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    How Giving Cash Directly to the Poor Paid Off in Brazil

    Written by

    Alec Liu

    Contributor

    President Luiz Inacio Lula da Silva at the World Economic Forum on Latin America in 2009. Via Flickr

    The most straightforward solution to poverty is to simply give those most in need cold hard cash. Critics bemoan any such policy as blatant wealth redistribution, the kind that kills productive motivation and creates a culture of welfare queens. But data from Brazil suggests otherwise.

    Ten years ago, in an effort to mitigate generational poverty and inequality, Brazil’s government implemented Bolsa Família (“Family Grant”), an unprecedented social welfare program that essentially paid the poor a guaranteed stipend, what economists call a “conditional cash transfer.” To qualify for benefits, families have to bring their kids in for regular checkups and vaccinations, and make sure they finish high school.

    Then President Luiz Inácio Lula da Silva, who made the program the centerpiece of his 2002 election campaign, proclaimed to the Brazilian people that “this is your right as a citizen of this country.” Today, a quarter of the Brazilian population is covered by the program. According to The Economist, the “anti-poverty scheme” is the largest program of its kind and “is winning converts worldwide.”

    Despite ongoing worries that free money will not only be wastefully spent but encourages laziness, Bolsa Família has been an overwhelming success, which is backed up by hard facts. Infant mortality is down 40 percent in the last decade, according to a report by the Globe's Stephanie Nolen. School enrollment is close to 100 percent, and children qualifying for assistance graduate at twice the rate of their peers.

    During his first term Lula, as the former president was universally and affectionately called, the poverty rate declined 27.7 percentThe gains aren’t the result of just the dole, but also the positive impact Bolsa Família has had on the job market helping to drive real gains in the minimum wage, up 72 percent in real terms since 2002. Three quarters of adult recipients still work. But the most startling statistic pertains to inequality: In 2001, Brazil was the world’s third most unequal country. Last year, it was 17th.

    The GINI index in Brazil, which measures income distribution, has steadily declined since 2001. Via Trading Economics

    Above all, these gains have been achieved at relatively minimal cost, with some reductions coming from consolidation of overlapping programs. Bolsa Família’s price tag is only about 0.50 percent of GDP.

    None of which is a surprise to economists, who have long understood the benefits of direct cash transfers versus payment in kind. It’s also an effective way to stimulate the economy since the poor are more likely to spend that money.

    Even so and in spite of a growing body of evidence, the social and political stigma of government handouts and wealth distribution is hard to shake off. “The general public continues not to like to give money to poor people,” Sonia Rocha, an economist with the Institute for the Study of the Labour Market and Society, told the Globe and Mail. “People don’t think it’s effective despite the evidence.”

    Critics wonder how much of the results are due to Brazil’s improving economy, which has grown at about 8 percent a year. Others complain that such social policies are a form of vote-buying, which is inherently unfair.

    Nonetheless, the program is capturing the attention of other nations as the world sputters forward under a cloud of economic malaise. “Governments all over the world are looking at this programme,” Kathy Lindert of the World Bank told The Economist after the financial crisis. In all, sixty-three countries have sent experts to Brazil to learn more about Bolsa Família.

    Switzerland surely has its eyes on the program as the country votes on whether or not to implement a basic income, one that would guarantee each of its citizens $2,800 a month, no questions asked. The US should be interested, too, given rising inequality and disastrous unemployment levels, exacerbated after extended jobless benefits were cut from the last budget deal. On Saturday, the emergency unemployment insurance program expired, cutting off benefits for 1.3 million workers who have been unemployed for more than 26 weeks.

    Leaving over a million Americans hopeless and lacking any source of income isn’t just cruel, it’s plain stupid. Cutting unemployment insurance doesn’t encourage the jobless to look harder for work, it causes them to drop out of the labor force altogether. On the other hand, creating an adequate safety net provides a platform for those short on luck to survive and potentially improve their life, something Brazil figured out over a decade ago.

    @sfnuop

    Related: Will Giving a Child $4,000 Make Them Smarter?