Results are being reported from an experiment giving tens of thousands of people in Kenya basic income in three formats:
$20/month for two years
$500 in one lump sum
$20/month guaranteed for 12 years
The people who got the lump sum did better economically than the short term recipients, despite receiving roughly the same amount in total. The lump-sum recipients were more likely to use the money as startup capital for small businesses or for education. People could have saved up the smaller 2-yr monthly income and then invested in businesses or themselves, but they didn’t.
The group with long-term guaranteed income behaved differently than the short term recipients. They got the same per month, but the long-term guarantee motivated them to create Rotating Savings and Credit Associations (ROSCAs). Investopedia says
A rotating savings and credit association (ROSCA) is a group of individuals who together act as an informal financial institution.
A ROSCA uses a common fund to which individuals contribute a set amount on a regular basis (usually monthly), while one member withdraws the funds at each meeting.
ROSCAs are often found in countries where access to conventional banking is limited, such as in developing economies.
The short-term recipients didn’t save, but the long-term recipients created banks.
We have a lot of preconceived ideas about how people spend, save, and invest. It’s fascinating to see what people actually do in real life.
“The group with long-term guaranteed income behaved differently than the short term recipients. They got the same per month, but the long-term guarantee motivated them to create Rotating Savings and Credit Associations (ROSCAs). Investopedia says”
These rotating savings are the lifeline for many women in Africa. They are so effective that specialized credit unions/banks (called SACCOS) have been established to cater to the them. African immigrants in the US use them to raise cash for big expenditures such as down payments for homes/business start-up cash and such.
Yes! It seems that at least Kenyans are economically rational, Wealth is like nuclear reactions, you need critical mass to get it going. Work only covers expenses for hand to mouth people. You need capital to build capital. There used to be a lot of talk about a “poverty syndrome” or whatever it was called, that poor people expected to be poor for life. The exceptions are the hustlers, the go-getters, folks with street smarts. But they become rich and vilified for being rich, specially if they no longer recite the accepted mantra which ignores social mobility.
A bellhop at my dad’s hotel became an art dealer.
What needs to be eradicated is the “poverty syndrome.” I wish I knew how. Micro loans do work.
Yes. And it is really simple. What works is access for poor people to capitalism’s tremendous leveraging of human competence, the capability for pooling knowledge, connections, and funding. Microloan banks and coops work to do that in many but not all sociologies.
I liked the engineering aspect of the study. The structure of the support mattered more than the dollar amount. It’s tempting to think that optimal incentives are discoverable.
The article didn’t mention the actual number of people who stepped up their economic activity. I bet all strategies had their share of capitalists and couch potatoes. The Pareto law can’t be eliminated but it can be tuned. Improving the odds, even a little bit, is life changing for those who make the cut.