How to Give Poor People Money In Order to Save the World

Paul Niehaus is the cofounder and president of GiveDirectly, a direct cash transfer program rated as one of the most effective anti-poverty charities in the world. He is currently putting together the largest basic income experiment ever designed. We spoke to him about the politics and perils of changing how the world helps the poor.

The idea behind GiveDirectly is simple: donor money is transferred directly to some of the world’s poorest people. Research has shown that such direct cash transfers are an extremely effective way to alleviate poverty. Now, GD is set to run a 12-year basic income experiment in Kenya that should provide the best long-term data yet on the effectiveness of what has become an increasingly popular—and controversial—policy idea on both the left and the right. Niehaus has a better perspective than almost anyone on what actually works when it comes to helping the poor.

How did GiveDirectly come about?

Paul Niehaus: It started when some of the other founders and I were in grad school doing PhDs in development economics. It really reflected two things that were happening at the time that we felt were pretty exciting and could change the way we fight poverty. One was it was the middle of the whole experimental testings revolution in development economics. One fact a lot of people don’t know about development is for the first 50 years or so, we didn’t test things experimentally, which is kind of sad. So what happened was a lot of myths and a lot of stereotypes were able to build up because of that, including this one that you can’t give money to poor people, they’re going to waste it. There were a lot of great lessons coming at that time, but one of the very clear ones was that across dozens of these very rigorous experimental tests, giving money to poor people was actually quite effective. They’re using it sensibly, their lives are getting better.

Point two was the spread of these last mile payment solutions—these new technologies, like Mobile Money… we feel like we’re moving pretty quickly towards a world where you can pay anyone, anywhere, any time…

Nobody [in the existing NGO world] was planning to do [direct donations to the poor]. And if you think about it, it’s pretty clearly a threat to the business model. Because basically the business model for an aid organization is you allocate capital on behalf of poor people. You make decisions about how money should be spent. And what cash transfers are saying is, maybe sometimes poor people would be better at allocating the capital than we are.

What’s your track record so far?

Niehaus: We’re moving at about a $50 million per year pace right now. That’s really fast growth in this sector, but by the same token that’s about 0.2% of U.S. charitable giving for international development, and the big players in our space are moving a couple billion dollars per year. The big question is will it go that far, or does it remain sort of a niche thing that wonky, smart donors—analytical people—give to?

Who are your donors, primarily?

Niehaus: It tends to be highly educated, smart, analytical people, often working in industries like tech or finance. People that love the intellectual part of giving well. Interestingly, it doesn’t tend to be concentrated on one side of the political spectrum. We get liberal people who love the notion of empowering poor people, we get conservative people who like the efficiency, streamlining, getting rid of bureaucracy.

There’s a common idea that giving money directly to poor people is dangerous or wasteful. Is that one of the obstacles holding back GiveDirectly from scaling up?

Niehaus: I think it’s the obstacle. There are operational challenges moving millions of dollars in poor countries, a lot of hard work that our field team is doing. That stuff’s all important. But the challenge is that still to this day, almost everyone that I talk to about GiveDirectly, the initial reaction ranges from “Won’t they just drink it?”—which is about the most negative thing we’ve heard—to “Well it’s nice, but you’ve got to teach a man to fish.” So there’s this basic lack of recognition that our fishing lessons have been pretty unsuccessful, and that actually when you give poor people money they make a lot of long term investments. They buy assets, they buy training for themselves. They care about the future too…

The principles are: try to find the poorest people, and try to keep it simple. On average, we’ve been enrolling people living on about 65 nominal cents per day. That means that a latte at Starbucks is one week’s living for these people. That gives you a sense of the incredible opportunity that a tiny sacrifice on our part can have over there.

You’re essentially a direct wealth transfer program. Do you think about yourself in a political context, and if so, what is that context?

Niehaus: There’s huge political context for this, no doubt. One thing a lot of private American donors don’t know is that cash is increasingly the way emerging market governments fight poverty. Most Latin-American countries have a cash transfer program. In fact, most African countries, and Haiti, have a program. That reflects political pressure for redistribution in countries where inequality has been soaring. So in many ways what we’re doing is driven by the evidence that was generated by those programs—that they were successful at reducing poverty. We’re just trying to make that available to American donors.

It’s interesting how GiveDirectly kind of straddles the line between a hyper-capitalist charity and the most extreme sort of socialism.

Niehaus: I have a pretty positive view of that. I think the evidence says it’s good. And then the fact that it does have these hooks that connect with the way that people on the left and the right think about things, think about the world, is great. There is validity in both perspectives, and I think that’s mostly good… I like the way that Peter [Singer] talks about this, which is, if you’re at X percent this year, that’s great. Maybe you can get to X plus Y percent next year. I don’t think we should be guilting people. Wherever you’re at is where you’re at, and if you can do better, that’s great.

Tell me about your basic income project and where it stands now.

Niehaus: We’ve kicked off in one village, tested the logistics, that seems to have gone well. Once Kenya’s elections wrap up in August, we’ll be kicking off the whole thing… It’ll be big. I think we’ll be treating something like 26,000 individuals, and providing them with a basic income over 12 years. By those numbers, it will be the largest that’s been done. Our view of this was, A) this is a hotly debated issue all around the world, everywhere from Silicon Valley to the government of India, asking if we should do this; B) there have been a number of really valuable small scale pilots, that have tested for a couple of years or in a couple communities, but nothing yet that’s been experimental, that’s been long term, and large scale—entire communities randomized into getting this. For something that’s shaping up to be such a huge policy question, and perhaps the fundamental economic right of a generation, it feels important to have some pretty rigorous evidence on that.

Why is it that basic income has such a weirdly broad appeal across the political spectrum?

Niehaus: I think it’s coincidental. You have on the one hand people who are worried about job loss to robots, which seems like a reasonable question to ask. And then on the other hand you have the government of India, the government of Namibia saying, “We have high rates of unemployment. It seems like it’s hard for a lot of these people to find jobs. We’re spending a lot of money on these legacy anti-poverty programs that aren’t well targeted, that have a lot of bureacracy and overhead. Wouldn’t it make more sense to streamline those things and replace it with something simple and efficient like a cash transfer?”

If all of the Silicon Valley fears about automation and job loss turn out to be overblown, will that eradicate the interest in basic income?

Niehaus: My view of this is, I don’t know if we’re gonna have people permanently unemployable. I think the best case scenario is we’ll have some painful transition periods, where people might take years of retraining. Even if it’s merely to cushion that transition, I think getting ahead of that and providing some safety net makes a lot of sense, whether it’s basic income or something else.

What about the basic income critique from the left , which is basically: Why give money to people who aren’t poor? How is that better than just strengthening the social safety net for the needy?

Niehaus: I think there are many ways in which the existing social safety net could become more basic income-like, without becoming universal. It could be more cash-based, less food and in-kind transfers. It could become less conditional, so instead of having unemployment benefits that stop once you have a job, so you’re disincentivized to find a job, you make it unconditional for a period of time… it’s probably right that in a country like the U.S., where we have pretty decent data on your income and your assets, we can target better than universal. Yeah, it doesn’t make any sense to be providing a basic income to folks on Wall Street. In a poor country, a country like Kenya, where it’s very difficult to identify who’s poor and who’s not, and you end up spending a lot of program costs on trying to find those people, I think there’s a much stronger argument for just keeping it simple…

There are a lot of legacy programs in many of these countries that you could easily replace with a cash transfer. I’ve talked about fossil fuel subsidies as an obvious example. In many cases food distribution is another example. That’s the lowest hanging fruit. Then if I’m thinking about what to build next, I think the architecture to deliver payments to people is something I would put high on the list.

It seems that there’s a legitimate fear that if basic income gets to be a viable political issue, and it draws support from the right and left, it could at some point be traded for the existing social safety net. Is it risky to get behind it, with that as a possibility?

Niehaus: There’s a part of this we honestly can’t predict, which is how are these things going to sell. Are you gonna end up with support for more total redistribution with one than the other? One thing I would say is you can actually offer people a choice of benefits. With food transfers in India, there’s a lot of interest in moving to cash, but we don’t actually know if that’s what people want… At the end of the day, I don’t think of cash as cash. I think of it as shifting more of the decision making to poor people.

When people are thinking about how to help the world, and they’re trying to decide between trying to change the system through politics, or addressing immediate pressing needs through a charity like yours—how should they make that choice?

Niehaus: I think all of us tend to overestimate the importance of us individually starting something new. When I was in college there were like five micro-finance clubs, because everybody wanted to start their own and be the founder. I think a little bit of self-reflection to guard against that Founder-itis syndrome is good, and to recognize that sometimes plugging into something existing and contributing to it and making it better is going to be more impactful. In terms of the system thing, we think that the point of cash transfers is to change in a systemic way the way we think about giving and accountability. It’s not just to have a direct impact. The direct impacts are great, but it’s to create pressure on the rest of the sector—to say, we need to justify why we’re spending all of this money on basically hiring fund managers for the poor.