Helping the poorest of the poor

Developing countries have started to weave social safety nets. Here’s how they should do it

It is decades since developed countries first sought to ensure that none of their citizens was left destitute. Now, as we recently reported, developing countries are following suit. Between 2008 and 2013 the number offering at least some poor people cash with strings attached, such as a requirement to send their children to school, almost doubled, from 27 to 52. No-strings cash programmes spread from 21 to 37 African countries in just three years. Public-works programmes, which pay a low wage for manual labour, are also on the rise. And more is coming: Indonesia is planning what will be the world’s biggest cash-transfer programme, for 15.5m families.

Done badly, such anti-poverty efforts will squander billions. Around half of India’s vast expenditure on subsidised food and cooking gas, and public-works programmes in rural areas, for example, is thought to be wasted or stolen. But done well, they could transform lives. Brazil’s Bolsa Família, which covers 14m families, has cut dire poverty by 28% in a decade for just 0.5% of GDP. So how should a developing country go about weaving a social safety-net?

First, it should take a hard look at all its social spending. All too often, only a small part of it goes on the poor. In many countries fuel subsidies, which mostly benefit the rich, dwarf social spending; Indonesia, until the beginning of this year, was one example. Trimming such misdirected spending would leave more for the neediest. Indonesia’s new president, Joko Widodo, is showing the way by chopping fuel subsidies and using the space this frees up in the budget to roll out cash handouts.

Next, governments must decide what to give, and how. Cash is less wasteful and economically distorting than food or fuel subsidies (though school lunches can boost enrolment and cut micronutrient deficiencies). All handouts should be rolled into a single programme to simplify administration and cut overlap, as Brazil did with the Bolsa Família, which replaced several schemes which had varying coverage and eligibility rules. And setting up a single register will cut fraud and help when it comes to targeting other government programmes: Brazil’s register is now being used to identify those most in need of water-storage tanks, and to decide which schools should get extra resources and which youngsters should get free technical training.

Governments used to worry that cash handouts would be even more theft-prone than other programmes. But recording and identifying recipients using biometric data, such as face, fingerprint and iris scans slashes the opportunity for fraud. And even as duplicate and fake records are expunged, those who lack paper documents can be enrolled. India is halfway through creating biometric records for its 1.2 billion people, which means that if vested interests can be faced down and its various handouts of food and cooking gas converted to cash payments, the leakage from its social programmes could be hugely reduced. Technology can also help with making the payments. “Branchless banking”, in which roving teams or local vendors equipped with fingerprint readers disburse the cash, means payments can be made in remote areas, even while checking the identity of claimants.

Making recipients do something in return for their money may amplify a scheme’s benefits. But here, governments should tread carefully. Poorly chosen conditions can exclude some of the neediest: those in remote areas, for example, may struggle to bring their children to clinics for compulsory health checks. Even sensible conditions will increase administrative costs—and may not make much difference to outcomes. The main reason the Bolsa Família has boosted enrolment in Brazil is not that recipients are compelled to send their children to school, but that the stipend makes it easier to forgo children’s meagre earnings. (In countries where education for girls is valued less than for boys, such a condition would presumably make a bigger difference.)

Perhaps the most surprising lesson from developing countries’ attempts to cut poverty is that they should worry a little less about making sure their spending is tightly targeted on the poorest. Few such places have reliable records of their citizens’ assets or earnings, and without such information, attempts to pick out the neediest from the masses will inevitably be inexact. If they try too hard to identify them using proxy means—whether a person is old, say, or lacks common consumer goods—they may exclude some worthy recipients. The difficulty is intensified when governments make it harder to apply in the hope of discouraging the well-off. Detailed forms will be hardest to fill in for the illiterate. And public-works schemes are unappealing, not only to the rich, but to poor people who may have to turn down odd jobs or leave household duties undone in order to take part.

When payouts are small—and they must be small if they are not to skew incentives and create a new political clientele—simple checks, such as whether an applicant lives in a poor neighbourhood, may be the best option. Even universal handouts may be worth considering: by one estimate, the money India spends on public-works schemes would do more to cut poverty if it was simply shared equally among the entire rural population. To make a big difference to their poor, developing countries will have to cast their social safety nets widely. –http://www.economist.com/news/international/21638333-developing-countries-have-started-weave-social-safety-nets-heres-how-they-should-do-it?fsrc=scn%2Ftw%2Fte%2Fbl%2Fed%2Fhelpingthepoorestofthepoor