guys who are begging outside the supermarket. There are guys who don't even have enough money to, like, lay down a blanket and put out some goods, which is what everybody else does.

They actually just have - they can only - they only have as many goods as they can carry in their hands, which isn't very much. And they walk around all day just with that. So they don't even - not only do they not have a shop, they don't even have a blanket. But they're - at least they're not - you know, but they're not necessarily engaged in drugs. And then we went to the drug dens.

KESETENBAUM: And in the drug dens, they recruited more people. Blattman told me he basically had a local guide and told the guy take me to the worst places you know. And a lot of people he met there, he said, had seen a lot of violence. A lot of them had been recruited to fight in the civil war back when they were teenagers. He said he was frankly grateful that they didn't refuse. I said refused what?

BLATTMAN: Well, they didn't refuse to talk to us, which is always a challenge because they're very suspicious. Just getting their real name is sometimes a problem. Then when we said we were going to give them a cash grant, they tended to think something was up. A lot of them are ex-combatants, and they wanted to know if this - if they'd be expected to go fight in Guinea or Cote d'Ivoire.

GOLDSTEIN: So that's how rough this situation is. This is a place where you'll walk up and offer somebody money and the first thing they think is, oh, this guy wants me to go fight in a war and kill somebody.

KESETENBAUM: Blattman says the way the program worked is they handed out the cash in this building and they had arranged motorcycle taxis to wait outside so that the guys after they got the money could be whisked away to wherever they wanted to go, so they didn't have to worry about being robbed or anything.

GOLDSTEIN: And to figure out what people did with the money after the motorcycles whisked them away, the researchers followed up with a bunch of questions. And to try and figure out if they were getting honest answers to those questions, they did something else. They hired locals to basically spy on the people who got the money.

BLATTMAN: We took, like, a quarter the guys we're working with and we trained a team of Liberians and we had them go hang out with them for three days. And these guys that we sent out were former street youths themselves who had been working with us for about a year or two, so they had some credibility with these guys. And their job was to, you know, discreetly at the end of the day make notes about whether or not that guy had used drugs and whether or not that guy had stolen, whether or not that guy had used alcohol and gambled in the previous week.

KESETENBAUM: The results from the spying and the results from the surveys matched. People who got money didn't spend it on alcohol or drugs or gambling. Actually, one guy did spend a lot of money on alcohol, but he didn't drink it.

BLATTMAN: Well, the most enterprising guy went, took a bus out of town to an alcohol distillery, bought a barrel of liquor and went and sold it by the cup, you know, in like a bar, sort of opened his own bar. That was a guy who made the most money in the first month. But mostly guys went and bought soap or shoes or oil or something in wholesale and they sold it retail out of wheelbarrows or on the street, which is a pretty customary way of selling things in Liberia.

GOLDSTEIN: People did not waste the money. But at the same time, it didn't seem to be as helpful as it was for people in Kenya.

BLATTMAN: With the proviso that we literally collected the last data point yesterday. So I've been looking at the data, but this isn't - this is first impressions. They've done - the money actually led them to invest, but they just didn't make any profits. They bought clothes. They got a regular place to sleep for the most part.

So in the first month or two, homelessness went down a lot and they were better dressed. But when we go back a year later, they say they feel better off and they're not doing many bad things, like a lot of these vices that they used to engage in - drug dealing and a lot of aggression and stealing are down. And they still have some of these investments, but they're not making any more money than they were before they met us.

KESETENBAUM: And again, this is all very preliminary. But assuming these first impressions do hold up, you have to ask why would the people in Liberia not do as well as the people in Kenya? Blattman says there are a couple of possibilities. One is that the people in Liberia just weren't as wise as the farmers about the investments they made or there could be a bigger problem. Maybe it's just that the Liberian economy is a wreck.

BLATTMAN: So it costs three or four times as much to do something in Liberia as it does in rural Kenya. I think the transport is more expensive. The fuel is more expensive. The whole cost structure of the entire economy is ridiculous. And so that just means it's harder and harder to find attractive business opportunities.

KESETENBAUM: The guy who opened his own little bar...

BLATTMAN: Yeah.

KESETENBAUM: Did he then go and keep doing that because he made a profit the first time, right?

BLATTMAN: I don't know. I don't...

KESETENBAUM: I would think that could permanently, you know, raise his income - right? - you giving him enough money to start up a small business.

BLATTMAN: So in theory absolutely, in practice you live the lives of these guys. You make that kind of money and your entire social network is still homeless and dirt poor and your mom, you know, might be sick. And so there's a lot of things you can spend that money on and that you either want to or you feel obligated to. And so - so that undermines a lot of people's best business intentions.

KESETENBAUM: Does what you're saying suggest that the people who are sort of worst off in the world, in the most difficult situations, you know, maybe are post-war and the economy's a mess and the government's a mess, that in the places where you'd most like to help people, giving cash may not be a good idea?

BLATTMAN: Let's just take - you know, there's something like 55 countries in Africa. And I'm willing to bet 45 or 50 of them are growing at a pretty good pace right now and have been growing at a pretty good pace for almost five or 10 years. So, yeah, are there are few countries in a few places in those countries and a few young people where I think the money would be blown or just not do much because those places are stagnant or broken? Absolutely. But that's the vast minority of these countries.

GOLDSTEIN: In most countries in Africa, Blattman says, giving money probably would work. And in fact, in the past decade, it's become pretty common for governments in poor countries to give people money. Often it comes with strings attached, like if you send your kids to school we'll give you money. But there's a lot of evidence from those programs that people really do spend the money well.

KESETENBAUM: Blattman says there are plenty of problems that cannot be solved by just giving away money, problems like bad roads and corrupt courts. Giving out cash won't fix schools or hospitals. But he thinks giving away money is a pretty solid idea, and he thinks the world should be more of it.

(SOUNDBITE OF SONG, "PURSUIT OF HAPPINESS")

KID CUDI: (Singing) Tell me what you know about dreams, dreams. Tell me what you know about night terrors, nothing. You don't really care about the trials of tomorrow, rather lay awake in the bed full of sorrow.

GOLDSTEIN: We'll have a link to the Kenya study on our blog. That's at npr.org/money.

KESETENBAUM: As always, let us know what you think. You can send us email - planetmoney@npr.org. We're also on Facebook and Spotify and Twitter. I'm David Kestenbaum.

GOLDSTEIN: And I'm Jacob Goldstein. Thanks for listening.

(SOUNDBITE OF SONG, "PURSUIT OF HAPPINESS")

KID CUDI: (Singing) I'm on the pursuit of happiness and I know everything is shining, always going to be gold. Hey, I'll be fine once I get it. I'll be good. I'm on the pursuit of happiness and I know everything is shining, always going to be gold. Hey, I'll be fine once I get it...

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