There is one story about this project that stuck in Abhijit’s memory. It is claimed the project took much longer than it should have because what the workers built during the day, the elites destroyed at night. The idea was to give the elites, who also lived off agriculture and were therefore starving like the rest, a way to earn enough to survive. Being aristocrats, they would rather die than let it be known to the public that they had fallen into such dire straits, hence the artifice of the nightly effort.
Whatever one makes of the wanton snobbery that made this necessary, and indeed whether or not it actually happened, the story makes an important point. It is easy to forget, especially in a crisis, the need to protect as far as possible the dignity of those being helped. Asaf-ud-Daula, to his credit, did not. Or at least that’s how history remembers him.
We will argue that this tension between cash and care should be one of the central concerns in the design of social policy. In the current debate, at one extreme there are those who believe the best we can do for people who have not flourished in the market economy is to hand them some cash and walk away, leaving them to find their own way in the world. At the other extreme stand those who have little faith in the ability of the poor to take care of themselves, and as a result either want to abandon them to their fate or intrude heavily into their lives, restricting their choices, punishing those who do not fall in line. One side acts as if the self-esteem of the beneficiaries of public programs is not an issue; the other side either does not care or believes it is the price they need to pay if they want public help. And yet the desire to be respected is often a reason why support for social interventions is lacking even among those who need them, and also a reason why these policies fail. In this chapter we explore the implications of this particular perspective on the design of social policies.
DESIGNER SOCIAL PROGRAMS
There is nothing more designer these days, at least among social programs, than universal basic income (UBI). Elegant in its simplicity, it is the midcentury modern of welfare, popular among Silicon Valley entrepreneurs, media mavens, certain kinds of philosophers and economists, and the odd politician. UBI imagines the government paying everyone a substantial guaranteed basic income (the amount of $1000 a month has been floated for the United States), irrespective of their needs. This amount would be small change for Bill Gates, but quite a bit of money for someone out of a job, allowing them, if it comes to that, to go through their entire life without paid employment. Silicon Valley likes it because they worry their innovations may cause lots of dislocations. Benoit Hamon, the socialist candidate to replace François Hollande as the president of France, tried to use it to revive his doomed campaign; Hillary Clinton mentioned it occasionally (she lost too); there was a referendum about it in Switzerland (but only a quarter of the voters voted for it); in India, it recently showed up in an official finance ministry document, and both parties competing in the election had some version of an unconditional cash transfer in their platforms, although in neither case was it universal.
Many economists, going back at least to Milton Friedman, approve of UBI’s hands-off attitude. As we discussed, many of them are acculturated to assume people know best what is good for themselves, and see no reason to believe a government bureaucrat would know better. For them, handing over cash to welfare recipients is obviously the right thing to do; the person knows what best to do with it. If buying food makes sense, they will buy food; but if clothes are more useful, they should have the right to decide. Programs like SNAP in the United States, which can only be spent on food, are overreaching. Likewise, doling the money out as a reward for some kind of “good behavior” as the conditional cash transfer programs, like the Progresa/Oportunidades/Prospera program in Mexico and its many imitators do, is just making people jump through hoops for no reason. If it is truly good behavior they would do it in any case and if they disagree, people are more likely to be right than the government. When the left-leaning Mexican government announced its intention to replace Prospera with an unconditional transfer in 2019, it cited that the “health seminars, medical checks (and other obligations) were a burden on women.”1
There is also the very real attraction of a program that is universal and does not try to target and monitor people. Most social programs come with complicated screening and monitoring rules to make sure benefits are going to the right people. Making sure the conditions of educating children and getting their health checkups are met is not cheap: in Mexico, it costs about ten pesos to transfer a hundred pesos to a household. Of those ten pesos, 34 percent pays for the cost of identifying beneficiaries, and another 25 percent is used for ensuring compliance with the conditions for getting the conditional cash transfer.2
The proliferation of rules also makes it hard to sign up and, possibly as a result, take-up among the intended beneficiaries is much less than universal. In Morocco, Esther studied a program entitling households to a subsidized loan to get their homes connected to the water mains.3 When she first visited the neighborhoods where the program was offered, the French company whose program they were evaluating, Veolia, proudly showed off the “Veolia bus” that went from neighborhood to neighborhood to provide information on the new program. Strangely, there was no one on the bus itself, and when Esther went from house to house, it was clear people often had a vague idea about the program but did not know what it would take to apply. The procedure, as it turns out, was not that simple. It could not be done on the bus. Potential customers had to go to the city hall with a number of papers certifying their residence and their right to the property. They had to fill out an application and come back some weeks later to see if it was approved. Esther and her colleagues offered a simple service: a field officer would come to your house, take photocopies of the relevant documents, fill out the application, and deliver it to the city hall. This was extremely effective; the sign-up rate increased by a factor of seven.
To make matters worse, those especially intimidated by the complexity of the sign-up process are often the neediest. In Delhi, widows and divorced women living in poverty are entitled to a monthly pension of Rs 1,500 (or $85 PPP, adjusting for the cost of living), a substantial amount for these women, but take-up is low: a World Bank survey found that two-thirds of eligible women were not enrolled in the program.4 One reason may be the application process, which involves a complex set of rules most people would not understand or be able to navigate.
To understand the extent to which knowledge of the rules, or the rules themselves, prevent take-up, a study randomly divided a group of twelve hundred eligible Indian women into four groups.5 One group was the control group; one group received information about the program; one group received information and some assistance with the process of signing up; and the last group got information, assistance, and was also accompanied by the local representative of the NGO to the office to sign up. Providing information increased the number of women who began the application process, but did not significantly increase the number of women who actually completed it. In contrast, helping them with the process resulted in more applications. Women who received help were six percentage points more likely to complete all the steps, and those taken to the office were eleven percentage points more likely to apply, almost double the base rate. Importantly, the most vulnerable women (illiterate, politically unconnected) benefitted the most from the intervention, consistent with the view they were the ones most likely to be excluded by the existing process. But even with the help, the take-up was only 26 percent for what was mostly free money, likely because the women had little faith in the government’s ability to deliver, and thus did not see the value of jumping through the hoops.
The same goes for the United States. Between 2008 and 2014, millions of additional children got access to free lunch at school after it was decided that any children of parents who were obviously poor—those already covered by other anti-poverty programs—would be automatically enrolled. In fact, they had been eligible for free lun
ch ever since the rules were changed in 2004, but then it was up to the parents to claim the benefit, and that did not happen.6
Or take SNAP. Out of thirty thousand elderly people not enrolled in SNAP but who looked like they would be eligible, a randomly chosen group was told about their likely eligibility, and a random subgroup of those were actually helped to sign up. After nine months, only 6 percent of the control group signed up, but information increased the rate to 11 percent, and when help was added, it went up to 18 percent.7
It does not help that being identified as poor comes with a certain stigma in the US, a product of the continuing faith in the idea that anyone can succeed, very much in the face of the evidence, as we already discussed. Many people therefore resist having to admit to themselves or others that they are poor enough to deserve help. We encountered an interesting instance of this in our work with low-income workers in California. The label “food stamps,” as one might imagine, comes from the fact that historically workers were paid in stamps. These days, “stamp recipients” receive government-issued electronic benefit transfer (EBT) cards that are swiped like a debit card in the checkout line, which avoids the stigma of handing over the stamps. But not everyone eligible for SNAP knows that. The experiment was carried out in the offices of H&R Block, a tax preparer. Most people who go to these offices in January are low-income workers who expect a tax refund. In some of these offices, chosen by lot, those likely to be eligible for SNAP received a pamphlet designed by a PR firm describing the local EBT card as the “Golden State Advantage Card.” It was described as the way to “get more at the grocery shop” and the emphasis was on the fact that working families might be eligible. Members of the control group were asked instead whether they wanted to be screened for “food stamps” benefits and were given a pamphlet designed to reflect the more familiar language of the program. Banners in the office reinforced the messages in both cases. We found that clients were significantly more likely to be interested in SNAP if the label “food stamps” was not used.8
Conversely, belief that they will be unfairly excluded from a program can discourage those who need it the most from applying. This is why organizations that work with the extreme poor strongly affirm the need for universality of services. When Thierry Rauch, then a homeless person in France, heard the French government was going to help 30 percent of the poor to escape poverty, his reaction was “What is clear is that me and my family, we won’t be in that number.” He continued, “If the support is not for everyone, I am sure I will get thrown out.” After a lifetime of being “thrown out,” he had given up on trying to get selected.9
The same counterproductive pessimism was found at work in Morocco. Esther and her colleagues compared the performance of a program called Tayssir, a traditional conditional cash transfer that requires school attendance, with an unconditional cash transfer plan that claimed to help parents educate their children but did not actually require regular school attendance. During the fieldwork for the project, Esther visited a family that was not enrolled in the conditional cash transfer program. She asked why. They had three children of the right age, all enrolled in school. The father explained that he often worked as a daily laborer outside the village for the whole day, or even days on end, and therefore he could not make sure his children were attending regularly. He worried they would be absent too often and he would end up forfeiting the transfer, and looking like a bad parent.
The data suggest this family was not an exception. Some families where children were most at risk of dropping out of school opted out of the conditional cash transfer because they were not sure they would be able to meet the requirements. It seems they did not want the shame of being excluded for poor performance and preferred to exclude themselves instead. As a result, a nonconditional transfer presented as a way to help families educate their children, rather than a condition, was more effective in increasing education for those fragile families (and just as effective for everyone else).10
WHERE’S THE MONEY?
Given the downsides of existing transfer programs, where does the resistance to UBI come from? Why are there so few cash transfer programs, anywhere in the world, that are universal and come without strings attached?
One simple reason is money. Universal programs in which no one is excluded are expensive. The proposal to pay $1,000 a month for every American would cost $3.9 trillion a year. That’s about $1.3 trillion more than all existing welfare programs, roughly the equivalent of the entire federal budget, or 20 percent of the US economy.11 To finance it without cutting back all the traditional functions of government (defense, public education, etc.) would require eliminating all exiting welfare programs and raising the US tax level to the level of Denmark’s. That is why even the enthusiastic supporters of UBI talk about a design where the transfer would be lower as people got richer, and would be zero above a certain income. So not, in fact, universal. If UBI were paid only to the poorer half of Americans it would cost a much more affordable $1.95 trillion. But that would require targeting, with all its pitfalls.
MIDDLE-CLASS MORALITY
Abhijit at the age of twelve, like many of his friends, was in love with Audrey Hepburn. He discovered her as Eliza Doolittle in the movie version of the Lerner and Loewe musical My Fair Lady, based on the play Pygmalion by George Bernard Shaw (a radical left-winger in his time). In the play her father, Alfred, makes this truly wonderful little philosophical speech (before more or less offering to sell his daughter for five pounds even):
I ask you, what am I? I’m one of the undeserving poor: that’s what I am. Think of what that means to a man. It means that he’s up against middle class morality all the time. If there’s anything going, and I put in for a bit of it, it’s always the same story: “You’re undeserving; so you can’t have it.” But my needs is as great as the most deserving widow’s that ever got money out of six different charities in one week for the death of the same husband. I don’t need less than a deserving man: I need more. I don’t eat less hearty than him; and I drink a lot more. I want a bit of amusement, cause I’m a thinking man. I want cheerfulness and a song and a band when I feel low. Well, they charge me just the same for everything as they charge the deserving. What is middle class morality? Just an excuse for never giving me anything.12
It was hard being poor in Victorian England where the play is set. To be deserving of charity one had to be abstemious, thrifty, churchgoing, and above all hard working. If not, it was off to the poorhouse where work was enforced and husbands and wives were kept apart, unless you happened to be in debt, in which case it was to debtor’s prison or an enforced trip Down Under. An 1898 “map descriptive of London Poverty” classified some areas as “lowest class, vicious, semi-criminal.”13
We are not very far from this today. Mention welfare in a well-heeled crowd in the United States, India, or Europe and there will always be a few shaking heads, worried that welfare turns the poor into “good for nothings,” to use a Victorian expression still popular among a certain class of Indians. Give them cash and they will stop working or drink it up. Somewhere behind this is the suspicion the poor are poor because they lack the will to achieve; give them any excuse and they will check out.
In the United States, the economic catastrophe of the Depression during the 1930s temporarily gave poverty a more benign face because it was so ubiquitous. Everyone knew someone who suffered from sudden poverty. John Steinbeck’s brave Okies fleeing the Dust Bowl are a staple of high school classes. Franklin D. Roosevelt’s New Deal marked the beginning of an era where poverty was seen as something society could fight, and beat, with government intervention. This continued until the 1960s, culminating in Lyndon B. Johnson’s “war on poverty.” But when growth slowed and resources were tight, the war on poverty turned into war on the poor. Ronald Reagan would return time and again to the image of the so-called welfare queen, who was black, lazy, female, and fraudulent. The model for this was Linda Taylor, a woman from Chicago who had four aliases
and was convicted of $8,000 in fraud, for which she spent several years in prison. This was one and a half years longer than onetime billionaire capitalist hero Charles Keating, the central figure in the most famous corruption scandal of the Reagan era (the Keating Five scandal), and the related savings and loans crisis that was to cost taxpayers over $500 billion in bailout money.
In a new twist, the moral turpitude of the poor was now presented as the consequence of welfare itself. In 1986, Reagan famously declared the war on poverty lost. It was welfare that made us lose the war, by discouraging work and encouraging dependency, which led to the “crisis of family breakdowns, especially among the welfare poor, both black and white.”14 In a radio address to the nation on February 15, 1986, Reagan declared:
We’re in danger of creating a permanent culture of poverty as inescapable as any chain or bond; a second and separate America, an America of lost dreams and stunted lives. The irony is that misguided welfare programs instituted in the name of compassion have actually helped turn a shrinking problem into a national tragedy. From the 1950’s on, poverty in America was declining. American society, an opportunity society, was doing its wonders. Economic growth was providing a ladder for millions to climb up out of poverty and into prosperity. In 1964 the famous War on Poverty was declared and a funny thing happened. Poverty, as measured by dependency, stopped shrinking and then actually began to grow worse. I guess you could say, poverty won the war. Poverty won in part because instead of helping the poor, government programs ruptured the bonds holding poor families together.
Good Economics for Hard Times Page 34