By CHRISTOPHER BLATTMANJUNE 29, 2014
A CHINESE millionaire tried to give $300 (and lunch) to homeless men and women in New York last week. This didn’t sit well with the nonprofit New York City Rescue Mission. The Rescue Mission offered to help with lunch, but wouldn’t cooperate in handing out cash. So midway through a meal of sesame-crusted tuna and filet of beef, some 200 homeless people discovered that they would not be getting money. Instead, the Rescue Mission would accept $90,000 on their behalf. You can imagine the anger and humiliation.
The millionaire, a recycling tycoon named Chen Guangbiao, wanted to set an example of generosity in the world’s financial capital. To announce the $300 giveaway, he’d taken out a full-page advertisement in The New York Times.
The executive director of Rescue Mission said he was worried that people might spend the handout on drugs or alcohol. This pessimism (and paternalism) is common and understandable. But evidence from other countries suggests we should be more optimistic.
Globally, cash is a major tool to fight extreme poverty. The United Nations is handing out ATM cards to Syrian refugees alongside sacks of grain. The evidence suggests these cash programs work. There have been randomized trials of cash grants to poor Mexican families, Kenyan villagers, Malawian schoolgirls and many others. The results show that sometimes people just eat better or live in better homes. Often, though, they start businesses and earn more.
In Uganda, my colleagues and I worked with a nonprofit that offered $150 and five days of business planning to 900 of the poorest women in the world. After 18 months, the women had twice the incomes of a random control group.
I also worked with the Ugandan government to study what happened when it gave groups of 20 poor people $8,000 in return for a business proposal. My colleagues and I followed hundreds of groups that did and did not get grants. Those who did mostly invested in trades like carpentry. Four years later, their earnings were about 40 percent higher than those of a random control group.
The poor do not waste grants. Recently, two World Bank economists looked at 19 cash transfer studies in Latin America, Africa and Asia. Almost all showed alcohol and tobacco spending fell or stayed the same. Only two showed any significant increase, and even there the evidence was mixed.
You might worry handouts encourage idleness. But in most experiments, people worked more after they received grants.
You might also worry that the poorest of New York are different. The average person in Uganda is impoverished; it’s easy to believe he would make good decisions with cash. But a homeless person in New York is not average. Substance abuse is pervasive. Maybe panhandlers here are different from the global poor.
I used to believe this. Now I’m not sure. A few years ago, I started working in Liberia’s urban slums. My colleagues and I sought out men who were homeless or made their living dealing drugs or stealing. Many abused alcohol and drugs. We tested different programs in a randomized trial of a thousand men. One thing we tried was giving out $200 in cash.
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Almost no men wasted it. In the months after they got the cash, most dressed, ate and lived better. Unlike the Ugandans, however, whose new businesses kept growing, the Liberian men were back where they started a year later. Two hundred dollars was not enough to turn them into businessmen. But it brought them a better life for a while, which is the fundamental goal of any welfare program. We also tested a counseling program to reduce crime and violence. It worked a little on its own, but had the largest impact when combined with cash.
I haven’t spent any time with the homeless in the United States. Maybe I’d see that the differences are profound. But I ask myself: If homeless people and drug users in Liberia don’t misuse cash, why would we expect the homeless in New York to waste it?
In 2010, Jim Rankin, a reporter for The Toronto Star, asked himself the same question. So he handed out five $50 prepaid Visa and MasterCard gift cards to panhandlers. What did they buy? Mostly food. Some phone minutes and clothes. A couple bought liquor as well.
Back to the millionaire and the mission. The Rescue Mission has every right to be cautious. Perhaps our first duty is to do no harm, but I say that’s our second duty. Our first is to be skeptical of stereotypes of those we purport to help.
These stereotypes have consequences: The Family Independence Initiative tried paying poor American families in return for setting and meeting goals. Its demonstration project showed promising results. But the No. 1 obstacle the organization said it faced? Mistrust by donors and other nonprofits who held hard to the view that poor people can’t make good decisions.
Here in New York, the Opportunity NYC Family Rewards program has experimented with cash transfers to poor families. It sent $8,700 over three years to thousands of families. A randomized evaluation showed that self-employment went up and hunger and extreme hardship went down, at least while the cash transfers lasted.
These programs didn’t target the hard-core homeless. Are they so different? I don’t know. Even if handing out cash works, it’s surely only part of a larger solution. But why not try?
Christopher Blattman is an associate professor in the political science department and at the School of International and Public Affairs at Columbia.
A version of this op-ed appears in print on June 30, 2014, on page A19 of the New York edition with the headline: Let Them Eat Cash.