Poverty Reduction In Nigeria: Welfare and Transfers Edition

I am sure by now it is no longer news that the federal government plans to spend $2.5billion of the 2016 budget on a social welfare program in its promised push to ameliorate poverty. These remedies are not new and include some new favourites of development specialists and aid organizations.

The details of this plan are still quite nebulous. For example, the government intends to do a large cash transfer program of $25 a month to each of one million poorest Nigerians. We also know that the program will be means-tested. Meaning that predefined ‘’criteria’’ of poverty will determine which individuals qualify. But we do not know if it will be preference-based as with such schemes in other poor countries. Which will enable qualified individuals to exchange their cash for stuffs of equivalent value that they judge more useful. There are also plans for vocational skills training programs, school-feeding programs for young pupils, and a fund for science and technology students in tertiary institutions.

While it is difficult to predict the impact or question the veracity of some of these schemes, the evidence of their efficacy is decidedly mixed. Cash transfers particularly have become a darling of the development community given its consistent above-average performance in impact-evaluation measurements. Yet I am truly skeptical of its potential as a valuable fiscal policy tool. The true winners of these interventions, in the end, may only be researchers from development organizations like the World Bank and consultants who are already waiting in the wings to assess the impacts of interventions on poverty and design various field experiments from the scheme.

There is a new paradigm in development circles that is rapidly influencing policy. The mantra of this paradigm can accurately be described as ‘’aim for what you can measure’’. The logic is that since most of what developing economies have traditionally spent money on are not easily measurable, it’s only natural for policy to shift towards micro schemes which have empirical credibility due to measurability. We might not be able to adequately determine the impact modern sewage and waste disposal systems in a community, but we can measure the impact of micro-credits or cash transfer schemes in that same community.

Roads might not seem all that important to farmers, but giving them cell phones to monitor market prices, that’s a big hit. Corruption also provide further credibility to this paradigm. Small or direct intervention scheme appears to be more transparent whereas the budgeting and spending process on large-scale capital projects can be blighted by fraud and ‘’errors’’.

Welfare interventions proponents are right in some of their critique of some specific spending policies, and also on the broader point of advocating more evidence-based policymaking. But I think it’s a case that can easily be overstated for several reasons. One is that there is a significant limit to how much one can generalize from a field experiment that measures the impact of x intervention program to an entire population!

While such methodological objections is beyond the scope of my concern here, they are very important. Secondly, such programs are almost always useless in the long-term. They appear to be the right prescriptions for the wrong patient. Short-term measurable impact is quite important for aid agencies and donor countries as there are accountable to people who fund such endeavours. But it is a wrong domestic policy priority for any responsible country. They are unsustainable due to cyclic political pressures and risk exposing the beneficiaries to sudden and unexpected shocks. Also, the positive effects of such programmes can be eroded overnight as we are currently witnessing with our loony exchange rates policy.

I am not dismissing welfare interventions and policies like short-term transfers as useful tools for poverty reduction. We have a compulsory one-year service scheme for university graduates that could function as an invaluable skills training program if properly reformed. For example, we could let graduates freely choose an industry or firm of choice that will enhance the skills in which they are trained or interested.

Micro-credits schemes have proven popular amongst micro-businesses though they are still handicapped by the inability to scale and high-interest rates. I am sure readers can point to other schemes that can be useful in reducing poverty and suffering in the short-term. Sadly, these measures rarely suffice because countries are usually around forever.

Reframing Development

My critique of interventions thus far can be loosely defined as what I will call the ‘’lowballing’’ of development. I have a certain disdain for how development ‘’experts’’ and relevant agencies in their pursuit of objectivity and empiricism, inadvertently define the amount of success and progress nations and their citizens can have. No matter what it does to our egos, the fact is that economic growth and development has partitioned the world and sentenced most people in our part of the divide to substandard livelihoods.

There are a lot of reasons for this, and we will exhaust multiple lifetimes exploring them, but we can all agree there is need for us to ‘’catch-up’’. This is why economists like Robert Barro talk about the importance of catch-up growth while economic historians like Morten Jerven pointlessly obsess over self-sustainability. This is why I hate the World Bank’s poverty index! Assigning a fixed dollar value to someone’s consumption as a measure of poverty might help focus on the problem of poverty and how much needs to be done. But I believe this notion is outdated and functionally useless. Pronouncing poverty to have ‘’fallen’’ simply because billions of people now fractionally consume more than $1.25 is not only misguided but almost obscene.

I think development needs reframing. No more tweets, headlines and relevant contents reporting that China has grown income by 4500% since 1978. Income in China is still about a third of that of its neighbours South Korea and Singapore. A recent publication highlights my point. Nigeria’s per capita GDP is a little above $5,123(in 2010 dollars), substantially higher than Tanzania at $2,111. But Nigeria has a lower median income (a better measure of hierarchical data like income) than Tanzania and hence, poorer. This is bad. No amount of self-sustainability should make it acceptable. We live in a more globalized world where comparative differences are no longer hidden.

I have made my case for what I can call a rough sketch of what a serious poverty reduction plan should look like. Welfare schemes and transfers are quick and measly fixes at their best. And the evidence that renders them credible should not reduce people to choosing either the freedom to work as they please in properly networked, lit and connected society of peers; or a life of $25 monthly transfers and livestock to work farm fields.