The World Bank may have stumbled upon a surprising way to fight poverty while increasing human capital: pay poor families to make good decisions.
The premise behind these so-called conditional cash transfers programs is remarkably simple. Recipients, who generally rank among the poorest of the poor, receive cash payments in exchange for sending their children to school and bringing them to a clinic for regular checkups. Programs receive funding and technical support from the World Bank, but are generally administered by the national governments. Several experts convened at the World Bank's Washington headquarters Feb. 10 to assess the progress of existing CCT programs.
One panelist, Inter-American Development Bank Vice President Santiago Levy, became interested in CCT after becoming frustrated with other poverty alleviation strategies. Having previously worked in his native Mexico on food subsidy programs, he found himself perplexed about the practices being encouraged.
"Do we really want to promote the consumption of tortillas?" he remembered asking himself. If public funds were to be used to affect behavior, he reasoned, it would make more sense to promote socially desirable goals like education and health care. Then, "by treating adults as adults," consumers can use cash to make their own decisions on issues such as what foods to buy, which results in a more efficient allocation of resources.
According to Ariel Fiszbein, chief economist at the Human Development Network, CCT programs are targeted to ensure efficient development of human capital within the family structure. For example, the monetary incentive helps discourage "misguided beliefs" that lead to inefficient decisions (like sending only boys to school). Also, programs usually only give funds to women, which Fiszbein claims has resulted in a higher proportion of the family budget spent on children's welfare. These programs "change the political economy of how to do redistribution in Latin America," Fiszbein said. By giving recipients cash (as opposed to in-kind donations), he argued, the poor are empowered to make their own decisions about how to run their lives.
So far, the programs are wildly popular and panelists reported a substantial decline in poverty among program participants.
But, with refreshing candor, panelists pointed out several significant shortcomings to CCTs. According to Norbert Schady, senior research economist at the Development Research Group, increased school attendance did not lead to higher academic performance, and there have been mixed results in terms of overall public health. These findings, according to Schady, demonstrate that "there is no silver bullet." And even when effectively implemented, CCT programs that bring children to schools and clinics are only half the solution, as there is no guarantee that the schools and clinics operate well.
Levy added another cautionary note about CCT programs. For long-term benefits to be achieved, he argued, there must be coordination with other governments in order to effectively reduce the inter-generational transmission of poverty. In the status quo, where a plethora of social programs operate independently from each other, there may be substantial duplication of efforts that compound inefficiency while leaving many parts of the population underserved.
One problem was conspicuously absent from the discussion: CCT programs have notoriously high overhead. Programs incur high administrative costs because they screen applicants to ensure that targeted populations are reached, and because they monitor progress to ensure that recipients follow through on their commitments. Mexico's flagship CCT program, Oportunidades, started off in 1997 with a whopping 92 percent of its budget devoted to administrative costs, though this portion was cut down to 59 percent by 2000. According to a 2008 IDB study, the heavy administrative costs may indeed be necessary to reap the maximum benefits from the program.
Still, some CCT programs have substantially cut administrative costs. For instance, Brazil's Bolsa Familiar transfers payment directly from the national treasury into individual accounts. Recipients are then given a debit card that allows them to make a withdrawal at any local bank, thus eliminating the administrative resources required to disburse cash at the program offices.
In this era of fiscal austerity, it would appear that governments develop CCT programs that rely on leaner budgets before looking to expand. At the very least, a lower ratio of actual funds to administrative costs is likely to make programs more politically viable, which panelists agreed was a major concern.
Overall, the World Bank's approach to CCT programs seems encouraging. The candid appraisal of both the pros and cons makes it clear that CCT programs are to be thought of not as the next panacea, but rather as one tactic which can be effective under certain circumstances. More importantly, by considering a public-sector solution that respects consumer choice, the interest in CCT may show that the World Bank is finally moving beyond the competing ideologies that plagued the development community in the last century.