Argument

In Defense of the Handout

Are conditional cash transfers really the silver bullet to raising countries out of poverty?

The International Monetary Fund (IMF) just issued a major report warning that rising levels of income inequality are threatening to undermine global economic growth. In places like the United States and South Africa, the top 1 percent of earners continue to disproportionately expand their wealth, as Latin America and sub-Saharan Africa remain the most unequal regions in the world. Prominent among the handful of steps advocated by the IMF to more efficiently redistribute income and wealth is a plan that is sure to raise some eyebrows: giving cash directly to the poor.

While using what economists and development experts call "conditional cash transfers" to combat poverty and reduce inequality has gained enormous momentum over the last decade (and a huge degree of hype in places like Kenya and Uganda), it still strikes many casual observers as profoundly counterintuitive -- particularly coming from traditionalist institutions like the IMF and the World Bank. After all, doesn't the idea of simply just giving money to the poor run directly in contrast with the old axiom about teaching a man to fish? (This, after all, has been the guiding rule of engagement under which the IMF and most aid agencies have operated.)

But there's a good reason why these institutions are holding conditional cash transfers in high regard. For one, the lessons from the use of cash transfers over the last decade suggest how profound our own misconceptions about poverty, development, and entitlements have been. In discussions about poverty -- whether concentrated in the United States' inner cities, small African villages, or Brazil's slums -- there has always been a strain of thought, particularly among conservatives, that the poor somehow deserve to be poor because of bad work habits or a reluctance to pull themselves up to a better existence. Republican Congressman Paul Ryan landed in hot water just last week after he suggested that urban poverty was driven by "generations of men not even thinking about working or learning the value and the culture of work."

The use of conditional cash transfers exploded into view a decade ago when Brazil established the Bolsa Familia or "family allowance" program, modeled on a much smaller pioneering Mexican program. Families below a set two-tier poverty threshold (with incomes, currently, of about $60 and $30 a month respectively) are given a yellow Bolsa Familia debit card, and the government credits this card with a set amount of money each month (roughly $13-$127) depending on variables such as the number of children in the home. The program initially targeted 3.6 million families in 2003, and covers over 12 million families today.

Predictably, the program was met with a firestorm of criticism when it was established in October 2003. Otaviano Ferreira Martins, a mayor from the Brazilian Social Democratic Party, complained, "The danger is that it will leave the people addicted to handouts." Others, such as popular conservative blogger Reinaldo Avezedo, said that the plan would encourage poor women to have more children to receive greater monthly payments.

Bolsa Familia was designed by Brazilians who understood the specific context of their own country: a geographically diverse nation with more ATMs (159,898 at last count) than any other country on Earth, but a large number of people living in extreme poverty when the program was launched. The goal: to ensure that no Brazilian lives on less than $1.25 a day, the currently accepted international threshold for extreme poverty as defined by the World Bank.

Brazil ties very specific strings to the money, not as a punitive measure, but to better position it to invest in the future. Wherever possible, in accordance with the cultural belief that women make better decisions about investing in the future of their children, the matriarch of the family is given control of the debit card and 90 percent of the beneficiaries are women. If families fail to have their children attend school on a regular basis, don't get them vaccinated, or miss regular medical checkups, payments are suspended. All Bolsa Familia beneficiaries are centrally registered and publicly listed on a government website.

The results have been dramatic. A 2013 study by The Institute of Applied Economic Research estimated that Brazil reduced extreme poverty by 89 percent over a decade, lifting 36 million families above the $1.25 threshold during that time. In just five years, the program helped reduce infant mortality rates by 20 percent. The high school completion rate for poor families that stay in the program is now actually higher than the national average, a stunning accomplishment. Brazil's immunization rates are on par, and in some cases better than, those of the United States. All of Brazil's major political parties now support the program.

With more resources, and more predictable resources, numerous evaluations have found that participants of Bolsa Familia appear to be making strategic decisions to invest in the future of their families. Mothers with a bit of extra money from the program are more likely to buy food, shoes, and school supplies, rather than waste the money on things like alcohol or luxury items. And, contrary to the old conservative line about welfare mothers procreating to engender better benefits, the number of births per woman in the lowest income category dropped 30 percent, significantly faster than the national average. According to Brazil's National Household Survey, the program has not discouraged work.

For all its success, however, Brazil's program is not without its problems. Some left-wing critics, such as Lena Lavinas of the Institute of Economics at the Federal University of Rio, for example, have been critical of the program for not doing enough to alter the fundamental dynamics that drive income inequality. But despite its detractors, conditional cash transfers quickly became the hot new approach in development.

One of the early champions of the approach was Nancy Birdsall, the president of the Center for Global Development who argued in 2004 that, '"these programs are as close as you can come to a magic bullet in development." High praise indeed. In 2012 alone, more than 120 different delegations from around the world visited Brazil to learn more about Bolsa Familia, and more than 30 countries now have some form of conditional cash transfers in place, reaching 750 million to 1 billion people around the globe.

But if conservatives were too skeptical of cash transfers, development experts and politicians run the risk of being too enthusiastic. With all things in development, the design of these programs is crucial. An effort by former Mayor Mike Bloomberg to import the conditional cash transfer model into New York City fizzled after a three-year pilot, in part because the program was built to reward school attendance -- but school attendance was already high. In addition, the New York program rewarded improved test scores, but didn't do much to help those students achieve those higher test scores. The New York program paid for performance rather than participation, but raising overall achievement is complicated.

As an excellent review of the impact of cash transfers by the British aid agency Department for International Development (DFID) makes clear, cash transfers can be enormously powerful in driving up the numbers of people able to access key social services like schools and health systems, but the power of such gains are muted if a country isn't able to simultaneously improve the quality of such systems. It doesn't do a country much good if it gets everyone to go to school but the schools are still lousy. Along the same lines, the Overseas Development Institute found that cash transfers weren't very successful in actually lifting families out of poverty in a lasting fashion unless they are coupled with other efforts such as vocational training. The New York schools program probably would have worked better if it offered students mentoring and other help alongside the cash payments.

The relative success of conditional cash transfers has also encouraged policymakers and NGOs to experiment with an even bolder idea, unconditional cash transfers, i.e., giving money to the poor with no strings attached. The jury still seems to be out on the long-term effectiveness of this approach.

At the end of the day, this idea of giving cash to the poor has changed the debate because these programs -- when well-designed -- can be cost effective, help break inter-generational cycles of poverty, and promote greater economic equality. But with big money rushing into these programs, and their backing by the IMF and the World Bank, it is perhaps best to paraphrase former U.S. Speaker of the House Tip O'Neill, and remind practitioners that in the end all development is local.

VANDERLEI ALMEIDA/AFP/Getty Images

Argument

Beware the Tax Man

Is this mild-mannered corruption fighter the most dangerous man in India?

For many Indians, their country's most exciting politician is neither the firebrand Hindu nationalist Narendra Modi nor the Nehru-Gandhi dynasty scion Rahul Gandhi, but Arvind Kejriwal, a mustachioed, bespectacled former tax inspector whom most people had barely heard of just three years ago.

In February, Kejriwal resigned as chief minister of Delhi just 49 turbulent days after he took office. Freed from the daily grind of running a megacity of 17 million people, the 45-year-old former anti-corruption activist can now concentrate on pole-vaulting his fledgling Aam Aadmi (Common Man) Party into Parliament in national elections in April and May. Although most polls suggest AAP will win fewer than 10 of the 543 seats up for grabs -- coming in far behind the opposition Bharatiya Janata Party (BJP) and the ruling Congress party -- campaigning is far from over and the party has proved naysayers wrong before in Delhi.

Kejriwal's supporters see him as a squeaky-clean outsider who will transcend narrow appeals to caste and community to banish corruption from public life. For them, he stands for qualities all too rare in Indian politics: merit, courage, and simplicity. His detractors see instead a slippery opportunist less interested in governing than in grandstanding for the cameras with outlandish protests and florid allegations against top politicians and businessmen. For them, Kejriwal stands not for the promise of clean government but for the certainty of chaos.

Both versions contain an element of truth. And indeed, even if his party ends up with just a handful of seats in Parliament, Kejriwal's everyman appeal, guerrilla campaign tactics, and relentless attacks on graft may end up transforming the face of Indian politics. In the end, however, the evidence favors the skeptics. Whatever his personal virtues, Kejriwal's rhetoric, economic thinking, and actions in office suggest a throwback to India's pre-liberalization past: He appears to believe that baiting the wealthy is the surest route to popularity with the poor. Kejriwal's popularity raises questions about whether India's democracy can outgrow the socialist bent that has kept the country poor while much of East Asia has raced ahead.

After a decade of policy paralysis under outgoing Prime Minister Manmohan Singh, India's global standing has already taken a beating. With the International Monetary Fund estimating 2014 GDP growth at 4.4 percent, less than half India's historic 2011 high of 10 percent, the last thing the country needs is a charismatic populist who portrays foreign investors as exploiters and Indian businessmen as crooks. Despite occasional lip service to the private sector, at his core Kejriwal is an old-fashioned Indian statist whose ideas belong in a museum, not in Parliament.

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Kejriwal first sprung into national consciousness in 2011 as the architect of an anti-corruption campaign led by then 74-year-old social activist Anna Hazare. Angered by multibillion-dollar government corruption scandals spanning the sale of the telecom spectrum, real estate, and procurement for the 2010 Commonwealth Games in Delhi, India's normally apathetic middle class protested in the streets to back Hazare's demand for a janlokpal -- a powerful anti-corruption ombudsman insulated from political interference. As Hazare's right-hand man, Kejriwal became a fixture on national television, where he bore the brunt of explaining why the janlokpal was necessary and how it would work. His appeal to idealism and his ability to convey a broadly shared sense of outrage quickly made him a hero to much of the middle class.

In August 2011, after the high-voltage drama of Hazare's 12-day hunger strike on live television, the Hazare movement managed to extract a promise from India's government to agree to set up a janlokpal. But once the pressure of the hunger strike was over, negotiations stalled and a rift developed in the movement between two factions. A group led by Kejriwal argued that Hazare's movement, India Against Corruption, needed to transform itself into a political party to force change from within the system. Others countered that it made more sense to stay above the fray as a pressure group that could influence politics without fighting elections itself.

At first, Kejriwal played the role of a good lieutenant, publicly likening himself to Hanuman, a character from the Hindu epic the Ramayana known for his steadfast loyalty to his king. But when it became clear that Hazare had no intention of entering politics, Kejriwal parted ways with his mentor. In the first clear sign of Kejriwal's soaring ambition, he chose Mahatma Gandhi's Oct. 2 birth anniversary in 2012 to announce the creation of a new political party.

The date was no coincidence. Kejriwal calls his fight against corruption "India's second independence struggle." AAP supporters sport the cloth caps associated with India's independence movement, emblazoned with the words "I am a common man" in Hindi to set them apart from run-of-the-mill politicians, most of whom have abandoned the old-fashioned headgear. In 2012, Kejriwal published a slim book called Swaraj (Self-Rule), which echoes Gandhi's Hind Swaraj (Indian Self-Rule), written in 1909. (Swaraj has been republished in several Indian languages but remains better known to journalists than the general public.) Written before the demands of full-time electoral politics took over, it remains the single best guide to Kejriwal's core beliefs.

If Kejriwal stands for one thing to his fans, it's a fierce sense of morality. For party supporters, AAP, whose symbol is a broom, will sweep away the rot of the old order to usher in a clean and accountable government. During his brief stint as Delhi chief minister this year, Kejriwal eschewed common trappings of political power, such as a gaggle of machine gun–toting bodyguards and a car with a flashing red light that cuts through traffic. On the stump, Kejriwal never tires of reminding voters of how he could have made a fortune shaking down businessmen as a corrupt tax official but instead chose to quit and become a social activist before turning to politics. "I was an income tax commissioner," he declared in October at a typical campaign rally in Delhi. "With just one raid, 2 crore rupees [$327,000] would have landed in my home."

AAP's transparent approach to finances -- it holds U.S.-style fundraising dinners and says it lists all donations on its website -- and inexpensive campaign tactics, such as door-to-door canvassing by unpaid volunteers, contrast sharply with the usual murk of Indian politics. While Congress and the BJP plastered Delhi with expensive billboards, AAP relied on volunteers to stand on overpasses with party banners. And Kejriwal's willingness (some would say eagerness) to be grilled by journalists on television is a departure from the aloofness of established politicians like the BJP's candidate, Narendra Modi, and the Congress party's Rahul Gandhi. By publicly hurling accusations of corruption against some of India's most powerful people -- including Congress President Sonia Gandhi's son-in-law, the businessman Robert Vadra, and India's richest man, Reliance Industries Chairman Mukesh Ambani -- Kejriwal has built a reputation for raw courage that few of his peers possess.

Kejriwal's uncommon biography also helps. Unlike most professional politicians, whose chief qualification for public life is usually either a family pedigree or a talent for sycophancy or rabble-rousing, Kejriwal passed two of India's most competitive exams: those for the Indian Institutes of Technology and the Indian Revenue Service. Unlike the archetypal rustic politician, he's fluent in both Hindi and English. Despite the occasional nod to Muslim clerics, for the most part Kejriwal avoids naked pandering to caste and religion. His two main policy goals -- a janlokpal with teeth and radical decentralization of power to neighborhoods and village councils -- are big ideas, not narrow appeals to identity.

It's hardly surprising then that Kejriwal has struck a chord with many middle-class Indians fed up with politics as usual. For those uncomfortable with the muscular Hindu nationalism of front-runner Modi, Kejriwal offers change without the baggage of religious chauvinism. For those underwhelmed by the dilettantish Gandhi -- with little to show for a decade in Parliament despite his famous last name -- the former tax man stands for merit and hard work. For those who despair of the enduring pettiness of India's regional and caste-based parties, AAP offers a bracing dose of idealism. Since its establishment less than 18 months ago, the party has signed up more than 10 million members and has established chapters among overseas Indians in 31 countries across five continents. On Twitter and Facebook, reliable proxies for middle-class sentiment, Kejriwal has quickly built a vast following.

Despite this impressive start, to most observers AAP's prospects in the forthcoming elections, which begin April 7 and conclude May 12, don't look bright. Notwithstanding the usual caveats (election surveys in India remain as much crapshoot as science; most polls underestimated AAP's performance; and campaigning for the national elections has only just gathered steam), only an audacious gambler would bet on AAP. India's gargantuan democracy -- with 814 million eligible voters picking 543 directly elected members of Parliament in a first-past-the-post system akin to Britain's -- doesn't usually favor newcomers.

Although AAP plans to contest an ambitious 350 to 400 seats, it lacks the organization, rural name recognition, and grassroots support outside Delhi to make a serious electoral impact or to significantly dampen the wave of support Modi appears to be riding. The arguably best-regarded Indian poll, by the Delhi-based research institute Centre for the Study of Developing Societies, gives the party only between one and five seats in Parliament and just 3 percent of the national vote. (Modi's BJP appears on course to emerge as the big winner, with between 193 and 213 seats and 33 percent of the vote.)

Nonetheless, AAP has already changed the grammar of Indian politics. By capturing power in Delhi, it showed that a party rooted in a middle-class ethos can challenge an entrenched political class. Kejriwal is also arguably India's first truly television-savvy politician. No other Indian leader owes as much to nonstop (much of it fawning) coverage by India's Delhi-based national news channels. He has mastered the art of the TV interview and appears to have an instinctive sense of what will capture the headlines: reconnecting power for a poor consumer who couldn't pay his bills, taking the Metro to a public swearing-in before thousands of supporters, or spending the night on the street to demand control of Delhi's police force. By contrast, the election front-runner, Modi, appears limited: master of the televised speech, but reluctant to grant interviews and flat-footed when it comes to exploiting the power of the visual image. (The less said about Gandhi's gaffe-prone and lackluster efforts the better.)

AAP has already forced its competitors to mimic it. At party rallies, the BJP has also taken to supplying its supporters with cloth caps, albeit in saffron, the color of Hinduism. Its website too calls for donations, in part to blunt AAP charges that Modi is beholden to corporate fat cats like Ambani and the infrastructure and commodities billionaire Gautam Adani. And, somewhat ironically for a party associated with the most staggering corruption scandals in Indian history, Gandhi too has now made graft-busting a central feature of his campaign.

In Delhi, AAP mostly ran fresh-faced outsiders rather than career politicians. The party's slate of parliamentary candidates includes India's most prominent election pollster, a fiery former television anchor, a prominent anti-dam activist, a flamboyant Hindi poet, a peace activist grandson of Mahatma Gandhi, a former Miss India, and the former head of Royal Bank of Scotland in India. By running untainted candidates new to politics, AAP may force other parties to widen their nets instead of only nominating the usual cast of thugs, crooks, and dynasts invariably chosen purely for their chances of getting elected.

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But Kejriwal's gift for grabbing headlines also underscores AAP's essential problem: It's heavy on symbolism and light on substance. Kejriwal has yet to show the faintest temperament for governance. Instead of sticking it out as chief minister, he resigned after just 49 days, citing an inability to get his version of the janlokpal passed in Delhi. And Kejriwal's economic ideas are a blueprint for disaster.

When he took power in Delhi in December, after one of the most stunning campaign debuts in Indian politics, Kejriwal set about implementing a populist agenda. Keeping a campaign promise, he halved power tariffs. He also dropped legal proceedings against anyone who hadn't paid an electricity bill in the previous 10 months. (He had claimed, without evidence, that private power companies were cooking the books to gouge consumers.) In an arid region, Kejriwal granted Delhi residents, including the rich, 20,000 liters of free water per month. In February, Delhi became the first Indian state or union territory to scrap foreign direct investment in big-box stores such as Tesco and Walmart, rolling back a 13-month-old reform by the federal government meant to modernize India's retail sector. (The BJP-ruled state of Rajasthan quickly followed suit.)

And instead of focusing on the city's real problems -- such as pollution, traffic, and drainage -- Kejriwal spent his time in office preening for the cameras. In January, he brought life in central Delhi to a halt by taking to the streets over a squabble with Delhi's police force, which the federal government controls. He also managed to get bogged down in warding off allegations against his law minister, Somnath Bharti, who organized a bizarre midnight vigilante raid against African immigrants he accused of prostitution.

In a February speech to the Confederation of Indian Industry, an influential association of Indian businesses, Kejriwal tried to calm fears that he's just another fiscally reckless populist eager to squabble publicly with the private sector in order to garner votes. He spoke with feeling about his grandfather's small oil mill and the harassment he faced from petty officials. He distinguished between capitalism and crony capitalism and conceded that the vast majority of businessmen were forced to pay bribes by India's complex bureaucracy swaddled in red tape. AAP's economic agenda talks of restoring high growth and boosting manufacturing. Not coincidentally, the election front-runner, Modi, is campaigning partly on the strength of his pro-business record running the western state of Gujarat.

Unfortunately, Kejriwal's attempted makeover lacks credibility. AAP's top leadership draws heavily from grizzled foes of liberalization and globalization. A senior AAP leader, Prashant Bhushan, has reportedly called for the nationalization of airports and power plants. And the only time Kejriwal sounds remotely reasonable about business is when he's speaking to a business audience. For the most part, a common theme runs through his writing and speeches: Foreign investment is evil, and businessmen who make profits are crooks unless proven otherwise. His book, Swaraj, opens with a laughable anecdote about an honest income tax official bullied by a corrupt multinational executive who claims that India's Parliament is in his pocket. In reality, multinationals in India often complain of harassment by whimsical tax men with vast discretionary powers.

In his campaign speeches, Kejriwal sometimes sounds as though AAP is running against Ambani -- whom Kejriwal regularly accuses of colluding with the government to inflate gas prices -- rather than against the BJP or Congress. Journalists who question this shoot-from-the-hip style are immediately dismissed as being on the take.

And AAP's signature idea -- a janlokpal tougher than the one Parliament established in December in response to the 2011 protests -- fundamentally misreads the causes of corruption in India. It assumes that a new layer of bureaucracy, staffed by officials miraculously immune to bribery, will solve a problem caused by too much bureaucracy in the first place. The World Bank ranks India 134 out of 189 countries in terms of ease of doing business, behind such exemplars of free enterprise as Pakistan, Ukraine, and Uganda. On average, starting a business in India requires 12 procedures and takes 27 days; in Singapore it takes three procedures and less than three days.

Kejriwal also shows a capacity for hypocrisy unusual even for a politician. Throughout 2013, he repeatedly promised Delhi voters that AAP would never work with Congress to form a government, only to swiftly reverse himself once the results came in and showed him short of a majority. After campaigning against ostentation in public life, he shocked many supporters by commandeering two houses luxurious by Delhi standards, before an outcry forced him to change his mind. Despite frequently attacking Modi for using private jets, Kejriwal hopped onto one himself in early March to return to Delhi in time for a speech at a high-profile media conclave. And after claiming that AAP representatives elected as state legislators would not contest parliamentary elections, Kejriwal himself is poised to run against Modi in the northern city of Varanasi.

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In the long term, anyone serious about ending corruption in India must fight it while growing the economy. For all his graft-busting zeal, Kejriwal appears to have ignored a simple fact: Governance in rich countries is usually cleaner than in poor ones. Average per capita income in the five countries perceived as the least corrupt, according to Transparency International's 2013 ranking, was about $40,000. For the five most corrupt countries it was $1,500; India's is roughly $4,000.

With the possible exception of tiny Singapore, countries became rich before they became clean. To emulate them, India needs private firms to be treated as job creators, not criminals, and it needs plenty of foreign investment by multinationals. The last thing it requires is a return to the reflexes of the license-permit raj, when government was the solution to every problem and anyone who ran a successful business immediately became an object of suspicion.

In a March 2013 speech at the Wharton India Economic Forum, Kejriwal observed that "when Indians go abroad they have excelled in every field" because "Indians are first-class people who are victims of third-class governance." There's a grain of truth in those statements. But if Kejriwal wants people to trust him to fix the problem, he ought to consider earning that trust by running a state effectively for a full five-year term. Until he can prove that he won't shred business confidence and turn government into a kind of vaudeville act for the cameras, India is better off with Citizen Kejriwal as a maverick on the sidelines rather than as a serious contender for power.

Photo: PUNIT PARANJPE/AFP/Getty Images