It’s an unprecedented – and massive – experiment: Since 2017 the U.S.-based charity GiveDirectly has been providing thousands of villagers in Kenya what’s called a “universal basic income” – a cash grant of about $50, delivered every month, with the commitment to keep the payments coming for 12 years.
In Alaska, University of Alaska Anchorage researchers have found that Permanent Fund Dividends — often studied as a template for universal basic income programs — yield more than a dollar in future health-care savings for every dividend dollar given to a child. The annual payment also boosts seasonal employment in winter and temporarily reduces property-crime rates after it’s distributed in October.
The Kenya grants are a crucial test of what many consider one of the most cutting-edge ideas for alleviating global poverty. This week a team of independent researchers who have been studying the impact released their first results.
Their findings cover the first two years of the effort and compare the outcomes for about 5,000 people who got the monthly payments to nearly 12,000 others in a control group who got no money. But, just as significantly, the researchers also compared the recipients to people in two other categories: nearly 9,000 who received the monthly income for just two years, without the promise of another decade of payments afterward; and another roughly 9,000 people who got that same two years’ worth of income but in a lump-sum payment.
NPR has been covering this effort from the start — traveling to Kenya early into the launch at a village near Lake Victoria. During a community meeting that day people’s phones suddenly began to ping with a text alert, notifying them that their monthly grant had just been sent to their mobile bank accounts. The crowd erupted in cheers. Some of the younger women broke into song. The joy was a reflection of just how much people in the community had been struggling: The year before this experiment started, 85% of recipients reported experiencing hunger.
So how much of a difference has the experiment made so far? Here are five takeaways from the first batch of findings:
1. Giving cash aid in a lump sum has some major advantages over parceling it out.
When it came to measures of well-being such as consumption of protein or spending money on schooling, all of the groups who were given cash were better off than people in the control group that got no money. This fits with previous studies of no-strings cash aid, which find that poor people generally use the money productively rather than wasting it on alcohol, cigarettes or other vices.
But the big news came on a different measure: people’s likelihood of starting a business. On this front, those who got the money in a lump sum vastly outperformed people who were promised the same amount for just two years but received it in monthly installments. For instance lump-sum recipients had 19% more enterprises – businesses such as small shops in local markets, motorbike taxis and small-scale construction concerns. And the lump sum recipients’ net revenues from their businesses were a whopping 80% higher.
A member of the research team, MIT economist Tavneet Suri, says these results add to the evidence that many poor people are trapped in poverty by a lack of capital for precisely the kinds of transformative investments they would need to vault them into higher incomes.
“I might have this amazing opportunity to invest that’s going to get me great returns,” says Suri. “But there’s no way to borrow. I don’t have title to my land, so I can’t use my land as collateral. Or I just don’t have great ways to save money – because putting it under my mattress is not a great way to save.” In short, without an intervention like the lump-sum grants, she says, an individual struggling with poverty might think, “I can’t make this investment that would help get me out of poverty.”
2. Lump sums are so useful that even those who didn’t get them have banded together to create their own version.
GiveDirectly‘s head of research, Miriam Laker-Oketta, notes that it wasn’t all that surprising that the study team, which worked independently of her organization, found that the lump-sum recipients were more likely to make investments compared with those who got paid in monthly installments. Prior studies of smaller scale cash-aid programs — including an earlier experiment arranged by GiveDirectly itself — have pointed to similar results.
But this new experiment tests, for the first time, both the lump sums and the two years worth of monthly installments against the much larger promise of 12 years of income, again delivered in monthly installments.
So it’s notable that here too, the lump-sum recipients did best in the matchup – opening more businesses and earning more money from them even when compared to those who knew they’d be getting monthly payments for the full 12 years.
Andrew Zeitlen, an economist at Georgetown University who studies cash aid, says it’s an impressive finding of a “well-executed study.” After all, says Zeitlin, who was not involved with the research, “the long-run value of that universal basic income substantially exceeds the value of the lump sum transfers. It’s an order of magnitude difference.” So, the fact that lump sums had more impact even than this much bigger eventual payout points to the advantage of giving money at once instead of piecemeal.
Just as important, says Suri, is a second twist: Those who were promised 12 years of monthly payments still out-performed people who could only count on two years of payments. And – here’s the key – the way that the 12-year-group was able to invest more in their enterprises was by effectively converting their monthly payments into a lump sum.
They did this by making use of a creative financing tool known as a “rotating savings club.” Every month members of the club pool their money and then take turns getting the entire payout from that pot.
Rotating savings clubs are enormously popular among Kenyans who don’t have access to traditional banking. Even people who got the monthly income for just two years managed to put about 8% more money in a rotating savings club than those who got no aid.
But people in the 12-year-monthly income group used the clubs at an astonishing rate – contributing nearly 70% more money than those in the control group.
Suri says one explanation could be that people who were promised a full 12 years of monthly income knew their neighbors would also be getting the income because every adult in the village was made that same promise. This expectation of years of income to come for everyone involved likely provided people the confidence needed to invest in a savings club: After all, says Suri, you’re relying on your fellow members to keep contributing to the pot after they’ve gotten their own payout.
3. Making the benefit ‘universal’ – by paying every adult in the village – seems to have greatly increased the impact.
This broad-based, “universal” nature of the aid may also help explain another surprising finding, says Suri: The fact that people who chose to invest their cash grants did so by starting businesses.
“I thought we would see tons of investment in agriculture” – basically improvements to the tiny plots on which many villagers raise subsistence crops, she says. “Go buy fertilizer. Go buy a pump to bring in more water.”
That’s what earlier studies suggested.
But the prior interventions that those studies had analyzed were not “universal” in the sense that, instead, the aid was given to only a subset of people in a community. By contrast, this experiment – by providing the aid to every adult in a given village – “allows us to learn about the interdependence between people,” says Zeitlin. In particular, he says, it shows how the aid could boost businesses not just with capital but also by creating a large pool of new potential customers.
Suri says anecdotal evidence suggests this is precisely what happened. “It’s everybody getting the aid, and everybody knows that,” she says.
4. The grants did not seem to fuel inflation
Despite the sudden influx of money into these impoverished communities, Suri says that so far the data suggests that inflation there did not go up.
One possible reason, she says, is that while people did buy more things, this extra spending was distributed over a wide range of products, depending on the relative wealth of the person getting the aid.
“So it’s not all going into one commodity,” says Suri. “And that’s the advantage of spreading it universally.”
5. The big remaining question is whether the benefits of lump-sum payments actually last.
Suri says the findings thus far already have potential implications for policy. For instance, at present, “a lot of cash transfers that the World Bank runs in poor countries tend to be of the monthly-for-two-years kind of style.” And this new data adds substantial evidence to the view that, in fact, “the short-term [parceled out aid] is probably not such a smart policy. Because you could take the money and give it in a lump sum and get much bigger effects.”
What remains to be seen, she says, is whether the relative benefits of the lump-sum payments endure. Are the businesses that people start durable? Do they generate enough income to actually lift people out of poverty?
“The lump sum and the long term [monthly payments] look similar at two years,” Suri says. “But the question is, does the lump sum [impact] fade after year five? Year six? Does it just disappear? Or was this enough to keep [the impacts] going forever?”
Because if so, she adds, “Then we’re good. I don’t have to spend 12 years of money. I just have to spend two years’ worth and just structure it correctly.”
To find the answers, Suri says she’s committed to continuing this study for as long as it takes.
“For the rest of my life,” she says, laughing. “You know, most people want to write a will for their assets – like, who are they going to leave their money to? I’m like, ‘Who am I going to leave the universal basic income project to?’ It’s maybe the most valuable thing I have as a researcher.”
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