The power of free money

A homeless man with his possessions loaded on a bicycle in London. Societies tend to presume that poor people are unable to handle money. But an innovative programme where 13 homeless men were given a sum of money - no strings attached - has had posi
A homeless man with his possessions loaded on a bicycle in London. Societies tend to presume that poor people are unable to handle money. But an innovative programme where 13 homeless men were given a sum of money - no strings attached - has had positive results a year later, and 11 vagrants have moved off the streets.PHOTO: REUTERS

IN MAY 2009, a small experiment involving 13 homeless men took off in London. Some of them had slept in the cold for more than 40 years. The presence of these street veterans was far from cheap. Police, legal services, health care: Each cost taxpayers thousands of pounds every year.

That spring, a local charity decided to make the street veterans - sometimes called rough sleepers - the beneficiaries of an innovative social experiment.

No more food stamps, food- kitchen dinners or sporadic shelter stays. The 13 would get a drastic bailout, financed by taxpayers. Each would receive £3,000 (S$6,300) in cash, with no strings attached. The men were free to decide what to spend it on.

The only question they had to answer: What do you think is good for you? "I didn't have enormous expectations," an aid worker recalled a year later. Yet the homeless men's desires turned out to be quite modest. A phone, a passport, a dictionary - each participant had ideas about what would be best for him. None of the men wasted his money on alcohol, drugs or gambling.

A year later, 11 of the 13 had roofs over their heads. (Some went to hostels, others to shelters.) They enrolled in classes, learnt how to cook, got treatment for drug abuse and made plans for the future. After decades of authorities' fruitless pushing, pulling, fines and persecution, 11 vagrants moved off the streets.

The cost? About £50,000, including the wages of the aid workers. In addition to giving 11 men another shot at life, the project had saved money by a factor of multiples. Even The Economist concluded: "The most efficient way to spend money on the homeless might be to give it to them."

What if this pilot programme has broader implications?

Societies tend to presume that poor people are unable to handle money. If they had any, people reason, the poor and homeless would probably spend it on fast food and cheap beer, not on fruit or education. This kind of reasoning nourishes the myriad ingenious social programmes, administrative jungles, armies of programme coordinators and legions of supervising staff that make up the modern welfare state.

We like to think that people have to work for their money. In recent decades, social welfare has become geared towards a labour market that does not create enough jobs. The trend from "welfare" to "workfare" is global, with obligatory job applications, reintegration trajectories, mandatory participation in "voluntary" work. The underlying message: Free money makes people lazy.

Except that it doesn't.

In recent years, numerous studies of development aid have found impressive correlations between free money and reductions in crime, inequality, malnutrition, infant mortality, teenage pregnancy rates and truancy. It is also correlated with better school completion rates, higher economic growth and improvement in the condition of women.

"The big reason poor people are poor is because they don't have enough money," economist Charles Kenny, a fellow at the Centre for Global Development, wrote in June. "It shouldn't come as a huge surprise that giving them money is a great way to reduce that problem."

In the 2010 report, Just Give Money To The Poor, researchers from the Organisation for Economic Cooperation and Development give numerous examples of money being scattered successfully.

In Namibia, malnourishment, crime and truancy fell 25 per cent, 42 per cent and nearly 40 per cent, respectively, after grants were given.

In Malawi, school enrolment of girls and women rose 40 per cent in settings where money was given with or without conditions. From Brazil to India and from Mexico to South Africa, free money programmes have flourished in the past decade. More than 110 million families in at least 45 countries benefit from them.

It is time to apply these lessons to rich but increasingly unequal societies. A world where wages no longer rise still needs consumers. Middle-class purchasing power has been maintained through loans, loans and more loans. The Calvinistic reflex that you have to work for your money has turned into a licence for inequality.

Legend has it that while Henry Ford was giving a tour around a new, highly automated factory to union leader Walter Reuther in the 1960s, Ford joked: "Walter, how are you going to get those robots to pay your union dues?" Reuther is said to have replied: "Henry, how are you going to get them to buy your cars?"

No one is suggesting societies the world over should implement an expensive basic income system in one stroke. Each utopia needs to start small, with experiments that slowly turn our world upside down - like the one four-plus years ago in London.

One of the aid workers later recalled: "It's quite hard to just change overnight the way you've always approached this problem. These pilots give us the opportunity to talk differently, think differently, describe the problem differently."

That is how all progress begins.


Rutger Bregman is a reporter with the Dutch-language online outlet De Correspondent.