Caveats on cash transfers: Don’t over-commit, don’t screw up

Abhijit Vinayak Banerjee is currently the Ford Foundation International Professor of Economics at MIT. He was educated at the University of Calcutta, Jawaharlal Nehru University, and Harvard University. Together with Esther Duflo and Sendhil Mullainathan of Harvard University, he founded the Abdul Latif Jameel Poverty Action Lab in 2003. He is also the author of the bestselling Poor Economics – A Radical Rethinking of the Way to Fight Global Poverty.

Banerjee was recently speaking at a literature festival in Mumbai on why most people don’t understand what it means to be poor and how the decisions made by the poor might be irrational to us but are very rational decisions given the situation they are in. The UPA has been unveiling many schemes for the poor, the latest being the direct cash transfers scheme. The critical questions are: will they work, and how well will they be implemented.
Here are few excerpts from what he said. This is the second and concluding part. (Read the first part here)
On whether the cash transfers scheme will work

There are two concerns with the cash transfer scheme. One is will we screw it up like everything else. That is the first order concern. In this case there is more thought that has gone into design than usual. That is thanks to Nandan Nilekani (Chairman of the Unique ID Authority of India). There is an interest in implementation.
The second issue is that it could really degenerate to the bottom. It is very easy to give money away and every government will try to give away more of it once the system is in place. And at some point it will mean that we won’t have any money left for anything else. I think it is important to commit not to spend more than a certain amount.
abhijit banerjee
Other than that, the poorest of our poor are so poor that it is unconscionable that we don’t offer them something. This is something that will make their lives better. Whether they spend the money on beer orkaala channa I really don’t know. Kaala channa is supposed to be the most healthy food.
What are critical to cash transfers
An important part of the cash transfer is who do you give it to and in what form do you give it? Targeting, for example, the woman in the family, who will directly spend it on food, is a good idea. Also, putting it into a bank account rather than handing over cash, is a better idea. If I give people something in the bank account they may not spend it immediately. Hence the design of the programme is very important. As I said, we could do it well or badly. If we do it well it could be very good.
Banks don’t like the poor

In general in India, the poor are not given bank accounts because banks don’t like them. If a poor person walks into a bank and he says he is going to put Rs 100 in it, the bank usually sends him away and never opens an account. Hence, the poor do all kinds of creative things to save. One thing they do is they build houses brick by brick. Once you move slightly out of the city centre, in most towns in India you see hundreds of thousands of unfinished houses. Houses with poles sticking up. A few bricks on one side. Some plaster on the other side. Nothing finished. That’s how they save. Whenever they get some money, they come and buy a few more bricks and they stick it on. So the money isn’t spent. It is put into bricks. And we call it saving brick by brick. It’s not that these people like unfinished houses and that is why there are so many unfinished houses. It is the only way to accumulate assets. We create all this perverse behaviour because we really don’t provide bank accounts to the poor. Therefore, they have to find a way to solve this.
Why the poor borrow at 24 percent and put it in a 4 percent savings account
We were very struck when we heard about this woman who borrowed from a microfinance institution at 24 percent and put it in a savings bank account at 4 percent. The first lesson, as I have said, is that you should listen to what people are saying. So when we asked the woman what did you do with your microfinance loan, she said I put it in a bank. You got to be kidding. You are paying 24 percent on this and you are getting 4 percent in the bank, we told her.
Why borrow to put the money in the bank, we asked her? Otherwise how do you think I am going to get that money? she replied. Her argument was that if I keep putting Rs 100 aside every month at home, somebody will want it, something will happen and that money will get spent. Now, if I borrow Rs 10,000, and I have to pay Rs 100 back every month, if I don’t payback, the loan collector is going to come after me. The microfinance lender will come after me. So I have to pay up. She was very clear that this discipline that the microfinance loan would provide her was valuable to her and she would never have managed to save the money otherwise.
Poor people spend a lot of money on health.
Health is a very, very good example where we have always imagined the problem as being exactly wrong. For most poor people we think that they don’t have good health because they can’t afford it. In fact, most poor people spend lots of money on health. They spend a higher proportion of their income on health than we do. In other words, it’s not that because they have to feed their children there is no money to go to the doctor.
This particular area that we where working in – i.e. Southern Rajasthan – the common belief among people is that to get really good treatment you have to get an injectable. And even better get a drip. What drips do they get? Glucose or saline. Ten years ago they were paying Rs 120 for a glucose drip which gives a sugar high for about half an hour.
Why the poor don’t like government health centres
There are many reasons not to like government health centres, but the one fundamental reason they don’t like it is because they say you don’t get the right medicines. What they mean is that they don’t give you injectables. In the government health system, unless and until you are a doctor you are not allowed to give an injectable. So basically, the nurse who is the first line of care in every village has no power to give an injectable.
And so everybody likes to go to a private doctor. An average village actually has seven doctors and a number of bhopas who are basically faith healers. All of these people provide healthcare and all these people charge money. The government health system is supposed to be free but they also charge money. The private healthcare system also charges money.
Hence, everybody is spending money. The poorest people make 60 percent of their healthcare visits to private doctors, 20 percent to faith healers and 20 percent to government doctors. They are making their choices all the time and mostly the wrong choice. Healthcare is one area where you have to make the right choice.
On self-declared doctors
I have this guy on film who said, “I passed out of school I could not find a job so I took this job of a doctor.” He made himself a doctor. Most doctors all over India are doctors like that. They are self-declared doctors. There are compounders who have become doctors. Many of them are hereditary doctors. There grandfather was a doctor, they have become a doctor as a result of that. There are all kinds of wonderful ways of being a doctor. One thing that you can do is pay rent to a qualified MBBS doctor and put up a sign bearing his name and sit under it as his assistant.
One of the core problems in the healthcare is that it is completely unregulated. The only reason I know where to get healthcare is not because I am more intelligent or I have better judgement, it is because I live in a country (ie, the United States) where if you did what happens in India, you would be in jail.
The fundamental fact about healthcare is that none of us are capable of understanding healthcare. The reason why healthcare works for some people is because some regulatory system determines who can practise healthcare. But in India anyone can go in and prescribe saline drips for Rs 120 to anyone they want to. You have people giving steroids right and left to whoever they want to with no explanation of what it is, and no explanation  on the consequences. One of the reasons you see premature aging in India is because of the indiscriminate use of steroids.
Willingness to believe in everything
For me the reason I why believe in a particular form of healthcare has nothing to do with my understanding of it. I know there is a regulatory system that works reasonably well and I trust it. In India, where the regulatory system frequently fails, I wouldn’t believe in the system. Most people who go the bhopa also go to the private doctor or the government doctor. They also go to the temple. They go to every possible course of action. Given that you have no specific reason to believe in anything – you believe in everything.
Unqualified doctors are a tad better at identifying heart attacks than government doctors
Another reason that people go to unqualified private doctors is highlighted through a nice study carried out by one of my ex-students Jishnu Das. It shows that an unqualified doctor spends four minutes looking at you and the qualified government doctor spends one minute looking at you. As a result, on an average the unqualified private doctor doesn’t do worse than the government doctor. The way he tested this was that he sent an actor who pretended to have a heart attack. The actor walks in, says my chest is hurting, my left arm is hurting, etc. The government doctors miss the heart attack 75 percent of the time, but 25 percent of the time they find it. The unqualified private doctor does slightly better because he pays a little bit more attention. He is a bit more worried about this guy.
The first thing to think about on healthcare is that if I am poor, I have no idea what to do. I am bewildered. This is a classic place where the government is supposed to provide regulation. They are supposed to say this is the right thing for you to do and because we have never managed to convey such a feeling, we get such bad healthcare.
The travails of primary education

Primary education in India is doing miserably. That is true. If you look at the average child in class IV, 40 percent of them can read a paragraph. 60 percent cannot read a paragraph. And 30 percent can do simple divisions, 21 divided by 7, that is.
People have been claiming for a very long time that is this because the teachers aren’t being paid enough. In fact, teachers in India get paid a huge amount. Government school teachers are paid – somebody estimated this but maybe its an exaggeration – seven times of what they would get paid if they did not get that job. They are paid Rs 20,000. If you look at private school teachers, they are paid Rs 3,000. So the lack of learning is not because teachers are not paid enough.
What is the real problem? Where is the hope?
We did one experiment in Bihar which was with government school teachers. This was in summer around two years ago. The teachers were asked that instead of teaching like you usually teach, your job for the next six weeks is to get the children to learn some basic skills. If they can’t read, teach them to read. If they can’t do math, teach them to do math. At the end of six weeks, these teachers were given a small stipend. They had also been given a couple of days of training. At the end of six weeks, the children had closed half the gap between the best performing children and the worst performing children. They had really improved enormously.
What happened? Why did the government school teachers do so much better? The reason was they were asked to do a job that actually made sense. They were asked to teach the children what they don’t know. The usual jobs teachers are asked to do is teach the syllabus – which is very different. Under the Right to Education Act, every year you are supposed to cover the syllabus.
It doesn’t matter whether the children understand anything. Think of all the class IV children who can’t read. They are learning social studies and all kinds of other wonderful things – except they can’t read. They are learning nothing. They are sitting in a class watching some movie in some foreign language without subtitles. Hence, the dropout rates are high. And I am shocked why anybody comes to school at all.
The solution is simple

The problem of education has a perfectly good solution. In the first four years, we should prioritise the learning of basic skills – forget about learning the history of the country, etc.
You don’t have to know who Gandhiji was for the first four years. Let’s just concentrate on students being able to read and do simple math, I think that system would deliver a much better outcome. One thing we forget is that the perfect is the enemy of the good. We are trying to have an education system that is perfect and that every child would come out with wisdom at the end of it. As a result they learn nothing.
The article originally appeared on on December 15, 2012
Vivek Kaul is a writer. He can be reached at [email protected]