The Three-Word Question That's Changing What Charities Do With Their Resources

Humanitarian groups are reevaluating their work in light of how easy (and efficient) it is to just give cash to those who need help.

If there is no doubting the good that humanitarian groups have done in the last half century, there is also no doubting that they could have done much more. Effectiveness has rarely been their lodestar, and one reason why is that the sector has lacked a stable reference point against which to judge interventions, other than the status quo. That is, in order to be considered worthwhile, a humanitarian act only had to bear the burden of making a marginal improvement in the condition of those it sought to help.

In the U.S., the lack of a more ambitious threshold made a certain kind of sense. For one, the nation’s charitable tradition has long celebrated voluntary acts of giving as expressions of individual preferences and passions, and has historically resisted any constraints, regulatory or conceptual, on donors’ choices. And the country’s deeply ingrained sense of pluralism has favored a multiplicity of approaches to addressing poverty over singling out one in particular as a standard.

But that logic may no longer hold: A new trend within the humanitarian sector—the increasing popularity of simply transferring cash to people in need—now allows for the establishment of a charitable benchmark. In other words, before a donor gives a gift—say, to support an agricultural training program in sub-Saharan Africa, or to provide food in the aftermath of an earthquake in Pakistan—they would first ask themselves if their money would be better spent if given directly to the same aid recipients and letting them decide what to do with the money. A no-strings-attached transfer of funds may sound indiscriminate, but as a panel of development researchers from the Center for Global Development (CGD) and the Overseas Development Institute (ODI) pronounced last year, “Cash transfers are among the most well-researched and rigorously-evaluated humanitarian tools of the last decade,” and should be thought of “as the ‘first best’ response to crises.” Given that the evidence has shown cash transfers to be an inexpensive and “highly effective way to reduce suffering,” the panel’s report went on, “The question that should be asked is ‘Why not cash?’”

Those three words are together an interrogation that breaks with the foundations of modern charitable giving, placing the onus on donors, big and small, to defend the priority of their own humanitarian prerogatives against those of the people they seek to help. For some, this will be a heavy load. “The aid sector in general is bad at trusting people and reluctant to hand over power and control,” Paul Harvey, a researcher at ODI, has written. “It’s fundamentally premised on the idea of the external experts deciding what is needed and providing it. Cash challenges that.”

Researchers’ excitement about transferring money directly may make it sound like a novel strategy, but in truth its popularity marks the rehabilitation of cash relief as an accepted form of charity. For centuries, giving money directly to those in need was considered one of the quintessential acts of kindness. In Catholic tradition, almsgiving was honored not as a means of eliminating poverty but for the intimacy it established between giver and receiver. Little consideration was given to how alms were ultimately spent—it was beside the salvific point.

Yet that began to change as poverty became increasingly understood less as a providentially determined state than as a reflection of individual moral failing. From the 15th century onward, breakdowns in the social order, produced by epidemics and war, by the erosion of the feudal system, and later, by the stirrings of industrialization, led many of those with resources to regard people in need as a suspect class that threatened their own status. For authorities who sought to organize and formalize the labor market, idleness became a primary preoccupation, and throughout Europe, begging by the able-bodied was routinely criminalized, punishable by whipping or branding.

These efforts were focused on the recipients of charity, but by the 19th century, an equal amount of energy was devoted to disciplining the donors as well. In an 1889 article that came to be known as the “Gospel of Wealth,” for instance, the steel magnate Andrew Carnegie went so far as to declare “indiscriminate” almsgiving to the poor “one of the serious obstacles to the improvement of our race.” He called out the folly of a “well-known writer of philosophic books [who had] admitted the other day that he had given a quarter of a dollar to a man who approached him as he was coming to visit the house of his friend.” The writer knew nothing of the habits of the beggar or of the uses that he would make of the money; most likely, Carnegie suggested, the beggar would spend it “improperly,” on drink or some other excess. “It were better for mankind that the millions of the rich were thrown into the sea than so spent as to encourage the slothful, the drunken, the unworthy,” he wrote.

It was Carnegie’s belief that the wealthy should apply the same attributes that led to the accumulation of a fortune toward its philanthropic redistribution. That’s one of the reasons why he argued that any capitalist who raised wages was effectively frittering away an enterprise’s earnings, since workers would only squander the gains, which could have been directed toward ambitious philanthropic ends. In other words, Carnegie’s “Gospel” insisted that those furthest removed from poverty were best equipped to combat it. Over the following century, a technocratic mode of analysis echoed this version of stewardship to make a related argument: Those endowed with advanced professional training and research expertise—as in, the men and women who began to populate the humanitarian sector—should make the decisions about how charitable resources could be best used to address global poverty.

It was against this institutional backdrop that cash transfers started gaining in popularity. As early as 1981, the Nobel Prize-winning economist Amartya Sen made a moral and philosophical case for cash transfers as a response to humanitarian crises. Beginning in the late 1990s, in an effort to reduce poverty, governments in Latin America designed conditional cash transfers, contingent on recipients’ complying with some predetermined requirement, such as regular school attendance or health check-ups for their children; by 2011, 18 countries in the region had instituted such programs, and many countries in sub-Saharan Africa developed versions as well. Then, in 2004, the tsunami that ravaged nations on the Indian Ocean prompted a number of large aid agencies to experiment with cash transfers as an alternative to in-kind assistance.

Since then, an impressive base of evidence has developed around the success of cash transfers. The humanitarian sector has become more open to rigorous self-examination, with some organizations using randomized controlled trials to measure their programs’ effectiveness. The findings of some of those evaluations have put to rest one of the governing assumptions behind the centuries-long suspicion of cash transfers: that, if given additional funds, the poor would waste them on drugs, alcohol, or some other antisocial frivolity.

Instead, the research suggests, poor recipients tend to spend money responsibly, on what they think they need most. Researchers have found that a lot of in-kind aid is wasted when it doesn’t match what recipients think they need—they just sell it or give it away. In fact, a recent four-country study that compared cash transfers to food aid found that nearly 20 percent more people could be helped at no additional cost if everyone received cash. And beyond their cost-effectiveness, unconditional cash transfers promote autonomy as a good in its own right, re-prioritizing the discretion of the beneficiary, as opposed to that of the benefactor.

The popularity of cash transfers has gotten a further boost from technological advances. Ten years ago, even if a donor had a preference for cash, many countries lacked the infrastructure to deliver it expeditiously. But the rise of digital payment systems, widespread cell-phone ownership, and increased access to financial services—more than 60 percent of all adults globally have an account at a financial institution or through a mobile device—has made cash transfers a much more viable option.

This convergence of evaluative rigor and technological advances helps explain the rise of GiveDirectly, the charity that has most aggressively implemented charitable unconditional cash transfers. GiveDirectly has developed programs in Kenya, Uganda, and Rwanda, pooling donations and then electronically transferring $1,000 to each of the households it has identified as the poorest in the region. The organization then monitors the recipients and conducts randomized controlled trials to evaluate its programs. It’s a relatively simple concept, though it took a while for GiveDirectly to convince potential funders of its merits: One fundraising pitch in Silicon Valley was reportedly met with the response, “You must be smoking crack.” But investors couldn’t ignore the organization’s data, and soon GiveDirectly had attracted funds from Google and from several of Facebook’s co-founders.

Given their effectiveness, it is surprising that cash transfers still represent a “niche form of aid,” as the CGD-ODI panel’s report phrased it. The panel estimated that it now represents only 6 percent of global humanitarian relief, though this figure includes conditional and unconditional cash transfers, as well as vouchers that can only be applied to specific types of goods or services. But there is a strong push now to boost these figures. United Nations Secretary-General Ban Ki-moon’s recently called for cash-based programs to become “the preferred and default method of support” for humanitarian aid. And last year, the International Rescue Committee (IRC) announced it will “systemically default to a preference of cash over material assistance,” and committed to delivering a quarter of its humanitarian aid in the form of cash relief by 2020 (up from around 6 percent in 2015). For its part, the CGD-ODI panel did not recommend a particular percentage of cash to aim for, but argued that it should be an “ambitious” scale-up, one “an order of magnitude greater than that seen to date.”

It’s important to note that even cash transfers’ more enthusiastic boosters do not claim it as a cure-all, and insist that its appropriateness as a humanitarian or development response can still hinge on the particularities of recipients and the regions in which they live. There are still also significant implementation challenges in increasing the use of unconditional cash transfers in impoverished places throughout the world. Many areas still lack the necessary financial and technological infrastructure and have difficulty attracting the private and public investments to develop it. Even in places with the right systems, transfers are still not always possible: In 2013, after a typhoon in the Philippines damaged cell-phone towers and wiped out service in large parts of the nation, aid agencies had to deliver cash to the various islands by helicopter.

And further, there are plenty of situations in which alternative interventions prove more cost-effective than cash transfers. For example, GiveWell, a charity evaluator that has been a major supporter of GiveDirectly (and, full disclosure, to which I have served as a consultant on projects unrelated to cash transfers), has determined that distributing insecticide-treated mosquito nets—which evidence suggests people do not seem inclined to buy, even if they are offered at cheap prices—is roughly five to 10 times more cost-effective in saving lives than direct unconditional cash transfers.

More generally, though, cash might hold as great a promise for the humanitarian sector as an evaluative tool as it does a means of aid. GiveWell has begun to use cash relief as a baseline against which to compare other charities. And Jeremy Shapiro, a co-founder of GiveDirectly, likens the potential of cash benchmarking to the success of index funds, which are investments that track the performance of major market indexes such as the S&P 500. Originating in the 1970s, index funds don’t require as much active oversight and thus often boast lower operating costs and advisory fees; their supporters suspected that they would outperform most actively managed funds—and they were right.

Cash transfers, Shapiro points out, are similar to index funds in that both have been proven to achieve relatively impressive “returns” with extremely low overhead. Just as the existence of an investment instrument with low fees forced actively managed funds to justify their costs, the emergence of cash transfers might function as a galvanizing counter-factual, requiring aid organizations to demonstrate that their favored approaches are doing more good than would simply giving the money to the poor directly. Cash “keeps us honest,” says Radha Rajkotia, the senior director of economic recovery and development at the IRC, adding, “It helps really home in on how we might design our programs differently so that we might reduce time and cost and be just as effective.”

Index funds are not a perfect analogy: Earnings provide a uniform standard by which to compare a diverse range of investment funds, whereas in the humanitarian arena, there is a range of outcomes that can be targeted—health, economic security, individual empowerment, to name just a few. But it’s possible to account for this variety of goals, and GiveDirectly has begun working with institutional donors to help them run randomized controlled trials to compare the impacts of cash to other development interventions. This research will allow donors to better understand how various amounts of cash can help the people they seek to assist—to ascertain, for instance, how much a child’s nutritional intake improves when his family is given $500, versus $1,000, in cash. The goal of this research is to create a sort of measuring stick by which aid agencies can determine which interventions make the most of donors’ money.

But cash can serve as a sort of moral benchmark as well. As Elie Hassenfeld, one of the founders of GiveWell, explains, weighing programs against cash transfers prompts a powerful thought experiment for charities: Would they be willing to take money from someone they’re trying to help, just so they can provide what they insist is needed? Would they, in a sense, be willing to impose a tax on poor families to fund their favored intervention? The same logic can guide individual donors as well. Asking that powerful three-word question—“Why not cash?”—can keep any potential giver honest, forcing them to think more critically, and perhaps even more humbly, about how they seek to do good in the world.