Planet Money - The Universal Basic Income experiment in Kenya

Episode Date: January 10, 2024

There's this fundamental question in economics that has proven really hard to answer: What's a good way to help people out of poverty? The old-school way was to fund programs that would support very particular things, like buying cows for a village, giving people business training, or building schools.But over the past few decades, there has been a new idea: Could you help people who don't have money by ... just giving them money? We covered this question in a segment of This American Life that originally ran in 2013. Economists who studied the question found that giving people cash had positive effects on recipients' economic and psychological well-being. Maybe they bought a cow that could earn them money each week. Maybe they could replace their grass roofs with metal roofs that didn't need fixing every so often. The success of just giving people in poverty cash has spawned a whole set of new questions that economists are now 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? And it turns out... a huge new study on giving cash was just released and it's got a lot of answers.Help support Planet Money and get bonus episodes by subscribing to Planet Money+ in Apple Podcasts or at plus.npr.org/planetmoney.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Every weekday, NPR's best political reporters come to you on the NPR Politics Podcast to explain the big news coming out of Washington, the campaign trail, and beyond. They don't just tell you what happened, they tell you why it matters. Join the NPR Politics Podcast every afternoon to understand the world through political eyes. 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. But 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.

Hello 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. and we discover how a cow might be a better bank than a bank. We all hear things differently, and that can be tough when there's so much noise. This election year, we're a space to speak up and to listen. Listen to 1A for the latest on election 2024, only from NPR. NPR's editorial independence and integrity is non-negotiable. It's the reason why

so many listen to 1A's Friday News Roundup, only from NPR. From your car radio to your smart speaker, NPR meets you where you are in a lot of different ways. Now we're in your pocket. Download the NPR app today. 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.

Then, 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. And then finally, by the side of the path, you find the guy who got the money on his phone. Nokia. 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. I had to be suspicious because in an African setup, we believe you cannot, 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 Amundi 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. I was still in my bed. I jumped up. My wife asked me, Then I told her, He still has the message on his phone. Confirm you have received 41,000. He still has the message on his phone. All over the village that morning, people were getting their first payment from GiveDirectly and having that jump-out-of-bed experience.

This 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, she 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 a thousand dollars is in this village. A thousand dollars 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 a thousand dollars is just this unimaginable sum. Daniel 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. 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.

His 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. Daniel Otieno Omboc, 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? Before I was an image of a human being, but in a real sense I wasn't a human being. The 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 the man. 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. They 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. And 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, there. That's your cow.

It's a female cow, a very good one, cow. Daniel 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 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.

If 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 seemed 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. There's so many guys who are very careless. spent the money well. But not everybody did. Mungu wanafanya kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa kwa k Some of them are drunkards, 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. There 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. That 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. 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. GiveDirectly has been researching this very question. After the break, we find out what they've learned. This message comes from Wondery. Milli Vanilli set the world on fire. But when their fans learned about the infamous lip syncing, their downfall was swift. Blame It On The Fame dives into one of pop music's greatest controversies. Follow on the Wondery app or wherever you get your podcasts. The news can be disorienting, and it can be really hard to remember how we got here.

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It's in our latest bonus episode, and you can check that out now if you're a Planet Money Plus listener. If 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. I 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. 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. Paul 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. And the problem is that people are finding 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, 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. In 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. When they came to our village, they first walked all through the village. a month. First payments went out in 2018. This 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? Yeah, do not get in the way of that cow. That cow wants its water. Now, when Gib directly came to the village, Jane Martha had a similar reaction to Bernard Amundi from our original story. She was skeptical. Jane 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. Apart from the clothes, I'm currently also selling plastics. What kind of plastics? I'm selling plastic utensils. I'm selling lunchboxes. I'm also selling plastic chairs. And I'm also selling jugs. And 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. A woman in her village approached her

about forming a merry-go-round. A 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. Well, Merry-Go-Round is helping us to at least have a lump sum amount for you to be able to do something big at once. So getting a bigger lump sum is more useful at times than getting a smaller monthly payment? Yeah, getting money from Merry-Go-Round and 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. And he was potentially right. But the participants in the study found a solution to that on their own. They are doing what you would think you would do, which is, I really need 500 and I have 22. How do I get from 22 to 500? I put it in a merry-go-round. Eventually, it's going to be my turn. And when it does, I'm going to have my 500 and I'm going to build my new shop or whatever it is. So the goal of Abhijit and his co-authors in the study was

to figure out how effective a universal basic income could be, you know, getting regular monthly payments, and then to compare that to a lump sum. We now have the results for the initial two years of the study. When it came to the villages getting the monthly payments, there were certain aspects where they performed better than the lump sum villages. There were lower incidences of depression, which makes some sense. Being certain that money is coming in regularly might relieve some stress. And the results also addressed a fear some critics of UBI have, that people will get checks monthly and just stop working.

The study showed a lot of participants did work less for other people. They instead started their own businesses and ended up working the same amount but for themselves. But overall, when it came to the question of which payment approach would lift more people out of poverty, at this point in time, the lump sum seems to be more effective, which is what Jane Martha told us. The researchers found that the villages where people received a lump sum payment, they started more businesses. Those businesses made more money and people overall had higher incomes. There is one more aspect of the study to share. There were actually

two groups getting monthly payments, two different UBI groups. One group got payments for just two years. They were the short-term group. The other is going to keep getting them for a total of 12 years, the long-term group. And when Abhij keep getting them for a total of 12 years, the long-term group. And when Abhijit looked at the results of the first two years of the study, what's striking is the short-term and the long-term don't look the same. They have each got 24 months of the same amount of money, but they are behaving entirely differently. For two years, both groups got the same amount in the same way monthly. But just knowing that they'd be getting money for 12 years made the long-term group behave differently.

People getting short-term monthly payments experienced the least benefit of any group in the study. But people getting those long-term monthly payments, oddly, their results looked similar to the lump sum group. This was the group that Jane Martha was in. And like her, a lot of people in this group joined merry-go-rounds. They became planners. They saved their money. In short, they invested in their futures. The program will end in 2030.

Until then, Abhijit and other researchers will keep collecting data to try to answer what he calls the cosmic things. Big picture questions like, will the group of people receiving monthly payments keep saving? And will the positive results of the study persist even after the payments stop? Or will the participants wind up back where they started? Coming up on the next episode of Planet Money, a little-known war. The Maine Potato War of 1976. They couldn't deliver. Nobody can deliver that many potatoes. The story of two potato kingpins who weren't afraid to break the rules and break a market in their quest for spud

supremacy. You can email us at planetmoney at npr.org or find us on TikTok, Facebook, or Instagram. We're at Planet Money. The reporting for the first part of this episode was originally done for This American Life by Jacob Goldstein and David Kastenbaum. Our show today was produced by Emma Peasley. It was edited by Jess Zhang, fact-checked by Sarah Juarez, and engineered by Sina Lafredo. Alex Goldmark is our executive producer. Special thanks to Jeff Mosankis, Jonathan Morduck, and everyone at GiveDirectly. I'm Dave Blanchard.

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