The Universal Basic Income experiment in Kenya

0:00Support for NPR and the following message come from Edward Jones. What does it mean to live a rich life? Maybe it's full of brave first leaps, tearful goodbyes, and everything in between. And with over 100 years of experience, your Edward Jones financial advisor can help. Edward Jones, member SIPC. This is Planet Money from NPR. There's this fundamental question in economics that has proven really hard to answer. how to spend money to help people out of poverty. The old school way of doing it was to fund programs that would support very particular things, buying cows for a village or giving people business training or building schools.

0:45But over the past few decades, there has been a new idea. What if the cure for people not having money was just giving them money? No strings attached. The argument for this idea is people know their own situation best. They can decide if they need a cow or training or a school. They just need some money. This idea has spawned a whole new set of questions that economists are trying to answer. Like, if we do just give money, what's the best way to do that? Do you just give it all at once? Or do you dole it out over time, like through what's called a universal basic income? Well, a huge new study on giving cash was just released, and it's got a lot of answers.

1:27Hello and welcome to Planet Money. I'm Dave Blanchard. And I'm Amanda Aronchik. Today on the show, what have we learned about the best ways to give money to people who need it? We go to Kenya and hear from gossipy neighbors. We find out what people spend their money on when there are no strings attached. And we discover how a cow might be a better bank than a bank.

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2:34The IRC helps refugees whose lives are disrupted by conflict and disaster, supporting recovery efforts and responding within 72 hours of crisis. Donate today by visiting rescue.org slash rebuild. At Planet Money, we've been interested in this idea of just giving cash to people in poverty for a long time. We covered a major study that looked into this back in 2013. And at the time, the just give cash idea was still really novel. The study was run by this nonprofit called GiveDirectly. Back then, they gave a few hundred thousand dollars to over 500 households in rural Kenya. So in today's episode, we're going to first listen back to our original reporting on that study from 2013.

3:19Then in the second half of the show, we're going to hear about what we've learned since then. In our original episode, Jacob Goldstein and David Kestenbaum traveled to Kenya. They visited one of the villages where some of the residents had received money. To get to this one village, you drive on the main road past the sign that says Equator, because that's where the equator is. And then you turn off onto these increasingly rough dirt roads, and you have to stop and ask for directions. Eventually, you have to get out of the car and walk down a path. It's very green. There are trees and birds, little farm plots where people are growing corn.

3:58And then finally, by the side of the path, you find the guy who got the money on his phone.

4:07Nokia. This is Bernard Amundi. He's 25 years old. He's got two kids. He lives in a small house with mud walls, a dirt floor, and an old couch. There's no sink because there's no plumbing. There's no running water. There's no electricity. The way it all happened, he says, is that one day the village elder came by with some people he'd never met. They explained that they wanted to give him$1 ,000, which to him seemed like a very strange idea.

4:36I had to be suspicious because in an African setup, we believe somebody cannot give you such kind of huge money without working for it. Even our own president cannot give you. So I had to be suspicious. But Amondi said, fine, I'm a poor man. You want to give me money, I'm not going to say no. The visitors gave him a cheap cell phone, and then a while later, he got the text message. It was sent very early in the morning.

5:08I was still in my bed. I jumped up. My wife asked me, Bernard, what is it? Then I told her, the guys of Give Direct have sent us the money. It's here. He still has the message on his phone. Confirm you have received 41 ,000

5:33All over the village that morning, people were getting their first payment from GiveDirectly and having that jump-out-of-bed experience.

5:42This is one of Bernard's neighbors, Daniel Otieno Ombok. I got the message when I was in bed. And I told my wife, hey, you also read this message. She immediately saw it and read, she burst into laughter. She laughed and told me now, my husband, what do we do? It's worth pointing out just how much money$1 ,000 is in this village. $1 ,000 is about what one of these families spends in an entire year. So you could think of it as someone coming up and offering to double your salary. But really, it's a much bigger deal than that. Most of the people in this village have no savings at all. So$1 ,000 is just this unimaginable sum.

6:22Daniel had never had this much money at once. Nothing close to it. So what do you do when more money than you've ever had in your life suddenly drops onto your cell phone? If you're Bernardo Mundi, you buy one of these.

6:37This motorcycle is called Bajaj Boxa. It consumes low fuel. The motorcycle cost him about 600 bucks. And this is not the kind of motorcycle you ride around so everyone will think you're cool. Around here, where most people live on dirt paths too narrow for cars, motorcycles are basically used as taxis. And Bernard bought his so he could become a taxi driver. It beat his old job. He used to work as a laborer. Often he would spend all day carrying heavy stones from one place to another. That's when he could find work. A lot of days there was no work at all. Now that he has his motorcycle, he says his work is much steadier.

7:12His kids used to go hungry, and they don't anymore. People bought all kinds of things with the money. One family bought a little mill to grind corn for people in the village. Another started selling soap and cooking oil. So Daniel Otieno Mbok, the other guy who jumped out of bed when he got the message, bought something he'd always wanted. Mattress high-density bed, it turns out, is basically just a mattress. He used to sleep on a mat on the ground. Now I look like a human being. I'm not a human being. What were you before?

8:06The thing that really changed his life, he says, was the new roof. Daniel bought a metal roof to replace his old one, which was made of grass. He showed it to us. And if buying a new roof sounds like something that's nice to have but isn't really going to help Daniel in the long run, you've probably never owned a grass roof. Just about everyone we talked to had replaced their grass roofs with metal ones. I was just very happy. I was very happy about demand. This is Carolyn Adiambo, who also bought a metal roof, and who explained why everyone was doing it. First of all, grass roofs are terrible roofs.

8:43They leak, failing to perform what is arguably the single most important job of any roof. When it rains, everything you own gets wet. It's hard to sleep. You have to keep moving around to find a dry spot. But also, grass roofs need to be constantly maintained. You have to keep replacing the grass, and apparently you can't just cut any grass from the field. You need a special kind of grass, and often you have to pay for it. The grass is very expensive because you have to buy grass every year, even three times. And it costs a lot. A metal roof costs more up front,$200 or$300. but it can last for more than 10 years.

9:21And in the long run, it's way cheaper than a grass roof. So buying that metal roof means that every year, Carolyn and the others won't have to spend money buying new grass. It's like they just boosted their income for the next decade. They'll have more money in their pockets, money to pay for school fees or food or to buy a cow. And buying a cow, that was also really common. Oh, yeah. That's your cow.

9:58Daniel told us his cow cost about$400. He says it produces two liters of milk a day. His family drinks one liter and sells one liter for about 50 cents. Carolyn also bought a cow, but she says don't think of it as a cow. Think of hers as a bank. The cows are just like bank. When we put it there, it's just as if we have saved it on the cow. And why buy a cow instead of putting the money in the bank? In the bank. You know, money in the bank, sometimes you can just go and take it small, small, small, small, until it got finished. A cow, on the other hand, you can't fritter away a few shillings at a time.

10:36If you want to get your money out of a cow, you have to take your cow to market and sell it. All these things people spent money on, cows, roofs, a motorcycle, they seem like reasonable choices. In fact, they seemed so reasonable, we started to worry that people were just telling us the good news stories. So we asked a different question. Not what did you do with the money, but what did your neighbors do? And then we started to hear different stories. Bernard told us, sure, I spent the money well, but not everybody did.

11:10There's so many guys who are very careless. And I know as you're going to walk around in some homes, you're going to see guys who misuse their money. You'll get that some of them didn't even put up a house. Didn't even buy a motorcycle. Some of them are still staying in their grudge houses.

11:30Yeah, you'll just see there's nothing, there's no change in his life. And they misuse the money. What did they do with the money?

11:45Some of them are drunkard, so they probably use it to buy alcohol. Others just spend the whole amount on food. They just ate and became fat, and there's nothing to see. Nothing has remained of it. Bernard didn't name anyone in particular, but another guy in the village, a guy named Julius, said, My neighbor right over here, look, he still has a thatched roof on his house. He wasted his money. He was so embarrassed, he didn't even want to talk to you. He saw your vehicle, and he knew that you were around. He decided to run away. They're nowhere now. So we went to the neighbor's house, and just like Julius said, he wasn't home.

12:24There were two little kids there who told us that their parents had gone into town. It seemed like Julius might be right. So we asked GiveDirectly about the neighbor, and a woman named Lydia Tala, who works for GiveDirectly and is from the region, managed to reach him on the phone the next day. He told her he wasn't hiding, and he wasn't embarrassed. He said his first wife had died. He wanted to get remarried. But in this part of Kenya, the groom traditionally has to pay the bride's family. So that's what he spent the money on. He spent it on a dowry so he could get remarried. And that's why he still had a thatched roof.

13:00That was Jacob Goldstein and David Kestenbaum back in 2013. And in the years since that study, giving cash unconditionally to help people out of poverty has become more common for development economics. Critics used to worry that the money would be wasted by the recipients. But in part because of this very study, many economists have come to recognize that when you give people in poverty money, they usually do smart things with it. They don't waste it. So that answers the question of whether just giving cash can help people out of poverty. It can. Now the question has turned to how best to give people that money.

13:40GiveDirectly has been researching this very question. After the break, we find out what they've learned.

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15:15Darian Woods here. Now the saying goes, let's not reinvent the wheel. But maybe we should reinvent that saying. I find this expression that we shouldn't reinvent the wheel really annoying because the fact is that ever since we did invent the wheel, we have been reinventing it. The wheel, the spoked wheel, the gear and more. The wheel's invention and reinvention throughout history has been crucial to modern life and the economy. Things that you invent for one purpose can eventually end up doing completely new things that you never imagined. It's in our latest bonus episode and you can check that out now if you're a Planet Money Plus listener.

15:54If that's you, thanks for your support. If it's not, well, it could be. You get bonus content, sponsor-free listening and support the work of NPR. Go to plus.npr.org. So yes, giving cash to people in poverty with no strings attached seems to work. Now, what's the best way to give people that cash? One proposal is giving everyone in a community small amounts of money on a regular basis, say monthly. This is known as universal basic income, or UBI. So economists are asking, if we want to help people out of poverty, is the UBI model a good way to do it? One of the people interested in this question, Nobel Prize winning economist Abhijit Banerjee.

16:37I called him up to talk recently, but he was having a little trouble with our annoying recording setup and his headphones. I'm actually not terrible at these things. It's just I have two headphones. If I can't make one of them work, I should be embarrassing. You clearly have other strengths. If you've got a Nobel Prize, I don't think you have to beat yourself up for not being able to make the Bluetooth headphones work, you know. Yes. For many years, Abhijit had been interested in the question of how to help people out of poverty and also in this idea of universal basic income. Then, several years after the GiveDirectly study from our original story, he was approached by the co-founder of GiveDirectly, an economist named Paul Niehaus, because Paul had an idea for a new research study.

17:24Paul pitched it to me saying, you are interested in all these issues. Do you want to be involved in a UBI evaluation? Abhijit was intrigued. Economists in a lot of different fields were interested in UBI as a better way to help poor people. But he felt this study could go further. For the study to be really useful, he thought, they would need to compare giving everyone in a village small regular monthly payments, like a UBI, against giving everyone one big lump sum all at once? I was from the beginning saying, we need to benchmark it to a lump sum. Why? I thought one problem with UBI is that it's small amounts of money every month.

18:11And the problem is that people find it very difficult to save at home. And that was so, from the beginning, my concern is that, is this going to be too much of a challenge for these people to turn their small amounts into a larger amount, which they'll need to really start a business. So that was very much the thinking behind the lump sum. Was there a moment when you worried that the lump sum wasn't going to make it in amongst all these discussions? You know, I tend to be very, let's say, stubborn. So I was going to find that one out. Eventually, Abhijit got his way. The study compares monthly and lump sum payments.

18:54In some villages, everyone got a lump sum of$500 all at once. In other villages, people got monthly payments of about$22 a month. First payments went out in 2018.

19:11This is Jane Martha Achieng Adongo. She remembers the first time GiveDirectly came to her small village. It's called Magawa. It's in western Kenya, on the plains, close to Lake Victoria. There's a lot of trees surrounding the village, a lot of farms. What's the noise in the background? They're just cows passing by. They're going to drink water in the lake. Yeah, do not get in the way of that cow. That cow wants its water. Now, when GiveDirectly came to the village, Jane Martha had a similar reaction to Bernard Amundi from our original story. She was skeptical.

20:01Jane Martha was in one of the monthly payments groups for the study, not the lump sum group. Now, she already had a small business that sold bread and clothes, but this new monthly payment allowed her to expand and sell more things.

20:20What kind of plastics?

20:30And would that have been possible before these payments? That was not possible. The extra money helped her to also build a new house. It has three rooms and it's a lot nicer than her old house. But for the purposes of Abhijit's study, there was one really interesting thing that Jane, Martha and other people in her village did with their monthly payments.

21:04A woman in her village approached her about forming a merry-go-round, she said. And when I say merry-go-round, what I mean is everyone contributes a certain amount of money every month from their transfers, and it's given to one person. The people in the merry-go-round pool their money each month and give one big payment to one person in the group. Each month, a different person gets that big payment. In the end, Jane Martha got the same amount as her monthly payments, but as one big chunk. This is actually pretty common in areas without access to banks because it's an effective way to save money.

21:51So getting a bigger lump sum is more useful at times than getting a smaller monthly payment. Yeah, getting money from America around in lump sum is better for me. And our economist and researcher Abhijit Banerjee found it wasn't just Jane Martha's village doing this. A lot of villages were turning their monthly payments or their UBI payments into lump sums. That's beautiful. In a sense, that's the kind of thing when you see it, you say, OK, the world makes sense. At the beginning of the study, Abhijit had been concerned that the monthly payments wouldn't be as effective as lump sum payments in helping people out of poverty.