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Forget the Fish, Forget the Fishing Rod. Give a Man Some Capital – Podcast with Chris Blattman
00:21:25
Give a man a fish, the old adage runs, and he’ll eat for a day, but teach a man to fish and he will eat forever. Professor Chris Blattman doesn’t think we should do either. In this week's podcast, Blattman explains why cash transfers may...
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- [00:06]
A
Hello and welcome to the CGD podcast with me, Rajesh Merchandani. I want to think about an idea today that seems to make a lot of sense. On the face of it, you create jobs in developing countries and you remove one of the main reasons for violence and extremism. Right? Certainly it's the kind of idea that policymakers put a lot of faith in. It seems like a simple equation. But my guest today wonders if that faith is misplaced. Professor Chris Blackman from Columbia University is one of the foremost researchers on what leads people into poverty, violence and crime. He's also a non resident fellow here at CGD and along with Laura Rolston from the World bank has written a new paper that looks at what works in generating employment in poor and fragile states and whether creating jobs promotes peace and stability. Chris Blackman, great to have you here. Welcome.
- [00:56]
B
Thank you.
- [00:57]
A
Now, let's start with the kind of underlying basics here, that increasingly poverty in the world is concentrated in conflicted or fragile states. So if you want to tackle poverty, you have to look at those countries, right?
- [01:09]
B
Absolutely. Well, I mean, the main issue is that countries that are not fragile are growing and we can expect in 10 years for them to have much less poverty. So if we want to look ahead to where the poor people are going to be in 10 years, it's the places that are not growing and places that are mostly not growing because they're politically unstable.
- [01:29]
A
It seems logical that if you have large numbers of poor young people in fragile states, you have a recipe or almost like a petri dish for extremist recruitment, and that the opposite should be true as well, that if you give them jobs and the ability to earn a living, then you deny oxygen to extremists. But are you saying from your work that that isn't necessarily the case?
- [01:51]
B
So as it happens, a lot of people in extremist groups are not coming from the poorest countries or the poorest people in the poorest countries are often middle income. They're often relatively well educated in that country. I'm sure for some of them, economic incentives and whether or not they can find a job matter a little bit. But it's, I think the consensus is that this is not what's driving people into extremist and ideological driven organizations. It matters, but it matters a little bit.
- [02:22]
A
So, for example, like the thousands of people who've joined is ISIS fighting in Iraq and Syria, coming from other countries of the world. But those core recruits, the core fighters, are most likely from those countries. And you take an Example, say Al Shabaab in the Horn of Africa. I mean, they do recruit people by offering them a gun and a salary for them, a way of living.
- [02:46]
B
So I'm sure it's true that if you and we know it seems to be true that when you make, when you raise the wages in a country, then the wage bill for any organization, including an armed group, is going to go up and that's going to make it a little more difficult for them to recruit, and that might affect how intense the violence is on the margin. But this isn't maybe the decisive factor for a lot of young men who are participating in these groups. Now, that's not necessarily true for all kinds of violence. I think there are much more economic forms of violence, like crime, like being paid to be an election thug, some mercenary forms of recruitment. So there are certainly groups that pay people with really no ideological stake. And I think jobs and incomes and other things can be a real deterrent in those cases. But you have to think of these more economically motivated violence versus this more ideologically motivated violence is jobs matter in all cases, but much more so in this narrower bit of economically motivated violence.
- [03:50]
A
So let's talk about that. That's the kind of subject of your paper. What would you say were your kind of main results, your main findings then?
- [03:58]
B
So the paper itself is actually a look at many different papers. It's an attempt to step back and look at some of my own work, which has been happening mainly in places like Uganda and Liberia, but also to draw on things we know, everything from Chicago gangs to people who have done qualitative and quantitative studies in Latin America, the Middle East. So it's stepping back. One example which helps, I think, clarify some of the. The message is I was working with ex combatants in Liberia. Liberia had a civil war and political instability lasted for 15 years. And that ended in 2003, more or less. And by 2008, there was still political stability. The country was growing slowly. But there were maybe 10,000 young men in the rural areas in what the United nations peacekeeping force called hot spots. And what they meant by hotspot is there were a dozen or two dozen or five hundred or a thousand young men and some women off in a place where there wasn't necessarily a government presence there, certainly no police or military. They're occupying a rubber plantation illegally. They were illegally mining gold and diamond deposits on the surface that the government own that land, or they were hoping to lease that to private sector corporations. And one, they wanted these young men to stop this resource Theft, if you will. But they wanted to provide them an alternative. But they were also worried that these guys were a force for instability in the country, that were there a coup or were there a civil war, these guys would be very easily mobilized into violence, especially because the people in charge of these camps were former commanders in either rebel army or some government force. And so they were very loose armed group structures. So this is worrying. You've got 10,000 loose molecules up there in loose armed group structures. And indeed, when there was a coup in guinea and rumors would go through, I was there at the time and people were starting to talk, oh, are there armies going to get paid? Will they need an army? Should I go? There was a war in Cote d' Ivoire that was very short. At the end of 2011, beginning of 2000, at the end of 2010, beginning of 2011. And again, some Liberians went mostly from the city, but all the guys in the rural areas, they're mobilizing, they're talking, they're starting to make contracts, starting to make deals, they're starting to move to the border. And so the question was, how do we. What do we do with these guys? And one organization that we stumbled upon had a really terrific program. It looked like a terrific program. It said, they can be farmers. This is the. This is what most people maybe are going to do, at least in the rural areas. Let's teach these guys to be more effective farmers. What do they need? Well, they need some skills and they need some capital. And so they provided both. And it was a program that enticed these guys off these hotspots to have several months of skills training in agriculture and then a package of capital. And we ran that as a randomized control trial. We said, lots of people want this program. Why don't we offer it by lottery among all of the people who express interest? All these hires come in and we'll follow them for a year or two. And we did. And what happened is they implemented the program. Everybody got the skills training, and then some got the capital, some didn't. Basically, there was an accident. I won't go into the details, but some people didn't get the tools and materials they needed to become farmers. And so we went back about a year or two later at the time when a lot of recruitment was happening for this war in Cote d', Ivoire. And. And we found a few things. We found that the people who had received both the skills and the capital were less likely to be involved in resource stuff. They'd essentially shifted Their work away from these more criminal resource stuff towards farming. And they were less likely to go to Cote d'. Ivoire. And this seemed to be really crucially dependent on getting the capital. So skills were useful, but they weren't enough to become successful farmers. Capital was really what was holding these guys back.
- [07:54]
A
And by capital you mean what?
- [07:56]
B
In this case, it was just what we call in kind materials. So in this case it would be seeds and tools, and if you were a tailor, it would be a sewing machine. But at the end of the day, you need cash to buy these things. Some programs just give cash that can be a very cheap and effective way if you think that people are going to use it well, which they often do. Not everyone believes that. So what this encapsulates is, is the idea that sometimes skills matter, but people mostly seem to be held back by capital. That when you even give high risk men capital, they seem to spend it well. They will move away from crime. They might not exit it, they'll shift their portfolio of work because people are doing many different things. And this might detract from some economic forms of crime, like being paid to be a mercenary in Cote d', Ivoire, which they were less likely to do, and the like, research stuff.
- [08:45]
A
So this, to me sounds like the old saying of teach a man to fish.
- [08:53]
B
So, no, for the following reason, we're saying don't give a man a fish, don't teach a man to fish. Give him a fish. Yeah. No, give them the capital to decide, first of all, whether they want to be a fisherman or something else. And if they want to be a fisherman, they can use that capital to decide do they need a rock, do they need someone to teach them how to fish? People seem to be capable of making wise decisions when they get. So you give them a much more flexible form of capital and you let them make that decision making. Because I'm the capital, I can't make that decision for them. And certainly any decision I make might be right for the average person. But since everyone's different, some program that gives everybody rods or everybody fish or everybody lessons isn't right for everyone. So you give them this really flexible thing, like cash, and you let them decide all these things, or you give.
- [09:48]
A
Them the capital in kind that is relevant to them.
- [09:51]
B
Right. If you feel uncomfortable with giving people cash because you think maybe the best investment for the guy living in this mining camp is to buy a firearm so he can rob all of his friends of their gold, which is a very, maybe very sensible investment, or if you think that this guy's just going to spend it on drugs or spend it on alcohol. These are reasonable fears. Then this is what motivates in kind giving. Or if you think that this woman, young woman's family is just going to extract the cash, but if we give her a sewing machine, they're less likely to extract that from her.
- [10:26]
A
Also the thing about the fear about spending it on drugs or alcohol is not really borne out by research.
- [10:30]
B
No.
- [10:31]
A
So my owners are not wasted, squandered like that.
- [10:34]
B
So we have, there's something like 20 studies now where people have given up cash and tracked how it's spent and negligible amounts are spent on this bad stuff. In our case, in a related study with urban ex combatants of other high risk youth in Liberia, not this rural group, a very similar group, we gave them $200, just 10 US$20 bills in their hands and we tracked how they spent it over time. And not even they wasted it for the most part. They saved and invested it.
- [11:01]
A
So your kind of three point plan would be what in terms of kind of making sure that you can steer people out of violence, it's not create jobs for them. That's not on the list, is it?
- [11:11]
B
So the three points I would say one is think about creating work, not jobs. Because where we seem to be best able to create work on a large scale is by helping people improve the things they're already doing on the margin rather than say give them a whole new say formal sector job or some wage earning job, some full time job. So work, not jobs, we're really good at creating work on a large scale jobs harder to do, harder to do on a large scale especially so just hard to do then if we want to create work. The second point is, is capital over skills or what I like to think of as capital centric programs. Skills might matter, mentorship might matter, all sorts of soft skills like your motivation and emotional state, all of these. There's lots of things that go into someone being successful. But centrally people are restricted by the lack of access to capital. We don't want credit on capital. So maybe those other things will help them augment capital. But really it comes down to give them cash or some form of capital. They will probably have high returns to that money. And then the third is expect good things in terms of poverty alleviation and expect good but more modest things in terms of crime and other. Don't overestimate, I think we've done how much this will change Social Security because.
- [12:44]
A
There'S this Idea isn't there that people have a kind of portfolio of work where they get their income from? Some of it is legal, some of it may not be legal assignment business, sort of in that gray area. And if you present them with an opportunity where the money is better, then they'll do less illegal work. But maybe not entirely illegal, right?
- [13:01]
B
Yeah. In some circumstances it's possible that the illegal work is what a common would call capital intensive, meaning there's actually high returns to capital in that legal work. So buying a handgun for the most part, I don't think that's true. And I think that people, the returns to capital are probably higher in peaceful ways. But the unfortunate thing is, although giving capital is part of what donors and aid agencies do, it tends to be a very limited part. The big biases towards skills training and there's like vocational training and business training. It's almost knee jerk. Governments want it, presidents want it. I think it has lots of attractions. I think, I think it works as it turns out. I thought it worked as it turns out. Years, years and years of research. Dozens and dozens and dozens of studies in rich countries. Fewer studies in middle income countries and then a handful in which low income countries basically all tell the same story. Men just have almost no impact from this. You give this intervention to men, we don't really see any results. Skills training, some, very seldom. Okay, but women, women sometimes. But these skills training programs cost a lot of money. You have to pay all these expensive people new buildings and blackboards and, and so they might cost $1,000 or $2,000 a person. And so the gains that people get when those results are positive, when they have gains, are not so great that it pays off how much the program costs. So from a cost effectiveness point of view, it's really hard to find training programs that are cost effective, whereas there's this capital alternative that seems to be very cost effective. Now, this isn't true all of the time. So I like to say, I don't, I don't like to say training programs don't work. I say training programs are hard to get right and capital centric programs are hard to get wrong.
- [14:57]
A
So in all this work, what are the points that you would present to policymakers to say this is what you need to change?
- [15:06]
B
I would say you're already spending a tremendous amount of money on these kinds of entrepreneurship and labor market interventions. Most of it seems to be, a lot of it seems to be on training. So someone at the World bank last week wrote on a World bank blog that they spent. They helped governments or finance governments to spend $9 billion on training programs between 2002 and 2012. That's a ridiculous sum of money.
- [15:32]
A
You were batting your head against the tech.
- [15:33]
B
Exactly. And had belatedly now are grappling with the fact that all the evidence suggests this may have had very little impact on, certainly not very cost effective.
- [15:44]
A
Nine billion.
- [15:45]
B
Nine billion dollars. I don't know where that number comes from, but it's true that the number is very large. So I would say.
- [15:51]
A
Would you say the World bank wasted its $9 billion there?
- [15:54]
B
I think the World bank themselves, in that blog post, obliquely made that admission. So I don't. I just have to. I just have to point. I just have to point to them making it. But I have no hesitation saying that most aid organizations probably waste most funds directly employment generation. I think most of it's been wasted. So I think now what we're saying is we have the clues of a very. A different model that you're already doing a little bit and just shift. Don't spend more money on employment. I mean, if you want to spend more money on employment, spend more money on employment, but shift the money you're already spending towards something that we have an evidence base that works. And then acknowledging that we have no idea, maybe training looks extremely well, conditional on getting capital. Let's spend a little bit of our research energy, which the World bank does a great job of, and test that. Let's figure out if the core of the program is cash and what are the other things we can do like skills training or mentorship or something that augments that and helps people be even more successful. And that would just let existing aid money be used much, much, much, much more fixed.
- [17:01]
A
There are a few people talking about this idea. What you're basically saying is let's move towards cash transfers or capital transfers rather than aid in kind. And there are a few people starting to talk about that. CGD's Owen Barda is actually chairing a panel convened by DFID looking at humanitarian aid. Would it be better if we gave more cash instead? Politically? Is that the kind of idea that can gain traction, though? Not just humanitarian situations, but also the situations you're talking about?
- [17:32]
B
So a lot of governments are already doing this. Partly it's labeling or tweaking. So they call it conditional cash transfers, and they attach it to things like sending your children to school or vaccinations. And somehow that seems to make it politically more attractive. Sometimes they call them business plan competitions or business Startup grants. And that could be good in, in that the sense that people who, people applying to these things might use the cash differently when it's framed that way. I believe that's true. I don't know it's true, but that seems plausible. So there's a lot of this going on and a lot of World bank programs. So there's ways that it's already politically saleable. Merely saying that the thing you're doing over here is really effective and the thing that you're doing over here is just a wash, then hopefully that's a message. That's actually not a message that policymakers like listen to as much as they should. But I don't think that's a hard message to sell.
- [18:24]
A
And let's try and apply your ideas here to the idea of how to pay for development, how to pay for the SDGs. The Addis conference, the focus there was all on private finance. The SDGs are going to cost such a large amount of money that, you know, governments particularly don't want to pay for it and they can't pay for it. Aid is a diminishing part, development finance. So if the private sector is going to be more involved in development finance and paying for development, how do your ideas about more capital centric employment programs feed into that debate?
- [19:00]
B
So in two ways. One is to realize that what the evidence is showing is that one time transfers are not just feeding people for a year, but it's actually increasing their ability to generate incomes. So a lot of people are worried that cash transfers are not sustainable and I think that's not true. I think one time transfers seem to really help poor people create more income for good to some extent.
- [19:25]
A
But what private corporation, for example, is going to give cash transfers or capital transfers? They're not going to give you money.
- [19:31]
B
Well, they won't. I think that. So there's two answers. One is that there's, I think with just the existing spending on aid, if it's directed toward, given the fact that one time transfers will lead to permanent increases in income for maybe the average person who receives it, directing the existing amount we're spending would actually probably go a much longer way towards achieving some of the SDGs than some people assume, it's a very successful model. So you don't necessarily need more aid to just be more effective. The second is that the big cash transfer that's going into a lot of these economies right now is remittances. So if I wanted to, and this is politically controversial, but if I wanted to generate more cash transfers through the private sector or through private means to developing countries. Increasing the number of people coming from, say, a place like sub Saharan Africa to rich countries would generate those cash transfers, transfers by working in the private sector in these countries and lead to those kinds of predictable gains. I don't care if the cash transfer comes from where it comes from, it's going to have potentially the same effects on investment and poverty alleviation at home.
- [20:41]
A
That's exactly the kind of work that Michael Clementy at the centre is doing, open migration, looking at the positive benefits for both receiving and sending countries. As you say, politically hugely controversial on the subject, one that I hope we can talk about again in the future. But for now, Professor Chris Blackman, it's been great to have you on the CGD podcast. Thanks for joining us.
- [21:00]
B
Thank you.
- [21:01]
A
Don't forget, you can find out much more about all of CGD's work on our website, www.cgdev.org. and please do join me, Rajesh Merchandani, for the next podcast from the center for Global.