Five reasons why unconditional cash transfers shouldn’t happen

Dear Editor,

I am yet to see a cogent and wellarticulated argument for the proposed unconditional cash transfers (UCT). Is it to address inequality, reduce poverty, strengthen ethnic cleavages which will further fractionalize politics and stymie human development, “legalize” corruption, or is it merely to give the people a raise many of whom refuse to work? The first PNC regime spoke about making the “small man” the “real man,” but ended up further impoverishing him and driving him to foreign climes. The current PNC regime probably seeks to do something to the “household,” perhaps to generate splinter households so that each gets US$5,000? No one really knows but Guyanese are a resourceful and crafty people.

Many of the recent letters support or are leaning towards supporting UCT to all households. Among other things, we are told that it is the best way to share a fraction of the forthcoming oil largesse. If the idea is merely to “share” (“gee-way” as my dad would say) and not to invest in the development of the country, cash transfers are the way to go. But why must a desperately poor country sacrifice its human development prospects to indiscriminate wastage of its oil wealth in the name of sharing? As I see it, there are no good reasons for UCTs. On the other hand, conditional cash transfers (CCT) in particular have positive effects on consumption and nutrition for beneficiaries, on their health and their children’s schooling. Cash transfers, especially of the CCT variety, can increase investment, address liquidity constraints and credit market failures under certain conditions.

I argued against UCT in previous letters (SN, 10 January 2016; SN, 10 August 2018; GT, 16 August 2018). Here are additional reasons why I do not support UCT. First, such transfers, be it US$5,000 or any other amount, will leave inequality untouched. For example, and just as a thought experiment, assume there are 5 households in an unnamed country named and that the incomes of these households are US$3,560, US$ 4,700, US$10,200, US$25,300, and US$50,450. Then mean income is US$18,842, which is 5.3 times as big as the income of the poorest household. The absolute income gap between the richest and poorest household is US$46,890. Now assume each household gets a US$5,000 cash transfer as an unconditional handout from the country’s oil revenue. Then the absolute income gap remains absolutely unchanged. The dole did not affect income inequality in any way. While there is no recent estimate of income inequality, which is usually higher than consumption inequality, there are indications that it is high and rising. Inequality is a punitive tax on economic growth and thus human development, but it can also lead to social discontent and spill over into civil strife. Since the transfer will leave inequality unchanged, each year the Government would “geeway” at least US$1.1 billion, which

8th October from their training base in Kenya, where they had been training for four months. On Friday afternoon, the start time of 8:15 am, Central European Summer Time, was selected and the world began its patient wait to see if history was going to unfold. As in the previous attempt, Kipchoge benefited from a team of 41 world class pacemakers, who accompanied him in groups of seven, running in a wind blocking V-formation, designed by an aerodynamic expert. The team was led by a pace car which projected a disco-like laser which displayed the required blistering pace of approximately four and a half minutes per mile. In addition to the car, the pacemakers, and unlimited access to his favourite carbohydrate drink from a cyclist riding alongside the group, Kipchoge was equipped with a special pair of running shoes which none of his pacemakers were privileged to have. The unreleased running shoe has become a source of controversy since the event, sparking a heated debate as to whether it provided an unfair advantage. The shoe, manufactured by Nike, an upgrade on the Vaporfly 4%, is believed to contain a mid-sole cushioned with three carbonfibre plates and extra build up of ZoomX foam, and two new stacked chambers in the forefoot which maybe filled with air, fluid or foam, or some combination thereof. As the large crowd lining the course egged Kipchoge on, the five rotating groups pacemakers (there were six reserves) guided him to a previously considered unattainable mythical time barrier, the world watched history unfold on the internet. Where we do place Kipchoge’s achievement? The IAAF will not recognize the time since it was

is around 31 percent of 2018 GDP. That’s a huge amount, which could be invested in, among other things, roads, bridges, electricity, airports, education, health and nutrition, transportation, and the removal, or at least reduction, of bureaucratic red tape that infuriates and sickens the poor and consumes a fair portion of her time and resources. In the context of Guyana, cash transfers of such magnitude, which is a form of redistribution, is simply a colossal wastage of scare financial resources that will leave inequality unchanged and heighten discontent.

Second, such large financial flows are likely to impact markets, employment and prices. For example, large transfers will cause household demand for goods and services to surge. In turn, this will have varying economic impacts depending on whether it reaches markets that have the elasticity needed to respond efficiently and rapidly enough to prevent prices from increasing and whether such transfers leak out in rising volumes of imports. The most likely scenario is that price effects, especially if they are big, would compromise the benefit of cash transfers for both recipients, whose real income might not increase as expected, and non-recipients, who will see their purchasing power affected.

Third, how would a cash transfer affect domestic production and factor markets? Since the annual cash transfer will be larger than per capita income (US$4,635 in 2018), it will most likely negatively affect the

not a sanctioned event. Call it what you may, time trial or exhibition marathon, Kipchoge’s effort of pushing himself to the extreme mental, physical and psychological limits are right up there with all outstanding human landmarks. As to the weak argument of the intervention of technology, every sport now benefits from technology in one form or another, whether through preparation, equipment or execution. A quick glance at the modern cricket bat or the state of Formula One cars is enough to dismiss it. The 34 year old Kenyan compares the historic run to “walking on the moon.” Two achievements worthy of similar comparison are, the then reigning World Chess Champion Garry Kasparov’s defeat of the IBM Deep Blue computer in 1996 and the current world record high jump of eight feet and a half inch in 1993, by the Cuban Javier Sotomayor, still the only human being to clear eight feet. Will we see a two-hour marathon in a race any time soon? Kipchoge’s rival, Ethiopian Kenenisa Bekele clocked 2: 01: 41 in September to win the Berlin Marathon this year, missing the record by two seconds. Surely Bekele and Kipchoge can get there within the coming year. Hats off to Eluid Kipchoge, on his monumental achievement, of running 26.2 miles in under two hours.

desire to work – people will have more time to “drink” and “gaff”- and labour supply, which will cause the wage rate to rise, which, in turn, will drive up inflation. Based on my own knowledge of agriculture – rice planting and farming -, Cash Transfers will negatively affect this sector in the sense that it will heighten the desire not to take up agriculture, which is happening already. None of my several nieces and nephews have any love for agriculture, where I learnt what a life of poverty is. If agricultural production falls for a combination of reasons, it will drive up the prices of domestic goods and increase imports, feeding inflation. These destructive effects can lead to misallocation of resources between the traded and nontraded sectors, as well as an increase in the real exchange rate, particularly if a large fraction of Cash Transfers are leaked out on imports, which is very likely.

The bottom line of the above arguments is that the overall impact of cash transfers on GDP is thin, even if it harms some and benefit others. Why? Because the multiplier effect is small for all but the richest recipients who are able to divert part of the transfers from consumption to investment.

Fourth, the last count of the number of households in the country was done by the 2012 Census: 210,124. Judging from the last few censuses, the size of the household is getting smaller and it is likely that there are many more households today than the last census counted. Would large cash transfers splinter households into several smaller ones to optimize the “capture” of such transfers? Pervasive and massive corruption since the 1970s has led to a breakdown of moral restraints – morality is the lack of opportunity -, which suggests that Guyanese will devise ingenious ways to con the system. Before long, I am afraid, we shall add “household capture” alongside “state capture.” Fifth, on a more practical issue, how will the proposed US$5,000 reach each household? Will the government write a check to each household, do an electronic transfer, a voucher to be cashed at the bank … ? The infrastructure to facilitate such annual transfers simply does not exist or is rudimentary at best, which opens the way for massive corruption. By the time transfers are completed, a given household will get less than US$5,000, sucked away by abuse of office for personal aggrandizement.

I strongly believe that, instead of splurging billions of US dollars on unconditional cash transfers, such resources should be invested in nutrition, health and education, and to upgrade our antiquated, dilapidated and fifth-class infrastructure. The idea is to invest now to secure for our children and grandchildren a brighter future than one a few madmen and rapacious entrepreneurs bequeathed us. Yours faithfully,

Ramesh Gampat