Let them eat money

Here is an interesting idea that seems to work: pay the poor to help them out of poverty…

“The program, called Bolsa Familia (Family Grant) in Brazil, goes by different names in different places. In Mexico, where it first began on a national scale and has been equally successful at reducing poverty, it is Oportunidades. The generic term for the program is conditional cash transfers. The idea is to give regular payments to poor families, in the form of cash or electronic transfers into their bank accounts, if they meet certain requirements. The requirements vary, but many countries employ those used by Mexico: families must keep their children in school and go for regular medical checkups, and mom must attend workshops on subjects like nutrition or disease prevention. The payments almost always go to women, as they are the most likely to spend the money on their families. The elegant idea behind conditional cash transfers is to combat poverty today while breaking the cycle of poverty for tomorrow. (…)

Brazil is employing a version of an idea now in use in some 40 countries around the globe, one already successful on a staggeringly enormous scale. This is likely the most important government anti-poverty program the world has ever seen. It is worth looking at how it works, and why it has been able to help so many people.

In Mexico, Oportunidades today covers 5.8 million families, about 30 percent of the population. An Oportunidades family with a child in primary school and a child in middle school that meets all its responsibilities can get a total of about $123 a month in grants. Students can also get money for school supplies, and children who finish high school in a timely fashion get a one-time payment of $330. (…)

Bolsa Familia, which has similar requirements, is even bigger.  Brazil’s conditional cash transfer programs were begun before the government of President Luiz Inacio Lula da Silva, but he consolidated various programs and expanded it. It now covers about 50 million Brazilians, about a quarter of the country.   It pays a monthly stipend of about $13 to poor families for each child 15 or younger who is attending school, up to three children.  Families can get additional payments of $19 a month for each child of 16 or 17 still in school, up to two children.  Families that live in extreme poverty get a basic benefit of about $40, with no conditions.

Do these sums seem heartbreakingly small?  They are.  But a family living in extreme poverty in Brazil doubles its income when it gets the basic benefit.   It has long been clear that Bolsa Familia has reduced poverty in Brazil.  But research has only recently revealed its role in enabling Brazil to reduce economic inequality.

The program fights poverty in two ways.  One is straightforward:  it gives money to the poor.  This works.  And no, the money tends not to be stolen or diverted to the better-off.   Brazil and Mexico have been very successful at including only the poor.  In both countries it has reduced poverty, especially extreme poverty, and has begun to close the inequality gap.

The idea’s other purpose — to give children more education and better health — is longer term and harder to measure.  But measured it is — Oportunidades is probably the most-studied social program on the planet.  The program has an evaluation unit and publishes all data. There have also been hundreds of studies by independent academics. The research indicates that conditional cash transfer programs in Mexico and Brazil do keep people healthier, and keep kids in school.”

These programs put to rest the idea that you cannot trust the poor with money. Their lack of moral values (or some version of the “culture of poverty” argument), lack of deferred gratification and all-around irresponsibility means that they have to be infantilized through a variety of punitive procedures and requirements (as opposed to long-term goals such as education and health). Well, as these programs show, that is simply not the case. The reality is more a variety of incarnations of the poverty trap, which can be partially broken by cash payments.

What does not structurally help the poor? Charity, which is not, have never been, and should never be a substitute for public policy. For several reasons.

Reason 1: a lot of charitable donations are no such thing:
“As a proportion of GDP, the US gives most: 1.7% against Britain’s 0.7%. But donations to religious organisations account for 60% of the difference and, though some money reaches the poor, large sums fund preachers and church premises. Other “charitable” beneficiaries include the universities Americans attended in their youth, which are thus prompted to look with a kindly eye on children of alumni when they apply for places. But we, too, have our weaknesses, such as Eton, which notoriously counts as a charity.”

Reason 2: charitable donations have narrow and variable targets:
“Private charity doesn’t always have the same priorities as public policy. In the UK, the most popular causes are children, animals, cancer and lifeboats. Overseas causes, for relief of famine, disease or effects of natural disasters, tend to do well, helped by celebrity endorsements and fundraising concerts. Mental illness and disability, ex-offenders and unqualified school leavers are less likely to arouse our compassion. Again, volunteering tends to be most common in areas that need it least.”

Reason 3: charitable donations are a form of control of the donors over the recipients. Donors can attach strings to their donations that have nothing to do with reducing poverty. This is a demeaning and humiliating form of servitude that general welfare programs were designed to eliminate:
“The point of post-1945 European welfare states was to free the needy from dependence on private generosity, which tends to miss out the socially marginal, and to be least available when times are hardest. Welfare gave a sense of security and dignity that the less fortunate had never previously enjoyed. It was particularly important to continental societies that had seen how insecurity bred fascism. Those who volunteer time to hospitals and homeless centres or who take out direct debits for guide dogs and cancer research are admirable, but no more or less admirable than those who pay taxes without vociferous complaint. Nor is a society with a “culture of giving” more admirable than one where workers receive living wages, decent pensions and reasonable employment protection; executives exercise restraint in remunerating themselves; and everyone has sufficient support to look after their ailing grannies.”

No charitable programs will ever create large-scale infrastructures, mass education systems, and universal health care. Only public policies can do this. The reliance on charity is simply the political abandonment of the least fortunate and the disintegration of social solidarity.

What is interesting is that, if one looks at US corporate subsidies ($70 billion a year is a conservative estimate), the picture is entirely different, as David Cay Johnston demonstrates:

“One of the biggest new drains of tax money is government giveaways for server farms, those giant air-conditioned complexes that store data for Google, Microsoft, Yahoo, Dell, and other digital enterprises. Companies need duplicate sites around the country to manage traffic flow and protect against flood, fire, the loss of electric power, or some other catastrophe.

This fall Yahoo made a deal in Lockport, N.Y., for a new server farm. Yahoo gets $200 million in state and local tax breaks (including no property taxes), plus $58 million of cut-rate electricity from Niagara Falls and a $10 million stimulus grant. That’s $268 million to create 125 jobs, or $2.1 million per job.

Even if we just count the federal stimulus money, the subsidy works out to $80,000 per job.

Even richer was a deal Verizon made this fall for a server farm in Somerset, another Niagara County town. Over 15 years Verizon is getting $614 million in tax breaks and cut-rate electricity, which works out to an eye-popping $3.1 million for each of the 200 estimated jobs.

Server farms are an especially pernicious area of tax giveaways for several reasons. First, those job estimates are misleading. Server farms need very few workers. Oh, there’s some programming work, but it can be done as far off-site as India. However, there will be jobs for air conditioning mechanics and security guards who must be on site to keep intruders and summer air at bay.

A few technicians also will be needed to keep the servers running. But the $882 million in subsidies for the two western New York server farms may buy no more than a few dozen of these jobs, which pay merely better than average wages. (…)

It is curious how the government collects and discloses finely detailed data on how much tax money goes to the disabled, the poor, and the elderly, and to educate the young, but when it comes to welfare for big business, it just cannot seem to find the resources to gather and analyze the costs.

Strange, too, that many of these obscured, but gigantic gifts come through the good offices of politicians who pose as champions of the taxpayer and enemies of welfare, or at least of welfare for those who actually need it. (…)

Thomas tells how Dell moved a factory from Ireland to Poland in 2009 and then months later closed a four-year-old factory built in large part with North Carolina tax dollars. The Irish taxpayers gave €53.5 million to Dell, while North Carolina gave as much as $242 million. But when the Poles offered €54 million more, it was enough to get Dell to move about 1,900 jobs to Lodz.”

Funny how that works.

Oh, and this is “funny” too:

“The government is resigned to UK banks paying out billions of pounds in bonuses this year, despite its calls to curb the payments, the BBC has learnt. (…) But even if bonuses are cut, salaries have risen significantly to compensate, by up to 40% in some cases.”

Then follow the social darwinist argument that if we do not let the financial class get obscenely wealthy while the larger economy is still in depression, they will go work somewhere else. In this view, the poor are a drag on society while the wealthy are the engine, the creative forces of it. We wish the former would go away, we fear the latter might, at the slightest hint of taxation or regulation, no matter how mild and limited.

As a result of all this, as is obvious from the above, wealth is redirected upward and to corporations without transparency or accountability, with little to show for it. After all, transparency and accountability are only demanded from the poor, as punitive measures in exchange for dwindling benefits or narrowly-triggered charitable donations.

It is clear which approaches are the most successful in terms of poverty reduction and social justice: cash payments to the poor and social democratic measures. And yet, these ideas are not allowed to even enter common discourse on public policy.

  1. 1

    Interesting, vreemd genoeg is er nog ontzettend veel weerstand in Brazilie in dergelijke programma’s vanuit rechter kant van de samenleving.
    Wat wel grappig is, is dat de toelages specifiek aan de moeder des huizes gegeven worden. Het idee is dat het anders aan de bar opgaat.

  2. 3

    That $70 billion figure from my column at tax.com is state and local subsidies only; federal subsidies by one measure are a trillion dollars a year, 14 times s much and roughly equal to all the individual income taxes paid in America in 2009.