Want to end poverty? Brazil’s answer: Give people money

Here is a brilliant idea for how to help poor people: give them money. Specifically, give them enough money to end their poverty.

This is from Brazil’s social development minister Tereza Campello, who was in Washington this week discussing the country’s first decade of experience under the highly-touted Bolsa Familia cash transfer program.

It’s a discussion relevant to the U.S., involving a simple social contract that hands over cash – with no strings attached on how it is spent or who is considered part of a family – as long as any kids involved attend school.

The same day Campello addressed executives and staff at the World Bank, where the Bolsa program is considered a model that might be transplanted to other developing countries, a panel at the Brookings Institution was dissecting the performance of U.S. safety net programs during the recession.

There has been a spate of research on that topic. Some of the findings are comforting. Some are not.

Overall, said Robert Moffitt, a Johns Hopkins University economics professor who reviewed social spending and income data for the crisis years, programs like the earned income tax credit, extended unemployment insurance, food stamps and other safety net programs kept millions from falling into poverty. A study by the U.S. Council of Economic Advisers estimates that the boost in safety net spending – some of it cooked into the design of the programs, some of it driven by Congressional action – held the increase in poverty to a minimum even as the country endured its worst economic slide in a century.


Social spending kept millions from poverty during the recession. Source: U.S. Council of Economic Advisers

But Moffitt also noted that U.S. poverty programs as currently designed aren’t as progressive as might be expected: the “working poor” who earn more tend to benefit the most under the earned income tax credit, while those who earn the least have to rely on traditional welfare benefits. Those tends to be more constrained, and while spending on food stamps did increase sharply during the recession, the state-run Temporary Assistance for Needy Families program did not.

Each program comes with its own set of strings attached – food stamps on what can be purchased, and TANF with work, training and paternity rules depending on the state.

All told, Moffitt said, it seems the programs did their job helping families weather the recession.


Among "welfare" programs, the food stamp (SNAP) program jumped the most during the recession. Source: Robert Moffitt, Johns Hopkins University

But the longer term impact – whether they can lift people out of poverty in any sort of durable way – is a bigger question. A recent study on economic mobility in the U.S. found that the figure has been stuck for a half century – despite a raft of programs meant to help the less advantaged climb the income ladder.

There is, of course, a spirited debate over how – or even if – government should address that issue. Concern over creating disincentives for work – or making poverty “more comfortable,” as Cato Institute fellow Michael Tanner puts it – remain strong. There’s research suggesting the work ethic effect is not large. But in a U.S. context, the politics of poverty remain divisive – clouded historically by racial and demographic dynamics along with disagreement over the economics.

Brazil confronted a similar political landscape when it began discussing a broad assault on poverty more than a decade ago. The poor were predominantly black, clustered in the north, and uneducated. There were strong arguments that simply giving away money would be a massive rip-off for taxpayers.

Plunged into the usual moral thicket, the response was simple: forget about all that. Though controversial, the government a decade ago decided that any family under the poverty line would be given enough money to put them over it.

The transfers, which now go to 14 million people families, has helped decrease income inequality in the country – incomes for the poorest are growing faster than Brazil’s top earners.


Incomes for the poorest in Brazil are growing faster than for the wealthiest. Source: Government of Brazil

The money is loaded onto a magnetic card once a month and turned over, in almost every case, to the woman who has custody of any children – a bit of social engineering that follows what has become an article of faith in development circles regarding who manages money better and looks out more fully for the interests of the kids.

But there are no strings on how the money is spent. There are no restrictions on whether husbands or adult sons or male relatives are counted for purposes of determining the family benefit, or tracked down for purposes of paying support or establishing paternity. There are not even demands that beneficiaries look for work – though there are training options available and they are being expanded, Campello said.

“The idea is that poverty is not a one dimensional concept,” she said. “These people are not losers. They did not have opportunity…They are poor in many ways” – from low education to a lack of neighborhood services like housing and sanitation to inadequate job options. In a large country with massive infrastructure needs, solving all of those issues is a long-term venture.

For the individual family, “income is the easiest criteria to move…Start with income and then solve the other stuff.”

The only requirement, really, is that the kids go to school – and attendance requirements are set that are stricter than the truancy laws in place for other families.

After a decade, follow up studies show falling infant mortality rates for the families involved with the Bolsa program; and, remarkably, poor kids are now performing above the national average in high school.

Poverty in Brazil, of course, is of a different magnitude than in the U.S. For purposes of the Bolsa program, the poverty line adopted is the one used in the Millenium Development Goals and set by the World Bank as a global minimum -- $1.25 per day per person, which, in Washington, say, isn’t even subway fare.

And the full tale in Brazil is not yet told. The returns after a decade look good. But Campello said the country is only now starting to study whether children of Bolsa families are going on to college in greater or lesser rates than the rest of the country, how they are faring there, and what kind of success they are having in the labor force.

It may be a few more years before those questions are answered, which will determine whether Bolsa Familia is advancing economic mobility -- providing a self-sustaining lift to families and individuals -- or simply providing a permanent crutch.

But it is an experiment that may provide lessons about incentives, and the effect of focusing more on the health and education outcomes of children in poor families, and less on the specific structure of the benefits given to the adults responsible for raising them. It is worth watching, even from here, given the developing sense that the path out of poverty is, perhaps, narrower than it used to be.

 

 

 

 

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