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Conference Call on Mobile Finance, Cash Grants, and Poverty Relief

Speakers: Rodger Voorhies, Director of Financial Services, Bill and Melinda Gates Foundation, and Christopher Blattman, Assistant Professor of Political Science and International Affairs, Columbia University
Presider: Gideon Rose, Editor, Foreign Affairs, and Peter G. Peterson Chair, Foreign Affairs
May 28, 2014

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ROSE: Hi, everybody. Gideon Rose here, editor for Foreign Affairs. I'm really happy to be doing this call today. We have two great experts with two great pieces (ph) on a really interesting subject.

So we have Rodger Voorhies, who's a director of the Financial Services for the Poor program at the Bill and Melinda Gates Foundation, who is co-author of a great piece in our March-April issues, "The Mobile Finance Revolution: How Cell Phones Can Spur Development."

And we have Chris Blattman, who's assistant professor of Political Science and International Affairs at Columbia, who was the author of another great piece in our May-June issue, "Show Them the Money: Why Giving Cash Helps Alleviate Poverty."

And the two things that these pieces have in common, I think, are both that they rely on data, and experimentation, and best practices, in trying to bring clear analytical thought to the very important questions of aid and development, on the one hand. On the other hand, they both ultimately sensor on empowering and trusting the poor themselves, the recipients of (inaudible).

And the takeaway that I got from both of them was that instead of thinking of aid in a deeply paternalistic fashion, and denying the agency, or ignoring the agency, of the people who are the recipients, in fact, the most efficient and most effective ways of spurring development and giving aid are often to trust and to enable the capacity and agency of the recipients themselves.

So with that, let's get to them directly. So Rodger, for those who might not have read your piece, just sort of quickly give a quick overview of what you were talking about, and why it's important.

VOORHIES: Yes, thanks, Gideon. Really quickly, we at the Bill and Melinda Gates Foundation see about 2.5 billion people left out of financial services. And we kind of view the poor people are not so much statically poor, but rising and falling out of poverty by their ability to capture opportunities, or their ability to buffer themselves from shocks.

And the (inaudible) of financial services does a great job of helping them to buffer themselves against those shocks, and we hope, take advantage of opportunities when they come along. But (inaudible) are just way too high to reach them with traditional brick and mortar, or bank approaches.

And so we think that the mobile phone, and with some early work going on in East Africa and South Asia, are beginning to show that you can effectively reach poor people with financial services through mobile technology. And it's ending up having nice welfare effects. And so our piece was looking at some of the empirical evidence around that.

ROSE: Now, the people who -- one of the things interesting about your piece, Rodger, was you said, look, even though people are incredibly -- incredibly poor, that doesn't mean they have no funds, or no cash.

And in fact, they do have some, but it's really hard to keep it, and store it, and move it around. And hence, bringing mobile finance technology to them actually can make a big difference.

Chris, you're talking about actually giving cash directly. So why don't you talk a little bit about what your piece was for those who haven't read it yet.

BLATTMAN: OK. Well, basically, a huge amount of what we do in the aid world is give stuff to poor people. And it might be cows or skills, or bags of rice.

And it turns out that giving stuff is really, really expensive, ranging, say, from $300 up to $3,000 to give a cow, for example. And it'll cost you $3,000 to give a cow, you can give out 10 grants of $300 in place of that.

And I guess we don't do that for a bunch of reasons. I think one is the worry that poor people might waste this. Another is that they might become dependent, they might work less. There's also a hunch that giving stuff, or being paternalistic, can work.

And we look at a whole bunch of evidence across all sorts of populations; from migrants, to war-affected people, to ex-combatants, to just, you know, your average real poor. And we find very seldom is it wasted.

We even have evidence -- some of the work I've done is giving it to high-risk street youth and ex-combatants. And if they don't waste cash, nobody's wasting cash.

It spurs work more often than it takes away from work. In fact, it spurs an awful lot of self-employment and own-enterprises. And so you actually see working incomes go up a lot in some cases.

And then the paternalism works very often, a little. But the paternalism is really expensive, providing oversight, or any of the other things. Conditions on cash can often be more expensive than the cash itself. And so it almost never passes any reasonable cost-benefit test.

And so the conclusion is that for an awful lot of aid where we're giving stuff, cash seems like a much -- it seems like a much better way, much more efficient way to give the same amount, or maybe a way to give 10 times the amount, and be more effective without actually changing how much this actually costs us.

ROSE: OK, Chris. This whole thing brings to mind the old exchange between Fitzgerald and Hemmingway, in which Fitzgerald said, you know, "The rich are different than you and me." And Hemmingway responded, "Yes, they have more money."

The implicit assumption, or the explicit conclusion of your piece, I think, and the work that you're talking about here, is that the chief difference with the poor is that they are poor, and that they can be trusted, as it were, if given the money, to use it in responsible ways. And so what they really lack is not skills, or drive, or responsibility, but simply resources, actually fungible resources that they can be trusted to deploy appropriately.

Can you talk a little -- and that's something that's a psychological hurdle, I think, because there's almost that kind of paternalistic view that if you're giving to somebody, that there's some reason why they're poor, they don't have the thing you're giving in the first place. And so really what you need is not just -- that you don't just have more than them, that you know better than they, what they need.

So can you explain a little bit about somebody who would say to you, "Oh, how could we really trust that they won't spend this on irresponsible things? Why isn't it -- we don't just give the poor money here at home. We have food stamps that gives food, so they can't just drink it up, or gamble it away, or use it on drugs, whatever."

Why is it inappropriate to put restrictions to make sure the aid is well targeted?

Blattman: Well, so there's two things I'd say. The first is that what a lot of the -- so the poor live in places -- they often live in places where there aren't firms, they can't get hired to get jobs.

And so most employment is self-employment. And some of that self-employment is farm, some of it is petty business. Usually, it's both. People are -- they have their portfolio of activities, and they're doing a mix of different things.

And one of the big constraints that they have -- they have lots of constraints. One of the big constraints they have is capital. They could grow large, they could put more time into it. They actually have some skills and some abilities, and they can't grow their business, and thus, earn more income.

And so when you give people stuff, this is often an imperfect substitute for capital. You're not necessarily -- you're not -- you know, giving them food and giving them a skills training is just not as -- isn't actually attacking the big thing that's holding them back, which in this case, is some kind of financial capital.

And giving them cash allows them very often to expand the kinds of things that they're doing; grow their farm, move into more cash cropping, become a petty trader, start some other kind of non-farm activity alongside that farm, which is really helpful, because those farms are really risky. And so they -- anything else we give them is just a bad substitute for that thing which they need the most to help themselves in the long run.

But the second thing is we don't even have to believe that they're making as good decisions as the so-called rich. You know, there are lots of reasons, since psychologists and economists show us that actually when you're extremely poor, when you're on the margins, you might actually make bad decisions. Just cognitively, your brain just doesn't function the way we want it -- it might if you were wealthier, and you might make more impulsive decisions.

So if we think that kind of thing is true, maybe they make poor decisions with that money. But even so, anything we do to try to help them make those decisions better is often so expensive that we could probably just pile on more cash. They'd be better off, and it'd be cheaper than all the stuff we can give, because it turns out that sending out experts in big, heavy SUVs with expensive fuel is so costly, that it never really -- not never -- it very seldom seems to pass the cost-benefit test.

ROSE: OK. Rodger, in the finance area, one thing we've all heard a lot about in recent decades and years, of course, is microfinance, and the ability to sort of give budding entrepreneurs in the developing world a start, and get them going.

You say in your piece that the mobile finance revolution has an even broader potential spread, and even greater potential ripple effects. Why is that, and how does it different from microfinance? And why is it even more important?

VOORHIES: Sure. I mean, one of the things that microfinance started out with was the idea that if we gave people loans, it would increase capital, and they would then build their business and employ people. And I think that a lot of the empirical evidence didn't support that, because of some of the stuff that Chris highlighted.

The transaction costs were really high. The structure, in terms of the loans, were really short. And the interest rates were high because of all the costs of delivering those services, and because there was a lot of data that we didn't know very much about the financial lives of poor people. And so they paid extra interest rates, because they were viewed as risky.

And all of those costs together made it really hard, and really short-term loans, to actually use that as capital to invest. And I think that as we looked at it, the Bill and Melinda Gates Foundation, where we came to the conclusion, is that financial services matter, but way more holistically.

The savings really matter as a way to protect people against risk, and to buffer them. If you're a small holder-farmer, you get paid at the end of the year -- at the end of harvest, rather -- and we expect you to hold that cash in your pocket for a whole year, and have enough money for seed and fertilizer? That's just unreasonable.

Insurance, there's some interesting information that insurance may matter; that in Ghana, that they gave people both grants and a loan, and those that had access to insurance, as part of the study, invested more in their farms, a couple hundred dollars more, which resulted in better nutrition and better days in school.

So we actually view it more holistically. And we think that moving to mobile and to digital can cut 90 percent of the transaction costs out, and help people in ways that right now are just too hard to do with physical cash.

ROSE: Let me stick with Rodger for a second here for a follow-up. The mobile phones seem like a very first-world, cutting-edge technology. And is that really -- is the spread of them in the developing world, among the desperate poor, really great enough at this point to make this have a significant impact? And is this really a kind of -- it sounds like you're talking about the most sophisticated technology in the world for some of the most unsophisticated users in the world.

VOORHIES: Well, I think that's one of the things that we're pretty excited about. So right now, according to the World Bank, mobile signal now covers some 90 percent of the world's poor.

And there are, on average, around 89 cell phone accounts for every hundred people living in a developing country. So the penetration rate has been huge, and even more so than other kinds of development efforts.

The mobile phone has reached all the way down to some of the poorest people in the world. And it's a real high priority to them to get access to a phone, because it helps them keep -- stay connected. It helps them actually understand prices in markets, to stay in touch with friends, to get information they otherwise wouldn't have.

And it goes a little bit to the question that, Gideon, you raise to Chris, which is this idea that poor people should have greater control of their own lives. And when they're given that, they can make some really good decisions, because we all come from a world of abundance, and they come from scarcity.

So as Chris rightly pointed out, they are cognitively taxed, right? They sometimes make bad decisions because there's no slack in their lives. So every decision they make matter immensely. But from all the years that I lived in Africa, poor people make incredible decisions every day, and optimize every day.

And that's why we see them sometimes even sell food they receive in order to get cash, because they allocated in ways that fit the need they have. So I think mobile adoption has been a priority for them, because it works for them, and it helps them buffer them against these risks, and it helps bring advantages to them that being isolated don't.

ROSE: OK. So I think one of the things I liked about these pieces is they came together, the sense that if you had the spread of mobile finance, it'd be a lot easier in some ways for people to process the kinds of cash transfers that Chris was writing about.

In the absence of that, Chris, can you talk a little bit about how the potential for the money being siphoned off, or how would the actual mechanics of giving cash work, and why wouldn't it be ripe for corruption, or something like that?

BLATTMAN: In the absence of the financial technology? Well, so I think what it comes down to is how much do -- if you're an aid donor, if you're a rich country giving to a poor country, how much are you willing to pay to avoid that corruption?

One of the organizations I worked with wanted to give grants of $150 to some of the poorest women in the world in small, rural villages in Northern Uganda; women who'd been affected by the war, and displaced, and returned home, and were just recovering from the conflict.

And they had no tolerance whatsoever for corruption. They wanted to make sure that none of the money landed in the wrong hands, and that none of the women made any bad decisions, or had that money diverted. And they were able to ensure that.

They were really careful about who they targeted. They verified them. They went to the villages, and they hand-dispersed the cash, the very trusted staff, and so on, and so on. And to disperse this grant of $150, it cost them an additional, I'd say $200 to $300, depending on how you cut up the numbers.

And so the question is, how much would we be willing to let that money be misused, or diverted, or corrupted, before we -- you know, how much are we willing to pay for that? How much would we rather trade off between helping one more -- wouldn't we rather help one more poor woman, and tolerate a little bit, maybe 5 or 10 percent of corruption?

And we actually -- we're so unwilling to experiment with that as organizations, to sort of test that out and see what happens. Because the penalties in the rich world of having that kind of corruption, or having this put out in the newspapers, is so high that we might be helping a third of the poor women we could be helping if -- in a program like this, because of our zero tolerance.

And so we have a zero tolerance for corruption, but we don't have zero tolerance for two to three poor women going unaided. And I just think that's the wrong balance.

ROSE: That's a great point. The -- what kind of reactions do you get when you present these kinds of findings to aid organizations? I know that you are (inaudible) organizations.

I know that there are lots organizations that track this kind of stuff, and you're basically saying, "You guys shouldn't exist," or, "We can just cut you out, and flatten out the whole aid system."

And, you know, why should large NGOs exist in the international aid sphere if what we really just need to do is send a check?

BLATTMAN: So the reactions, of course, range all over the place. The reaction you don't often get is, "Oh, this is going to put us out of business."

I think that -- maybe it's just occur to people first. Maybe it's inconceivable, because -- and you can always do something. There're always going to be services where professionals can add value. (Inaudible) NGOs and government agencies can still do the -- cash does not.

I think the reaction you get, sometimes -- very often, people have a gut reaction against. They're worried about some of these things; that it would be wasted, that people are going to become dependent, that it'll inflate the economy, and so forth.

And these all have degrees of legitimacy. And, frankly, before we had some of this evidence, I was on their side. Even -- and you know, a perfect example is talking to my wife on the weekend, and I thought, why do we give money to -- why do we give money every month to the New York Food Bank, City Harvest, instead of handing out money on the street to people who are panhandling? Even me, who's like the evangelist for cash transfers. So we're all susceptible to these things without evidence.

ROSE: What's the answer (ph)?

BLATTMAN: Well, the -- what's the answer to what?

ROSE: Why do you give money to the food bank instead of...

BLATTMAN: Oh, why don't I give -- well, it's a different population. I guess -- I guess I have this hunch that when you're poor in Africa, it's pretty hard not to be poor in Africa. Just everything's stacked against you, and most people are poor, and most people are able -- I think most people are able to make good decisions with money.

And I do think that there's some small percentage of the population that can't make good decisions with money. And I'm hesitant to give money in those circumstances, especially because it can lead to harm. And the margins of poverty in a place like New York are -- unfortunately, they're not as small as they ought to be, and they're certainly higher in recent years than they've been in the past.

But I worry that the poor in New York, in those extremes, is that they are different. And there might be harm as a result. But I could be wrong, and if I -- and if I -- and anyway, since I'm looking for research projects closer to home now that I have two small kids, this is -- it has occurred to me that this would be an ideal thing for me to investigate, to sort of query myself, and test my own instincts.

ROSE: We've got some great people on this call, and I'd love to get them in as well. So I'm going to throw it open for questions now. I've got a lot more things that I can ask if people aren't jumping in. So right now, let's turn it over to our participants, Operator, and ask for their contributions.

OPERATOR: Yes, sir. At this time, we will open the floor for questions. If you would like to ask a question, please press the star key, followed by the one key on your touchtone phone now. Questions will be taken in the order in which they are received.

If at any time you would like to remove yourself from the questioning queue, just press star-two. Please try to limit your questions to one at a time. Again, to ask a question, please press star-one.

We're currently holding for questions at this time.

ROSE: OK. I'll take one while people are getting up. Guys, I want to ask a (inaudible) question. We all think we know stuff about aid, we all have opinions about international charity, just like we have about domestic charity, the poor, and so forth.

Both of the pieces rely on work that is really new in the sense that it represents a kind of fundamental change in how we study these subjects, the empirical work, experimental work. Chris, you were at the cutting edge in political science now doing experimental work, trying to basically test out various kinds of things.

Do the recent things we're learning from the spread of this kind of work fundamentally overturn what we thought we knew, and are we only in the early phases of learning about things like development, because until recently, we've never done this kind of work before?

BLATTMAN: Is this question for me?

ROSE: Either one of you, or both?

BLATTMAN: Why don't you go ahead first?

VOORHIES: Go ahead, Chris.

BLATTMAN: OK. So yes, I think -- I think this is -- let me think of an example. You know, a good example, I think, is microfinance. I think, you know, we should never be surprised that some of the grandest claims of microfinance were not fulfilled. Grandest claims never are.

I, for one, was deeply surprised that we've seen it -- we've seen this phenomenon, something that's been taken up spontaneously almost by billions, yet has -- and it has been very useful in some sense, but we haven't seen any evidence that it reduces poverty systematically, and very little of it, (inaudible) spurring entrepreneurship and helping poor women grow businesses, and all the exciting claims that got it not just -- brought it some excitement, but even a Nobel Prize.

And so, in some sense, it took the darling of the (inaudible) and it brought it down to earth in a -- well, much further than any of us thought it would fall, I think. And cash transfers are a little bit of the same example.

I don't think people -- I don't think people are quite as surprised that this is useful. Of course, it's useful. Give people more stuff, and they do better. This is sort of an easy equation.

But it's -- but it could have turned out the other way, we just didn't know. Do poor people blow -- do men in poor countries blow half the cash on booze? That was entirely possible.

And it was an empirical question. And we've asked it in a bunch of different places, not enough. We still need to ask it in a few more places. But we've asked it in enough places, (inaudible) that actually -- it really seldom happens. And so that's really important.

So sometimes it's not just about overturning, like some collective wisdom, which we all like to -- you know, it captures our imaginations. But it's just a thing, there's things that might or might not be true, could do in either direction. We just need to know which way.

ROSE: Rodger, do you think...

VOORHIES: Go ahead, Gideon.

ROSE: No, no, I was going to say -- I'm sorry. I was going to say Gates does a lot of internal experimentation, and changes its course of things every once in a while. Do you guys try to incorporate this kind of work and analysis in your own programmatic operations?

VOORHIES: Yes. In fact, right before we had the call today, we had a meeting where we were looking at our research agenda going forward.

And the kind of A/B (ph) testing and route-of-control (ph) tiles that Chris and others were referring to, are incredibly important for shaping the work we do, and where we put our investments. And it's -- I'm not sure it overturns all the things we know or didn't know before, as much as it helps focus what's most effective, and what delivers the empirical results, or the welfare effects on the ground.

And I think that it's not just new technology and the research techniques, but at the Gates Foundation, a lot of this technology helps us do some things that, before, were just really complex and hard to do, like knowing who's poor, and what are the things that technology allows us to do with GPS locations, or with social-network mapping, that you can do with your mobile phone electronically.

You suddenly have a great advantage in understanding diffusion of innovation, understanding who has attached (ph) roof, who has a metal roof, from satellite imaging, so that you can target people more effectively. That just takes huge efficiencies that, before, you had to do with thousands of people walking around the streets interviewing people. That is something that you can do much more effectively, and more quickly.

And so I think this research not only helps us understand what works, and where to be putting initiatives, but it also helps us from a technological point of view, that technology helps us make better decisions, and more predictive, rather than just descriptive analytics.

ROSE: That's great. Operator, do we have any questions in the queue?

OPERATOR: Yes, sir. And as a reminder, if you'd like to ask a question, please press star-one. And our first question comes from Deborah Forensin (ph) with the Bank of New York Mellon.

QUESTION: Yes, hi. Actually, my name is (inaudible), representing Deb. Quick question with regard to digital payment, and things like Bitcoin and Ripple. What effect do those have on kind of -- on this type of topic around dispersing funds to the poor?

VOORHIES: I'll jump in. Hey, we're doing a lot of work, and we're actually going to pull together a small convening on what our both some of the distributed technologies that make Ripple and Bitcoin, and others like that work, as well as the currencies themselves.

I think we, the foundation, don't have an opinion on it. We think there is some really interesting possibilities for lowering the transaction cost for payments, especially cross-border payments, which are -- tend to be very expensive, and hard to manage for most low-income people with lots of rent, being sort of stuck out by different providers of that.

So we're looking at it more closely. We think there's some interesting possibilities to this blotching technologies. We have a little trouble imagining new currencies, because stored value, they've been volatile. But we're actually trying to gather more research right now and understand what we think the effects are.

OPERATOR: OK. Again, if you'd like to ask a question, please press star-one.

ROSE: I'll take one while we're waiting, guys. Chris, you talked about how the thing that direct cash transfers can't do is provide collective goods. So can you give me an example of things that aid agencies, or governments, or non -- that individuals can't do for themselves, that still leads (ph) to provide in some kind of collective way?

BLATTMAN: Well, I mean, a classic example would be roads, or schools, or even security or justice. These are things that most of the time states provide, or at least communities provide. And cash isn't the binding constraint.

So it's not that cash is limiting your ability to provide justice or schools. Of course, it matters. But it might not be the number one, two, or three thing that matters.

Another interesting example -- I'd be curious what Rodger thinks about this -- insurance, in the sense of -- in the sense of the financial access for the poor. There's an interesting study in Ghana, that went to farmers and gave them cash, and the cash didn't -- didn't really have any impact on their income or their business growth, or how well they did as farmers.

But when it provided cash and insurance, they did extremely well. And it basically gave them some sort of indirect (ph) insurance for rainfall. And the idea is that it's not just -- it's not just that people are limited in their ability to grow their enterprises by the absence of capital, and the fact that they can't borrow it cheaply, which is the problem that -- that Gates Foundation and others are trying to solve.

But it's that even if they get access to that capital, they don't have any way to insure against all the incredible risk that comes with any kind of business, including and especially farming. And that strikes me as something that isn't easy to solve. Technology's an ingredient, but individually, this is a really hard problem to solve, in that it might needs states, or organizations, or foundations, or communities to come together and fix.

VOORHIES: Yes, thanks, Chris and Gideon. So we were pretty excited about the study that came out in Ghana. And it wasn't just that they invested with -- the insurance help them cut the downside risk, but it changed their behavior, that they invested more in their farms, and then actively ended up with some impact both on nutrition and on other aspects of household welfare.

As we looked at it, we're pretty excited about it, because we do think there's this intermediation role to spread risk more broadly. And that's really hard for individuals to do, right?

So individuals that buy -- they self-insure all the time, right? If I have a crisis, I loan people money in my village, and that is part of self-insurance, because then they are going to owe me money when I have a crisis, and help me. But that risk pool is way too small, and way too risky, because we tend to face the same kind of risk as everyone else in our village.

And the ability to spread that out through insurance from a developmental point of view, take some infrastructure, take some technology, and actually fix (ph) the role of larger institutions and what an individual can do on their own. What we're now trying to figure out is, because there's been a lot of sort of one-off work in micro-insurance, what actually works, what doesn't work, how does the mechanism work, and how do we effectively reach the poor with something they can afford that's also useful to them?

So we're excited about it, but it's still early days, and we're trying to actually get to more research out, to understand if it's an area where we should be focused more.

BLATTMAN: And one of the things that worries me about the whole NGO and humanitarian and development sector, when you think of all these organizations, is here's something that we think is just a first-order problem, is the absence of insurance, and that it's something that cash and -- it can be decentralized. Cash can't fix it.

There's a role for international organizations and development agencies to play. And it just doesn't seem to be on the radar screen. Maybe you have a different perspective than me, but I've yet to encounter the person in the field, or the person, head office, who sort of sees this as -- he's either aware of the problem, or even thinks of it as something in the top five or top 10 problems of (inaudible).

ROSE: So let me ask you guys a question, because I find this all very, very interesting, and with having really deep implications, not just for -- I mean, in one sense, there's a very, very specific practical set of implications of both of your work, in both of the stuff that you wrote on. But there's also really interesting larger implications.

I mean, in some ways, when you give cash, when you facilitate mobile finance, you are bringing people into the market. And in effect, you're facilitating market operations. And yet, we're also talking about how there are government needs and public goods needed to be provided. And then we're also talking about the development sector with NGOs doing philanthropic stuff, and a sort of civil society aspect.

As countries move forward and move up the developmental chain, as some of these places in Africa that we're talking about start to develop, as the cash gets into the hands of Chris's poor people, and Rodger's people with their mobile bank accounts, what is the proper or appropriate roles of government and public institutions on the one hand, private sector and market institutions and operations on the other, and civil-society NGO philanthropic institutions on the third?

And does that balance change over time? Does that balance change over time among the different sectors as you go up the -- as the country goes up the developmental ladder?

VOORHIES: I mean, Gideon, what we've been saying at the Gates Foundation right now is that government has a huge role to play in a couple areas. I mean, if you think about access to financial services being important, and there's something inherently -- that resonates with all of us, that we know the financial sector is important, that that sector's got to reach down to poor people, where 77 percent of people who are low-income in developing countries are left out, that connection into the formal market is going to be super important.

But right now, regulations keep that from happening. So know your customer regulations that require complex I.D., or require documentation of someone to prove where they live. Those actually raise the hurdles of delivering services to the poor that actually keep people out of the system.

So by having low-income people in the system, we actually think it de-risks the financial system, rather than make it more risky. So why wouldn't we have poor-friendly regulations that would drive them in?

Or we have conditional cash-transfer programs in certain countries that require the person to cash out, even if they get paid electronically. Why wouldn't we want them to save that money? Why do we want them to cash it out?

So I think that through the work that we do, and some of our partners, like the Better Than Cash Alliance, are finding that you can not only improve the efficiencies, but government can actually reach people in ways that they didn't ever do before, simply by relooking at regulations around what's poor-friendly and what's not.

And so we think there's a real role to play, both at the international level, and at the domestic level.

ROSE: Chris, what do you think about the relationship among the different spheres?

BLATTMAN: Well, you know, it's interesting. What's going to happen as countries get richer, means the people are working more and more for firms, and less and less for themselves. And most people like that tradeoff.

I'm doing this interesting thing in Ethiopia, where people have applied to factory jobs. There's a huge number of textile and other companies that are opening up there. I think they're poising for -- waiting for wages to go up in China so they can move operations there.

And when people didn't -- people could get the job, but there are obviously more people who're applying, who are getting the jobs. And so we actually convinced a few factories to let us randomize who got the jobs. So we're doing an experiment of whether or not you get this factor job or not. And if you don't get the job, you actually have a 50 percent chance of getting a $300 or $400 cash transfer.

And so we're running this horse race between cash transfer and their own enterprise development, and the factories. And we're -- we've only got data from four of the factories, and we'll have the rest in a few months.

But the early results are surprising to me. I thought that this -- I thought the factories were going to basically push away poverty, people were going to do extremely well. And in fact, people who -- people mostly don't like these factory jobs, they mostly quit. And when they stay, they're generally less healthy, less educated, and no wealthier than they were -- than not having a factory job. And the people who got the cash transfers are doing much, much better.

So what does this say? Well, I don't think -- I think if we're concerned about, you know, reducing poverty, improving the welfare of all citizens, as countries in Africa industrialize, which is bound to happen, I think you want to balance -- I think there might be a balance of making countries attractive for factories to come and open. You want to be the next destination for these Chinese factories, and you want to provide jobs for your citizens.

At the same time, you don't want these jobs to be no better, or potentially even worse than what's currently on offer. And so how do you do that? I think it means you try to make your -- your investment climate and the cost of doing business there as low as possible without -- without scrounging on the margin of benefits to workers, and rules respecting, you know, workers' rights, and even just some basic protections.

And if you can -- and if you can keep the other costs doing business low in these countries, or improving, I think that's -- that's an area where you can actually ramp up regulation or oversight, and actually, potentially have the best of both worlds. But that's not -- that's not what's happening in Ethiopia right now, much to my surprise.

ROSE: Sorry, Rodger, you want to jump in?

VOORHIES: No, I'm just going to take it back to, as we think about cash transfers, and about people's control over their own lives, one of our focuses in this area is that we actually think financial services and the ability to save gives people control of their own money in ways that they don't have before.

And so while cash transfers are important and efficient, one of the studies that we are particularly interested in is to show that when small holder farms have the ability to save from one season to the next, they actually increased their investment in new seed and fertilizer. And in Malawi, that had a 22 percent increase in revenues and a 17 percent increase in household consumption after the harvest.

So cash transfers are incredibly important to certain segments of the society, but access to financial services also provide the ability for people to help themselves in a sustainable way, even when that cash transfer goes. And so the fact that they can save, and invest, and grow, we think is incredibly important. And we think the only way to get there is with digital.

So to Chris's point, in the long run, getting a job is the main reason why people get out of poverty. But small holder farmers are incredibly important in that process when we think about intergenerational poverty, and education, and access to real differences of household level.

ROSE: You have some very practical people on the line here, guys. You have congressional staffers, you've got corporate honchos, you've got a lot of other types in the power elite, as you might say. What are the very specific practical takeaways they should be getting from this kind of work?

BLATTMAN: Rodger, why don't you go first?

VOORHIES: Yes, no. I was thinking through, wow. So a couple of things that I would recommend. One is that learning to transport people to make good decisions about their lives is really important.

I also think that moving from cash to -- moving from physical goods to cash, while it's important and appropriate in some areas, when you have a country that's doing conditional cash transfers, or even unconditional cash transfers, which I also think are effective, let's see if we can move that from physical to digital.

I mean, one of the studies that came out in Mexico in the last year is that by moving to an electronic system rather than a physical system is saving over a billion dollars a year for the Mexican government. We recommend -- we've actually done a study with McKenzie that if the Indian government were to do the same, it would save $22 billion a year, which would fund them a lot of development aid.

So one practical thing is to move from physical cash, when you're giving it, to make it digital and electronic. I think the other thing is to re-look at how we view risk of the financial systems, that if we're going to -- if we're going to bring new ways to reach the poor, and it's going to require changing some regulations on know your customers, changing regulations on who's in the system, and what it takes to participate for a low-income person.

And from a practical point of view, U.S. Treasury and other kinds of organizations that the U.S. has relationships with, help define those rules. And I think thinking about a pro-core agenda actually gives us visibility and connectedness to people right now who are completely invisible and outside the system.

So we would say that re-thinking some of those regulations would be appropriate as well. I'll turn it over to Gideon, you and Chris as well.

ROSE: Chris?

BLATTMAN: I guess, so the first point is I would say we don't -- to be -- basically, we could be five times, or even 10 times, as effective with the money we're already sending overseas if we did two things; if we focused more on cash, not stuff, and as Rodger just said, if we focused on digital, not physical. We don't have to dramatically increase our aid commitments to be dramatically more effective.

The second thing I'd say is all this cash-transfer business is really just an interim fix. The two things that matter are jobs, meaning industrializing, and getting low-cost financial access, which is the long-term goal that Gates is focused on.

If it were -- if you could borrow at 10 percent a year for several years as a poor business person with a good idea, then we wouldn't need cash transfers for most of the cases we observe. We wouldn't -- we wouldn't see business growth when we give cash, because people would have already grown their businesses with that (ph) access to capital.

It's not that -- that's not the only problem, but that would be a big part of the way. And so this is just a -- you know, as much as I like to, you know, preach the gospel of cash transfers, it's really -- it really only works because these two other big things don't in Africa, and other places. And so those are where we want to keep our eyes in the long run.

ROSE: That's great. Let me just ask one last worrisome question. You know, there was a famous study -- maybe it's (inaudible), but I think it was real -- that said that when they wanted to do certain kinds of mixes for instant cake-baking and things like that, when they made it too simple, some of the customers rebelled because they wanted to think they still were cooking. And so they had to put in things like put the egg, break an egg into the bowl with the cake mix and so forth, to make it seem like you're cooking.

By turning everything into cash transfers -- this wouldn't apply to digital, but certainly for cash transfers -- do you make the act of giving seem to tacky and transactional, rather than sort of uplifting and moral, instead of giving a cow, or teaching somebody how to fish, you know, rather than giving them the fish, or giving them the cash? Now, you're giving them the fish, you're giving them the cash to buy the fish.

It seems to be cutting against a whole lot of positive emotions on the part of the giver, whether it's an individual or donor government. Do you worry about that, Chris, and to a certain extent, Rodger, and that in effect, what you'd be doing is turning this into a purely technocratic and efficient operation that wouldn't motivate people to do the kind of giving that you would want them to be doing?

BLATTMAN: Well, I didn't until now. But that's actually a good point.


ROSE: I mean, if I proposed to my wife, "Oh, I don't know what my nephew wants for his Bar Mitzvah, let's give him the cash," she'll say, "Oh, what kind of person gives cash for a Bar Mitzvah? You're a horrible person," right? "Let's think of (inaudible) for him."

BLATTMAN: Yes. A lot of the initial giving -- a lot of the initial giving is already in the form of cash at least, whether it's private giving from families, or money from one government to another. It's starting off in cash before it gets turned into stuff.

So keeping it from getting turned into stuff might not -- that's maybe easier than the giving cash, for the Bar Mitzvah case, to solve. I'd like to think that there are enough -- there are enough other things that NGOs can do well, and do cost effectively, that they can do that are either complementary to cash, or they can do it the same time.

And so there's no danger of crowding out the usefulness of, you know, goodhearted people acting in the world. But changing your mindset to sort of thinking about that denominator, like how much -- what you're doing, and all the benefit you're giving costs, is a really, really, really, really hard change of mindset for the average person out there working in one of these organizations.

It's one that hasn't -- some people are averse to it. But more importantly, most people haven't even thought about it. And if people just -- if we did nothing else than just make people start to think about that denominator, how much everything costs when they're providing some benefit, rather than just talking and thinking about all the good they're doing, that would -- that would alone be an enormous, enormous change.

ROSE: OK. Rodger, any last thoughts?

VOORHIES: Yes, Gideon. I would say that the development is complex, and that reaching for people with services, whether they're health, or agriculture, or financial services, there's a lot of infrastructure, and there are a lot of things that we need governments to do, that we need NGOs to do. I think what Chris is arguing, and what I think is right, is that giving cash can be way more effective than other ways we're delivering the same kind of services and physical goods.

What I would want people to walk away with is that -- is that the overall story in the last decade, is I believe in the last 10 years, the number of people living in absolute poverty has fallen in half. And that's incredible. And that's partly done to real efforts by all the people who are listening to the call, and the work that many governments have done.

So I think I'd want people to walk away with a couple things; that it's not hopeless, real change is happening. Two, to really begin to realize that poor people make good decisions, and they have resilience, and that we need to trust them and not blame them for being poor, but give them control over their own lives.

And thirdly, that we need to invest in a way that builds infrastructure for them to take advantage of. And those are both public good, and those are both access to services that they can't get on the health and agricultural side, so that they can actually begin to have more agency and control for themselves.

So I think it's not the Betty Crocker mix. It's not that I don't get to cook. It's that, how do we help poor people cook for themselves, rather than in the long run, expecting us to cook for them, and then pre-deliver the cake to them?

ROSE: Rodger Voorhies, Chris Blattman, all of you on the call, thank you very much. Great stuff. We're going to continue to follow this kind of field in general, and these questions in particular, in the magazine and on the website. And so we look forward to future conversations with all of you. Thank you very much.

BLATTMAN: Thank you.

VOORHIES: Thanks very much, Gideon.

OPERATOR: Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.

END

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