Giving cash should be the standard which other poverty programmes are compared to
Luisa Rodriguez: Let’s talk about the empirical evidence a bit more. Unconditional cash transfers have been studied empirically many times in a range of contexts, as you’ve noted. Can you summarise what we know about the return on investment recipients get?
Paul Niehaus: There are certainly cases you can pick out where a large share of the money got invested in some sort of asset and business got better, and the return on capital in that business was maybe 20% per year, or 30%, or even up to 50%. So there are certainly cases like that, where in a very narrow financial sense, we can say that we’ve learned from this that people have access to high-return investments, and it’s great that we’re able to finance them.
But I would actually push back a little bit about that instinct of trying to kind of put everything into one number — because I think once you get into the reality of how diverse life is, it’s too complicated for that.
Luisa Rodriguez: Yeah, it must be frustrating. It seems like there are all these randomised control trials on a bunch of interventions like this, including unconditional cash transfers. And many of them, in some ways, have it easy. They’re tracking the effect of bed nets on malaria, and it’s pretty easy to measure malaria — at least relative to how difficult it seems to be to measure how people spend money, when there are dozens, hundreds, in some sense an infinite number of potential options for them. And how do you measure the benefit they get from that?
Paul Niehaus: And there are all of these knock-on things, like you see impacts on mental health, or recently there have been papers that found reductions in rates of suicide or rates of all-cause mortality. So do you also think about that? Is that a separate thing that I need to value separately, or is that the result of all these other things that I was just talking about? So I think it’s really hard.
And actually, I think that the way economists have traditionally thought about it, which to me makes more sense, is to say we’re actually going to think of this as like the numéraire, right? The value to giving someone a dollar is a dollar. And then we’re going to use that as a reference point in a comparison to other things — and say, relative to that, how great is a bed net, or deworming, or any of these other things we want to think about?
Luisa Rodriguez: I see. And at least part of the thinking behind GiveDirectly is that, in surprisingly many cases, the value of giving someone something that you’ve decided in advance might be best for them, that costs a dollar, might actually be less than a dollar — because people have such different needs, and it’s hard for us living in other countries to predict them.
Paul Niehaus: That’s the thing we want to watch out for. And the issue there is that in the aid or philanthropic system, there isn’t any built-in feedback loop that prevents us from doing that, right? So think about it: By comparison to a commercial business, if I’m trying to sell something for a dollar, and people value it at less than a dollar, then nobody buys it — and I learn quickly that this isn’t working; I don’t have product-market fit. In the philanthropic world, if it costs you a dollar to produce something, and people value it at less than a dollar, they’re going to say, “Oh, thank you. This is better than nothing.” You don’t get that feedback loop of people telling you that there’s something better that you could have done with your money. So we have to be very intentional about building that in.
Why cash dramatically overperformed a USAID unemployment programme
Luisa Rodriguez: I guess I’m still inclined to be surprised and impressed, given that this is a best-in-class programme. It’s the best way USAID knows how to improve underemployment, and still giving cash directly is better. What is it about the way the sausage gets made that makes this not super surprising to people working on this on the ground?
Paul Niehaus: I think there are three things to highlight. One is the absence of automatic feedback that I mentioned earlier: I think it’s fundamentally difficult — when you’re doing philanthropic stuff, and you don’t have customers that can tell you this isn’t that great actually — to learn.
Two is all of the complexity that comes with being a big multinational bureaucratic organisation. And that’s obviously not unique to USAID, or to any big organisation, but there’s all sorts of stuff and baggage in terms of decision making that comes with that.
I think the third thing is that there are different categories of problems that it’s helpful to distinguish, and those are what economists would call private good versus public good problems. So me getting a job and earning a living is a very relevant problem to me, and I’m going to do what I can to do that. And I may not do it — I may face constraints that make it hard, or I may make mistakes or not understand certain things, all of that sort of thing — but we should generally have the expectation that people are going to be pretty motivated to try to figure that out on their own, at least to some extent. So that’s the sort of problem where to come in as an outsider and have a really disproportionate impact is going to be relatively hard.
Then there are problems like preventing everybody in my community from getting malaria. I have a motivation to not get sick myself, but I really don’t have a strong motivation, or perhaps strong-enough motivation, to solve everybody else’s problem for them. Or even taking it a step further, doing the innovation, the R&D, to discover a cure for malaria, a way to prevent it at scale. That’s a public good issue, where one person’s actions have much broader ramifications. So that’s a place where you’d expect, coming in as an outsider, maybe we can actually have a really disproportionate impact — because no one person on their own is going to be as motivated to solve the problem.
And so to me, these employment and livelihood-generation problems are private good problems, so I think that’s generally going to be a tough area for us to make outsized progress relative to public goods issues. And I think that’s why, when you look at the things that GiveWell has recommended over the years historically that they think do better than cash transfers, most of them have this public health, infectious disease flavour to them.
Giving cash can boost economic growth
Luisa Rodriguez: So the headline result is that for every one dollar spent on cash transfers, there’s a 2.5 multiplier effect. Can you explain exactly what a “multiplier” means here?
Paul Niehaus: So it’s a very simple concept. All it means is if we measure GDP — essentially the aggregate output of this economy — how much did GDP go up for every dollar that we gave people? So a 1 would be people spent the money and nothing else happened. A 2.5 here means that for every dollar that we put in, economic output in the region expanded by two and a half dollars.
Luisa Rodriguez: OK. And again, I studied a bit of economics, but not loads of economics. So if I try to make it really concrete, it’s like you give someone $1, and the fact that they then spend that dollar ends up somehow generating $2.50 in the economy because of something like it enables someone to do a bit more work, which then allows them to create more goods, and those goods have value and are purchased? And over time you get basically $2.50 of extra value?
Can you help me make intuitive the number 2.5? Is that really big? Is that moderate? I guess I just don’t have a good reference class for how quickly economies grow, and whether this is an impressive result or not.
Paul Niehaus: Yeah, I think there are probably two ways to think about that. One is relative to other estimates of the multiplier effects, public spending or stimulus spending. In rich countries, like in the US, for example, the range of estimates that people typically are centred around are in the 1.5–1.9 or 2 range. So this is bigger than that, but not wildly bigger than the stimulus effects that we think federal spending in the US can have if it is well designed.
The other way to think about it is just as a donor. If you’re thinking about the consequences of this, then, if you buy the analysis, you think that in this setting a dollar had 2.5 the impacts that you thought it would have had otherwise, without taking that into account.
Fraud in DRC
Luisa Rodriguez: Let’s talk about what happened in the Democratic Republic of the Congo, which is GiveDirectly’s biggest fraud case to date. Can you give just the basic outline?
Paul Niehaus: Sure. And let me first just say we’ve written very publicly about this, and so I’ll talk about what we think we’ve learned from it, how we think we should interpret it in the big picture. But it is absolutely gut-wrenching to lose that much money. It’s something where we feel like we failed here, and that we owe an apology to folks involved: to the recipients, and to our partners in this project. So we’ve done that and done that very publicly. And I think that’s important.
In terms of what it means for the mission and the model overall, we feel like there are things we have to learn and adjust. It’s going to be less than a percent of all the money that we delivered in 2022. So we accept that this is a chess game that never ends, that we’re still playing it, and that we have to make adjustments. But fundamentally, I don’t think it shakes our confidence in our ability to keep doing what we do.
So with that having been said, what happened specifically in the DRC is — and as you can imagine, there are multiple layers to this — but the first and fundamental thing is that we have a control procedure that we usually impose, which says that when we give a SIM card to recipients, which is what they need to then be able to start receiving transfers, they need to go and register that with a mobile money agent themselves. That’s an important piece of our control process. And we made an exception to that in the DRC, because the DRC is a tough place to work, and we thought this would have meant long travel and potentially some risks for recipients. So we decided to give our field staff permission to register those SIM cards themselves in the name of the recipients and then distribute them.
We’re balancing risk and return there, in terms of thinking about how this is going to impact recipients and what the risk would be. And the core lesson from this is going to be that we got that wrong, and have to change that this time around. The issue this created was that in this case, some of our staff were able to register SIMs in the name of recipients, but then keep them, and instead give recipients other SIMs that were useless because they were not registered in our system to receive transfers. And so with those SIMs in hand, staff are then able to go and collude with mobile money agents to withdraw cash from the accounts that belong to the recipients and get it out themselves.
There are then multiple other accountability layers in the system that could have caught this — and that did eventually catch it, but that took too long, in part because the people who were stealing money at that point of sale were able to recruit accomplices in those other layers. So on net this went on for about four months, from the end of August 2022 to January of 2023, before we caught it. The design question for us now is, of course we want to catch it sooner than that if something like this ever happened again.
Luisa Rodriguez: How was it finally resolved? Who figured it out?
Paul Niehaus: For some safeguarding reasons, I can’t get too much into the details of what’s happened and what is happening. But what I can say is that eventually we did hear about it. There’s since been wide-ranging turnover — some because people’s contracts have just expired, but in some cases because we’ve let folks go and have referred some of them to the authorities for investigation, prosecution.
And then there’s a bunch of process stuff that we’re going to be doing differently. First and most important, of course, is not allowing this registration exception for SIM cards, or at least not unless there are additional controls in place. Also to improve the firewalling between the different parts of the organisation, to make it harder for people to identify and build a relationship with the people that are holding them accountable. And then third, there’s some stuff again that I mentioned that we can do in terms of automated data checks so that this stuff becomes visible to anyone, even if you’re not in the DRC, quickly, if something’s not happening.
Objections to universal basic income
Luisa Rodriguez: I think the most common ones I’ve heard are that it might disincentivise work among recipients. Is that something you’re worried about? It sounds like it’s not something you’ve seen in other programmes, but maybe it is the kind of thing that you might worry about when there is that long-term commitment?
Paul Niehaus: Right. So I think “disincentivised” is, in fact, not quite the right concept — in the sense that there are programmes where your eligibility for benefits tapers out as you get better off. Like the EITC [earned income tax credit] in the US, for example: there’s a phase out where if you’re earning above a certain level, you no longer get it, so there’s a very mechanical disincentive to earn more there. And that’s not what we’re talking about with UBI, because the whole idea is that it is unconditional on anything. It’s like, no matter what, you’re going to get this money. I think what people actually have in mind here is not an incentive per se, but more that maybe you’re just less motivated if some of your basic needs are already met to go out and earn more — so it’s more of an impact that income or wealth has on your personal motivation, which is a somewhat different thing.
That’s also very important because I think — and I think the data also say — that those sorts of income effects are actually probably very different in different contexts. So in low-income countries in particular, people are extremely poor — so getting somebody from below the poverty line to $2.15 a day is by no means going to make them feel content with their life, or as if there’s nothing else that they wish they could have. And on top of that, one of the barriers for many of them to work is just access to the capital, to the tools they need. And so there’s this additional channel where having access to some money might actually enable me to invest in ways that would make it worth working more. So what we’ve actually seen in the data on most cash transfer programmes in low-income countries has been either not much change in how much people work, or a bit of an increase — which is contrary, I think, to what a lot of people expected or were worried about.
Luisa Rodriguez: Cool. Yeah, I do feel persuaded in particular about this. If you’re taking someone just slightly above the poverty line, that feels pretty different to giving them some high monthly allowance that means they can not only meet all of their basic needs, but have all the luxuries they want. So yeah, I can see how someone just meeting their basic needs would not necessarily be discouraged from doing other types of productive work. Before we move on and talk more about the study, I’m curious if you have a guess at what the best objection to UBI is?
Paul Niehaus: I think it depends a bit on where we’re talking about. In rich countries, if you do the math on something like UBI, it’s very expensive. And I think that in rich countries we have the administrative machinery to target benefits to people who are disabled or who have hit something that comes as a shock — like health insurance, things like that — in ways that poorer countries have less capacity to do. So if you do this sort of technocratic math, it’s not as clear to me that in some of the richer countries this would be the best way to spend a dollar to help people living in extreme poverty.
In poorer countries, it may be that some degree of targeting or means testing or something like that is a good idea, but the capacity to do that is more limited. So I think there’s a stronger case for, maybe it’s not universal everywhere, but in large regions, for example, everybody getting some degree of basic income. Something like that.
But the other thing to emphasise is that I don’t think that UBI is fundamentally a technocratic idea, right? It’s not like someone sat down and wrote out the optimisation problem of how can we do the most good for the world, and UBI popped out as the solution to that, with a given budget. It’s more like this would be a different politics and a different ethics of what we think a just society might look like, and something that people might be willing to get behind and therefore to spend or to give more than they would otherwise. So in some sense, I think that’s the real question about UBI, and it’s not one that experimental evidence of impact is going to directly answer — although it could contribute to some extent.
Luisa Rodriguez: Right. So that politics thing, the idea there is basically that currently we’re not thinking of these basic needs as a universal right the way we think of other things. Like, it seems like most people in most countries agree that no one should be able to physically harm you: that’s a right you have. And here I guess another example is that some countries think healthcare is a universal right, others don’t. But UBI is basically seeing if people can get behind the idea that people have the basic right to have their basic needs met, and the way of operationalising that is giving people enough resources to get at least those very basic needs met. Is that the basic idea? Am I getting that right?
Paul Niehaus: That’s it. Look at how political communication works, right? Nobody gets up and says, “Great news! I have this complicated plan. We’ve really thought it through carefully. It’s got these five different parts. Healthcare is going to work this way. And all this stuff, this is a great vision for what a fair society is going to look like.” It just doesn’t work that way. But potentially you could say, “I have this vision, which is that everybody should get enough to meet their basic needs,” and people might support that and be willing to get behind that. So the idea that this might be a politically viable narrative — even if it’s not dollar-for-dollar the absolutely ideal, optimal way to allocate a given budget — I think that’s very much an important part of the question about UBI.