The economics of conditional cash transfers

Dividing a P21.9-billion lump sum into morsels and deciding how much goes where is not difficult. In denying the globally proven economic benefits of the Department of Social Welfare and Development’s (DSWD) conditional cash-transfer (CCT) program, critics assert funds might better be spent elsewhere. As they enumerate a motherhood wish list, they’ve forgotten the operant word “conditional” and brand CCTs as dole-outs.

Programmed expenditures directed toward exponentially synergistic and productive consumption patterns where multiplier effects span from the economic to the social are in no way doles. More so when conditionalities impose obligations on recipients where every centavo determines desired behavior, attitudes and the building of human capital. Focused on education and health, long-term productivity is inarguable.

In contrast, a dole-out is not only myopic, it also imposes no obligations; its results are wanton, undirected and breed dependence, if not complacency.

Contrasting further, building more classrooms—a cliché counterpoint against CCTs—does not ensure school attendance given rising dropout rates from the necessity to provide for immediate needs or due to malnutrition. For the DSWD, both are addressed by CCTs.

One senator noted that of 100 children entering Grade One, only 86 move to Grade Two, 76 reach Grade Four, 67 reach Grade Six and 65 eventually finish their elementary education. Of the 65, only 58 enter high school and only 45 finish. That’s a fatal kill rate of 55 percent.

Not everybody can be a congressman. Because the job market accepts only those adequately educated, the ratio of the uneducated and unproductive to the educated and productive impacts on national productivity.

On health impacts, check out our national nutrition levels and the involuntary hunger index. In July a report showed that under Gloria Arroyo, between 2005 and 2008, the prevalence of underweight and stunted children increased by as much as 26.2 percent and 27.9 percent, respectively. Studies also showed chronic malnutrition among school children was extremely high in as many as 25 provinces and that over 30 percent in Grades One and Two drop out due to malnutrition.

Obviously, these problems necessitate far more directly productive measures than those traditional palliatives applied by Congress or those worked through pork barrels and bundles in brown bags.

To appreciate the difference between a World Bank-supported program successfully implemented in over 12 economies and started over 20 years ago, and a simple dole, imagine CCTs as incentives in a reward system that focuses spending behavior toward directly productive social and economic endeavors.

Now imagine dole-outs as bundles of cash in doggy bags that congressmen carry home as souvenirs. Like filched toiletries from a motel room, they have no downstream economic impact.

Unfortunately, in an economy where a million and one uses can be found for a single peso, there is no shortage of options. Educated in household economics, any mayor doma can come up with a kitchen-economics budget, as have CCT critics.

In business economics, the task of determining productive uses for current resources is infinitely more complex. Capital programming and the allocation of resources involve determining the difference between present values against future returns with the latter as determinants. Far from a simplistic wish list that identifies current needs, the focus is on exponential economic benefits and productivity.

The DSWD’s CCT program goes beyond these as it melds current wish lists with future economic values in the shortest time. The first CCT benefit is a bias toward productive consumption patterns that link development economics with the macroeconomy because one of the principal drivers of gross domestic product (GDP) growth is consumer spending. Imagine if spending were directed toward economic multipliers through conditional incentives? Studies prove CCTs as a potent social-protection strategy that increases school attendance and health-service usage both contributory to higher GDP.

Norbert Schady, senior World Bank economist and coauthor of a World Bank report entitled “CCT: Reducing present and future poverty,” found “solid evidence that CCTs boost consumption and reduce poverty.” In Mexico, for example, CCTs reduced the poverty gap by 19 percent. Debunking arguments that CCTs lead to mendicancy or complacency, Justin Lin, the World Bank’s chief economist, noted that CCTs stand out as examples “of how to use resources effectively.” It is not just about reducing poverty, it is about increasing productivity. The evidence shows CCT recipients did not reduce their work output in response to steady income supplements.

The contrary had, in fact, been the default. Adult recipients turned industrious and responsible. In education, results show increased school attendance of as much as 20 percent, while availment of health-care services likewise increased by 20 percent.

The same data, however, shows that successful CCTs involve balancing acts, close coordination, monitoring, concomitant improvements in education and health-care offerings and substantial amounts of expertise and competence. Well, that’s why Secretary Dinky Soliman was placed at the DSWD. –DEAN DE LA PAZ / THROUGH THE LOOKING GLASS / BUSINESS MIRROR