Unicef, the EC and GoL are handing out cash to orphans and vulnerable children (OVCs) in Lesotho. I've done a bit of WORK in this area.
It can be a good idea but I have lots of caveats:
1/ In Lesotho, it looks like cash is being given in difficult-to-reach rural areas. Let's think about this for a moment. In the area they have more money. Great. But it is essential that the market mechanism be working well. Demand should increase and prices should rise slightly. Traders should then respond by bringing more goods into the area (the extra price acts as motivation to bring goods to areas they wouldn't otherwise try to go) helping to prevent to the prices from rising too much.
But if no or very few additional goods arrive into the area then all that will happen is that the prices will rise and the people will have no extra goods to consume between them. There will just be a transfer between one poor person who lives in the area (who can no longer afford the prices) and the OVCs (who now have more cash).
Even if more goods do come into the area, if the cash transfers don't stimulate additional production (and it might not be their aim in any case) then people in another reason simply may no longer be able to access products they previously could. Hopefully, they are rich and not poor people, but there are no guarantees.
2/ Secondly, it should be verified that any cash transfers can do a significantly better job of actually assisting the beneficiaries than society. Sometimes society does a good job of insuring short term shocks and a Government/aid organisation that thinks it can do better can destroy existing social interactions.
I think in Lesotho, this is probably the case because there are a *lot* of OVCs and it may have got to the point where it is just too much for existing social mechanisms to cope with. In addition, the moral hazard risk is low. That is, it is unlikely that someone will deliberately become an OVC in order to benefit making this very different from, say, unemployment benefit.
3/ It should be more effective than the next best social insurance option. I have done some work that suggests that scarce resources might be better dedicated towards shocks that impact the whole community in the short term. Arguably, this might be the case here.
4/ Giving money can help a small number of people *BUT* if it does not result in increased production, then this is quite simply only a redistribution. Nothing wrong with that, but if it is only redistributing resources from one poor person to another, we should question if it is worth it.
There is an increasing number of such programmes in Africa. It is difficult to escape from the fact that you have to make some value judgements and that these transfers are related to social preferences. However, there are probably ways to design programmes to minimise some of the risks (moral hazard, blundering government destroying social safety mechanisms, using the money for unworthwhile things, etc. etc.) and there is a mounting amount of research to digest with examples in Zambia and Malawi amongst other places.
Wahenga has many more examples and a quick Google search (or even better, Google Scholar) throws up a lot of research in the area.
2 comments:
Good analysis.
Regarding the need for need for increased market supply by traders, are you saying that because the OVCs are mainly in hard to reach places that the effect will probably be inflationary?
Maybe, yes. More specifically, any time cash transfers are sent to remote places, it is essential that the market responds.
Really you want a bit of inflationary effect so that the market can respond.
With bad roads in the rainy seasons and risk averse traders who don't like trying going to new places a lot of places can be considered remote. I was once involved in a project that had a very hard time convincing traders to travel even a few km and actually had to offer to take them to a place we were giving out cash transfers!
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