March 9, 2016

Provide the People of Africa with Training or with Cold, Hard Cash?

Professor Isaac Mbiti recently participated in a World Bank forum about cash transfers in Africa. Below is a blog post detailing the event.

In recent years, growing evidence supports the value of cash transfers. Research demonstrates that cash transfers lead to productive investments (in Kenya, Tanzania, and Zambia), that they improve human capital investments for children (in Burkina Faso, Tanzania, Lesotho, Zambia and Malawi) and that they don’t get spent on alcohol (all over the world).

At the same time, the vast majority of governments invest large sums in training programs, whether business training for entrepreneurs or vocational training for youth, with the goal of helping to increase incomes and opportunities.

Are the days of training numbered? Should governments simply give cash to individuals so that they then purchase training if they see it as valuable?

Earlier this month, six experts gathered to debate the pros and cons to Cash vs. Training. On one side of the table, Team Training included Omar Arias, Rita Almeida and Isaac Mbiti. On the other side, Team Cash included David McKenzie, Laura Ralston and Manuel Salazar. Each side brought significant evidence to bear.

You can watch a recording of the whole event. Here’s the dramatically abridged play-by-play.

David McKenzie opened for Team Cash: Cash-to-microenterprises in Ghana and Nigeria have led to large, sustained growth. Meanwhile, training courses are expensive (e.g., $200 for a five-day course, and what five-day course has changed your life?). Training courses are ineffective: A typical business training course gets people doing one out of 26 more business practices. Training courses are paternalistic: “If people want to buy training, they can use their cash to do so. So why force them?

Omar Arias parried for Team Training: We’ve no evidence that capital – cash – is “the only, nor the most binding constraint to employment and earnings of the poor.” He cited a recent meta-analysis of 200+ training and employment programs, which found that while only a third of these programs showed successful results within a year, that number grew to 2/3 successful training and employment programs after two years: So sometimes these results take time. “You can’t buy your way into development with just cash.”

Manuel Salazar came back for Team Cash: Cash transfers have been demonstrated, across Africa and the world, to reduce poverty and inequality, to increase human capital, food security, and productive inclusion, with no adverse impacts on labor participation, consumption of alcohol and tobacco, or the fertility rate. Cash relaxes constraints brought on market failure, and can lead to multiplier effects in local economies.
Rita Almeida came back for Team Training: We have many examples of successful training programs, in Colombia – where they increased women’s wages by 20% – in the Dominican Republic, where they increased earnings by 10%, and in Turkey, where they increase the probability of getting a formal job. They increase psychological well-being and optimism (in Tunisia and the Dominican Republic) and social empowerment for adolescent girls in Uganda.

Laura Ralston drew on her own review of labor market programs to give the final push for Team Cash: Between 2002 and 2012, the World Bank and client governments invested almost $9 billion in training projects – about $100 million per project. Those really effective programs in Liberia and Colombia? They cost between $750 and $1,650 per participant. And many of them don’t work, as in Malawi and Dominican Republic, where there were no employment impacts. Ultimately, “who knows best? Are governments or individuals best placed to know where the marginal return on investments to their labor productivity is greatest?”

Isaac Mbiti closed the argument for Team Training: Training programs often work for youth, improving outcomes for youth in Liberia, Uganda and Kenya; they even improve outcomes for the trainers (Ghana). They don’t always work, but neither does basic education, and no one is arguing to replace primary schools with cash. We can make training most effective by using incentives, link training to markets, reduce travel costs, combine socio-emotional skills and technical skills and provide post-training support, including small infusions of cash to supplement effective training.

The audience voted at the beginning and the end, and while cash was slightly ahead at both points, it looked like training may have swayed some minds.

It’s clear that there are empirical examples of effective programs on both the cash and the training sides, and smart minds remain committed to both. Big remaining questions are whether or not one can help governments to get these programs right, so that the training programs in place look like the most effective ones with long-term gains and so that cash programs continue to deliver long-term gains.

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