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Is this the solution to poverty?

May 03 2018 12:15
Johan Fourie

The Holy Grail for development economists is to identify an affordable policy intervention that will help the poorest escape poverty.
 
We know that living a longer and better life is correlated with many things: higher income from having a job, living in a house with clean water and sanitation, and access to better schools and health facilities, to name a few. 

But the trouble comes when we try to write policy to improve these things: which investment, given limited resources and political constraints, will most benefit children from poor households? And why?

A paper published in The American Economic Review in March by a team of economists and psychologists offers an answer. 

It uses a longitudinal unconditional cash transfer programme – the Great Smoky Mountains Study in North Carolina – to examine how a cash boost for parents affected children’s outcomes. 

Children from 11 counties were interviewed annually from age nine until the age of 16. 

Their parents were interviewed at the same time. One subsection of these children are American Indians. 

These American Indian families began to receive, five years after the first survey, direct cash transfers from the Eastern Band of Cherokee Indians tribal government as a result of a new casino that came into operation. 

The cash transfers were provided to all adult citizens of the tribe, regardless of their employment conditions, marital status, or the presence of young children. 

This is substantially equivalent to a universal basic income grant, a policy that is gaining popularity in academic circles.

Because the surveys were initially undertaken for the purpose of collecting information about behavioural and mental health, the authors have a lot of information about the children’s emotional and behavioural wellbeing at their disposal. 

Most importantly, the surveys began before the introduction of the unconditional cash transfer, so the researcher could compare the mental health conditions of children in households who receive the transfer to those in households who never received it. 

This “natural experiment” is the closest thing economists get to a laboratory experiment.

The results are remarkable. They show that the increase in unconditional household income improves child personality traits, emotional wellbeing and behavioural health. 

Because of the unique nature of their data, research can demonstrate that these improvements are for the same child using the same measures over time. 

The formation of positive personality traits, like conscientiousness (doing one’s duties diligently and thoroughly) and agreeableness (being kind, sympathetic and cooperative), is “crucial in determining long-term socioeconomic standing and may also have strong effects on long-term health, educational attainment, and economic outcomes”. 

We know from earlier research that mental-health conditions, such as attention deficit disorder, are more likely to affect poorer children. 

The authors concur: “We find that the children that start out with the most severe personality or behavioural deficits are the ones who exhibit the greatest improvements.” 

A universal cash injection, like a basic income grant, is likely to have the largest impact on children from the poorest households, improving personality traits and health outcomes even during their teenage years.

Such improvements in personality will have major repercussions in adulthood. 

A large body of literature now shows that such traits are strong predictors of finding a job, living in a good neighbourhood and living a longer and healthier life.

Most remarkably, because the surveys also included questions about parental health, the authors could discuss potential mechanisms through which additional household income affects child personality traits. 

They find that the unconditional cash transfers resulted in “an improvement in parental mental health, the relationship between parents, and the relationship between the parents and children in the treated households”. 

A basic income grant may improve child outcomes in the long run via the improvement in parental behaviours, stress reduction, and improvements in decision-making in the household.

A basic income grant is an expensive policy. 

A rough calculation reveals that, with 56m South Africans, a basic income grant of R758 a month – what is classified as the lower-bound poverty line by StatsSA – will require R509.4bn annually. 

This is a lot of money, but not impossible to find. We already spend R193.4bn on social protection, and another R66bn on social security. We pay R180bn on debt servicing, which can be reduced if we sell government-owned assets and repay our debt. 

A basic income grant will also help reduce the reliance on free government services, such as fee-free schools, and increase VAT income as consumption increases.

A basic income grant not only eliminates extreme poverty with the stroke of a pen, but as the Great Smoky Mountains Study shows, it can drastically improve the emotional well-being and behavioural health of both children and parents in our poorest communities, with huge implications for their futures and that of the country. 

If we are serious about addressing the stark inequalities in SA, inequalities that help explain societal challenges like hopelessness, crime, violence, and even populism, then a basic income grant is a policy we can no longer afford to ignore. 

Johan Fourie is associate professor in economics at Stellenbosch University.

unemployment  |  economics  |  poverty
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