“Free Money: Basic Income Sparks New Era in Development Aid”, Der Spiegel
By Patrick Witte (Text) and Kirsten Milhahn (Photos and Videos), Berlin, January 5, 2017
When the village elder came to her in September to invite her to a meeting under the acacia trees, Norah Odhiambo was skeptical. Storm clouds were gathering above nearby Lake Victoria, the 34-year-old relates, and she set aside the machete she uses to clear brush from her neighbor’s field for a few shillings a day. A new aid organization called GiveDirectly, the village elder said, would like to introduce itself. Odhiambo’s only thought was: “Another aid organization.”
The arrival of aid workers was hardly a novelty for Odhiambo and their departure was just as common. Her village is near the city of Bondo, located on the eastern shores of Lake Victoria in one of the poorest parts of Kenya. Almost half of the inhabitants here are forced to survive on the equivalent of less than 2 euros per day. In most villages, there is neither electricity nor running water, and the only jobs available are as livestock herders, fishermen or fieldworkers, and even those are scarce.
For decades, state and private aid organizations from around the world have been trying to develop the region: Germans dug wells into the dusty, dry ground while young men and women from the United States have built schools in the remote villages. The British have brought food, blankets and medication to the miserably equipped medical clinics. Odhiambo doesn’t want to sound ungrateful, but the aid didn’t really do much for the people here, she says: Storms ripped the roofs off the schools, water pumps broke with nobody able to repair them, and the drugs brought to the clinics often only fought the symptoms and not the causes of illnesses. The lives of some people in Bondo may have got better, Odhiambo says, but the poor saw little improvement.
How, though, can aid become more effective? GiveDirectly, the organization that turned up in Odhiambo’s village in September, believes it has found an answer. Despite her skepticism, Norah Odhiambo assembled with other villagers in the cool shade of the acacia trees and listened. It turned out to be a moment that changed her life
“When they introduced the project, my only thought was: Can this really be true?” Odhiambo recalls. The organization wanted to hand out money to all 300 inhabitants of the village, the equivalent of about $22, without stipulations or strings attached, every month, for 12 years. The GiveDirectly representatives said that the pilot project would begin in their village, with the goal of helping many more people in western Kenya. The idea is that of providing an unconditional basic income to every adult resident. Odhiambo still laughs in disbelief when she talks about it.
GiveDirectly says their project is the largest experiment thus far in providing an unconditional basic income, and it is also drawing the interest of many industrialized nations, where the concept has increasingly been a focus of discussion in recent years. But the comparison is far from perfect. To be sure, experiments have been conducted with the introduction of unconditional basic incomes in places like Finland, Germany and Canada. Several people and families in those countries have been given money over a specified period of time from private initiatives or state institutions without being required to do any work for it in return.
But in these industrialized nations, the question underlying such projects is a different one: In an affluent society, is it still necessary to force everyone to seek gainful employment? How can people earn a living wage when robots and artificial intelligence are likely to take their jobs? Can a basic income replace the social safety net?
Only a small number of questions of the kind discussed, for example, in last year’s failed basic income referendum in Switzerland, are applicable to circumstances in Kenya. They include questions like: What effect does a basic income have on people’s behavior? Does it make them freer or more dependent? Does it leave them unmotivated or lazy?
GiveDirectly’s focus is a different one: How can absolute poverty be fought most effectively? The idea behind it is that classical development aid has failed and that direct monetary payments might be able to solve the problem. Six weeks after the organization described its project to the gathered villagers, the experiment began.
It sounds like a dream: Poor villagers are handed money regularly every month, for several years, with no conditions attached. An American organization is currently testing the model in Kenya.
For more than a year now, Norah Odhiambo and the other villagers have been receiving a short text message on their mobile phones on at the beginning of each month informing them that another payment of 2,250 shillings has been transferred and can be picked up at the closest M-Pesa agent. M-Pesa is the name of the service used to transfer money via mobile phone in Kenya. It allows any mobile phone owner to send money by text message from every corner of Kenya, even if the person doesn’t have a bank account. Recipients pick up their money at the mint-green M-Pesa stations. It is quite a practical service for Kenyans and also serves as the technological foundation for GiveDirectly’s system. It provides the aid organization with a direct link to the people to whom it is sending money, enabling it to bypass potentially corrupt intermediaries and to keep overhead low.
In some respects, the hoped-for benefits of the program would seem already to have been fulfilled. Norah Odhiambo, for example, is no longer clearing other people’s fields, instead sowing her own. Her husband Erick has built a small stall where three small lambs now sleep. Corn sways in the wind on an acre of land next to the structure while a corrugated metal roof glistens over the Odhiambo family’s newly built clay house, which is furnished with a sofa and an easy chair – both also new – arranged on the dirt floor. Erick says he was able to afford two new nets, allowing him to work once again as a fisherman on Lake Victoria.
Above all, it’s the independence that Norah appreciates most about the aid from GiveDirectly. “We have the freedom to spend the money the way that we want,” says Norah. “Nobody tells us what to buy or how much to save. It’s different from our previous experiences.” For years, aid organizations would show up in their village with cement, school books or sacks of rice. Aid came mostly in the form of in-kind donations. And it usually wasn’t the locals themselves who determined what they most urgently needed, but development experts and charity organizations.
Some countries, including Germany, began experimenting with direct payments in the late 1980s in Mozambique. But since the World Humanitarian Summit in 2016, when then-United Nations Secretary General Ban Ki Moon called for “cash-based programming” to become the “preferred and default method of support” in humanitarian assistance, more attention has been paid to the method. GiveDirectly has been working with direct payments since 2011 and views itself as a pioneer in the field. The organization is also convinced that recipients like the Odhiambos know best how to put the money to the best possible use.
To determine how much money to give the residents of the village on Lake Victoria, GiveDirectly relied on statistics from the World Bank and the Kenyan government, which indicate that every adult Kenyan needs at least $22 a month in groceries to get by. Norah and Erick are aware that the sum is only intended to cover their basic needs. But Norah views the money as a kind of backstop. “It allows us to go about our real work without having to worry whether we will be able to earn enough for the next week with simple jobs. It’s nice to know that enough food will be available at home after a hard day’s work.”
Scientific studies on experiments with basic incomes in Kenya and other countries show that recipients only seldom use the money for drugs, alcohol or tobacco. Far more often, the money is used strategically, as demonstrated by Norah and her husband, neither of whom had ever had a set monthly income but were nevertheless able to develop a plan.
It isn’t yet known whether the majority of basic income recipients act as the Odhiambos do. GiveDirectly has done a good job of shielding the experiment from unwanted attention and journalists are accompanied to the village by organization employees, who also choose who is to be interviewed. It seems likely that GiveDirectly only presents the success stories – making it difficult to determine whether Norah and Erick are the norm or whether the basic income they now receive will permanently improve their lives.
The brains behind GiveDirectly are former business students from elite American universities like MIT and Harvard. Eight years ago, they wanted to test the ideas the posited in their degree papers in the real world. Do money transfers reduce suffering in developing countries? Early results from smaller trials in Kenya were encouraging, so they founded their own aid organization and attracted donors, including major Silicon Valley players like Google, Facebook and eBay.
Rethinking Development Aid
With its use of direct payments financed by donations, Give Directly is hoping to rapidly achieve what development aid has been unable to do in the last 50 years: permanently lift people out of extreme poverty. Critics of international development policies have high hopes for the GiveDirectly idea, believing it could deliver fundamental change.
The U.S. aid organization has also allowed researchers to study the project, with the first conclusions expected in two and a half years. Teti also has very clear aspirations. “We want to influence the development aid discussion with our direct payments,” Teti says. “To the point that money transfers become the new standard.” Before joining GiveDirectly, Teti spent 14 years working for other aid organizations in Kenya. She says she also studied “development policy communications” in Kenya as well as gender research and human rights in Sweden and that she has a good overview of the different approaches to development aid.
African economists like Dambisa Moyo of Zambia or James Shikwati of Kenya blame classic development policy for the fact that many African countries are so underdeveloped. A former economist at Goldman Sachs, Moyo argues that the reliable flow of aid money to recipient countries has destroyed any incentive to set up a productive economy. Shikwati, meanwhile, accuses many African governments of not creating their own policy and of merely doing the donors’ bidding for them.
Compared to other African nations, Kenya has been more of a success story in recent years. The country is considered to be relatively stable, life expectancy has risen from 51 to 67 in the past 50 years, more than 85 percent of children can read and write and the economy is currently growing by more than 5 percent each year.
On the whole, though, critics like Moyo, Shikwati and the German-Ethiopian author and management consultant Asfa-Wossen Asserate consider the results on the African continent to be far too meager. Asfa-Wossen estimates that around 800 billion euros in total development aid has been disbursed across Africa since 1960. But rather than sustainable growth, however, he argues that such aid has largely created new dependencies and lined the pockets of corrupt politicians.
GiveDirectly calculates that $150 billion in development aid flows globally each year. On its website, the organization calculates that only half that money, delivered in the form of direct payments, would be sufficient to help each of the 700 million people who currently suffer from extreme poverty. That calculation, though, leaves out the fact that GiveDirectly relies on infrastructure that it would be unable to create itself. The fact that Kenya’s economy is growing today, that the country is politically stable and that most children attend school is the product of decades of development work conducted by industrialized nations.
Direct payments can build off that, and they have an advantage: There are few ancillary costs, they don’t require warehouses to store sacks of food and it eliminates the need for intermediaries. “Not least thanks to new technologies like M-Pesa, we reach an efficiency level of more than 90 percent with our monetary payments,” says Caroline Teti, GiveDirectly’s director of external relations. She says operative costs can be reduced dramatically because of the elimination of logistical challenges. Out of every $100 donated, $91 lands directly in the hands of recipients, GiveDirectly claims.
Teti manages the organization’s relationship with the relevant government ministries in Kenya, with donors and with the media. Reports of success, but also of problems, land on the 39-year-old’s desk in GiveDirectly’s regional office – a room in a slightly run-down hotel in the city of Bondo.
Along with 14 additional employees crammed into the elongated room, which is filled with rickety wooden shelves, files and computers, Teti coordinates future projects. Some employees work mostly in the office, but most spend their time driving from village to village each day, spreading GiveDirectly’s idea. Successfully, too. At the end of November, the organization added new villages to its basic income program and now provides a basic income to 17,000 participants in 124 villages. The organization estimates the project will cost a total of $30 million and says it has already secured $26 million in donations.
GiveDirectly’s approach adheres to the concept of helping people help themselves, which has been the motto of development aid for decades: People need to be put in situations where they can improve their own lives. Banks are providing microloans universities and corporations from industrialized nations are providing training to scientists, economists and government officials. Teti describes what she calls the “cage of poverty” and says it can be broken through with money transfers. She is certain that “poverty makes people passive and the people accept their situation as their fate. But people don’t stop thinking just because they’re poor. They want change, but they are banging their heads against the wall because they don’t know how they can achieve their goals.”
For Teti, the solution is simple: money. “If you give these people cash, they open their eyes,” she says. “They suddenly see possibilities. We give them the opportunity to make them happen.” The knowledge is there, says Teti, because almost every Kenyan child now attends school and many adults are learning new vocations. But, she adds, “knowledge without money doesn’t do much for people because hardly anyone here has ever had a cent to invest.”
The $1,000 Gift
GiveDirectly has tested different approaches to direct transfers and a total of more than 50,000 households in Kenya have received payments. Before venturing into the basic income experiment, which is limited to 12 years, the organization paid $1,000 split in three tranches and disbursed within a period of just a few weeks to a target group it had identified as being “particularly poor.” The recipients of these one-time payments were also allowed to do what they wanted with the money.
The highway is lined with shacks cobbled together with cardboard, wood and old advertising signs, interspersed with single-story cement structures, whose brightly painted facades are covered in dust. The smell of burning trash wafts through the air, women balance their shopping on their heads while men tinker around with worn out Yamaha motorcycles or sit in front of kiosks or M-Pesa shops waiting for customers. Some have freshly slaughtered goats for sale.
Any attempt to find out how that money was used has to go through GiveDirectly, because the organization keeps the names of the recipients and the villages where they live secret. Highway C 27 leads from the GiveDirectly office to the impoverished villages Teti has spoken of. There are two paved lanes with soft shoulders and motorcycle taxis recklessly weave in between rickety, overloaded buses and giant SUVs with tinted windows.
Dirt roads lead from the highway to individual villages. Shepherds steer herds of cows with a stick around potholes as big as a bathtub to a collection of small brown clay huts, some of which are still covered with straw though many have corrugated metal roofs. The small, papaya-shaded yards of the village huts, reachable only by narrow footpaths, seem like islands amid the barley fields and livestock stalls.
In one of these remote spots, 390 residents received one-time payments from GiveDirectly. One of them is 39-year-old Habil Huma Ongolo, who is married and has a three-year-old son. Ongolo still vividly remembers the times when he had no children and lived together with his wife Evelyn in a small straw hut without electricity or plumbing. The bed was a straw mat on the hard clay floor, three chickens pecking the ground next to it. That was all they had. Ongolo was a day-laborer; he cleared fields, tilled soil, did some welding and performed other odd jobs. He earned 50 shillings a day for his work, a little less than a euro – when times were good.
“I lived hand-to-mouth and had to be constantly on the lookout for ways to earn money. And what I did have was always gone quickly on soap, food or water,” Ongolo says as he leans back in his white plastic chair. In front of him, on a deep green meadow, stands his new, two-bedroom home with a real bed and a corrugated metal roof. It was the first investment he made after receiving his payment from GiveDirectly.
Three payments within a two-month period brought Ongolo and his family unexpected wealth in November 2016. The $1,000 represented roughly six times his average annual income. “The money got me moving,” he says. Ongolo made additional investments and can also precisely remember every shilling he spent: a 30-year lease on 1.5 hectares of farmland; four sows and a boar, whose offspring will soon be sold at market; banana trees; and, most importantly, 2,500 young Eucalyptus trees. Together with the small store in which his wife sells what they harvest, these purchases are intended to bring the family regular income enough to put their worries behind them.
Ongolo calculates that, in a few years, the trees will be big enough that he can sell them for 30 euros a piece. Ongolo didn’t save a single cent. He invested everything. And he is now seeing his earnings grow with each passing day. “Thank god and luck,” he says.
He certainly was lucky, in that he fit perfectly with GiveDirectly’s selection criteria. “We used government data and identified the poorest regions in each country,” Teti says. After that, GiveDirectly teams travel to the villages with a list of questions in order to find the residents in the greatest need. They examine a total of 28 criteria, including education level, availability of toilets and the conditions of homes, food and livestock. With that information, they generate a point score indicating the residents’ poverty level. In contrast to experiments with unconditional basic incomes in industrialized nations, only those who are deemed to be poor are given money by GiveDirectly.
The aid provided by GiveDirectly isn’t welcome everywhere. In some places, faith stood between the organization and the people it was trying to help especially at Homa Bay, located on Lake Victoria. She says the villages there are not only bitterly poor, but also deeply pious, inhabited by evangelical Christians and adherents of the Free Church. “They thought we were a sect,” Teti says, “sent by the devil to buy their blood and children. We spoke with the priests and village elders, but we didn’t stand a chance. So, we just moved on.” And they didn’t come back. GiveDirectly only offers the money payments once, and Teti says that only one out of 30 villages turns down the offer.
Open Questions
Can this experiment serve as a positive example for a new, more direct approach in development aid? Direct payments do in fact circumvent a few problems associated with classic development aid, such as corruption and inefficiency. But the consequences of this incursion into society will not become clear for a few more years. Researchers are studying what the money does to the people and their villages.
The initial findings of those who have been given the lump sums are encouraging. Many participants like Ongolo showed a reduction in the stress hormone cortisol and improved nourishment as well as an increase in ownership and in investments. As Teti puts it, “Our recipients get peace of mind through the money.” She says that familial cohesion is growing and that parents are able to pay school fees for their children regularly.
And the latest basic income project is expected to deliver even better results because it focuses on the villages themselves rather than the individual recipients. But what direction will a community take if all of its members know their essential needs will be taken care of in the long run? What kind of payment can have the greatest impact – a single lump payment or less money spread out over a longer period of time? Do recipients of a basic income plan differently because the risk is lower of them losing their investment through, for example, a bad crop?
Either way, the example of the Odhiambos already shows that a person’s sense of security and confidence grows in proportion to the reduction of money-related stress. They, too, are planning to buy livestock and they are certain that their lives will be better after 12 years of receiving a basic income. Norah Odhiambo sees herself as the perfect example of how a basic income can have a huge impact without making a person lazy. Norah says goodbye to her husband Erick, who is leaving on his bike for the nearest M-Pesa station. His mobile phone just vibrated with a text message from GiveDirectly. Once again, he has 2,250 shillings in his account.
