Can Cash Transfers be the Key to Developing Effective States?

Perhaps the largest challenge in development is the transformation of weak states designed to preserve the power of elites into competent bureaucracies serving the needs of society. Without a state that serves this purpose, substantial poverty reduction is exceptionally difficult. There are a number of theories as to what are the key factors in the development of effective states, and two of the most prominent explanations are that of war and the development of a middle class. Both theories depend on the idea that when citizens depend on and are brought into closer contact with the state, they will hold it accountable and push the state towards successful administration and service provision. However, few things bring citizens and the state together as much as cash transfers, even more so in the case of a universal basic income. As James Ferguson’s Give a Man a Fish describes, cash transfers are on the ascendancy throughout the developing world, and there is significant reason to believe they could have the transformative effect on weak states that has been so highly sought after.

The theory that wars are the key to developing effective states is a popular one, perhaps most famously articulated by Charles Tilly’s quote, “War made the state, and the state made war.” This theory draws heavily on the European experience, arguing that the existential threat of war and the resulting need for greater revenue causes rapid evolution in the relationship between state and citizen and the state’s bureaucratic capacity. Jeffrey Herbst developed on this line of thinking in “War and the State in Africa,” arguing that the international trend away from interstate warfare has led to the continuation of weak states in Africa which, due to the lack of war, do not face sufficient pressure from their citizens to develop. He states, “War caused the state to become more efficient in revenue collection, it forced leaders to dramatically improve administrative capabilities, and it created a climate and important symbols around which a disparate population could unify.”

However, examining Herbst’s quote more carefully, why would any of that not apply to major cash transfer programs? Such programs already exist in developing countries: Brazil’s Bolsa Familia reaches 25% of the population, 30% of the South African population receives monthly cash transfers from the government, and multiple other southern African countries have implement similar programs. In order to pay these grants to a large proportion of the population, governments inevitably have to find sufficient revenue to fund them. It is also a significant administrative undertaking to reach so many people, and depending on the state for sustenance is certainly a good way to bring states and citizens together. Furthermore, in terms of accountability, what simpler signal is there to citizens that the state is not doing its job than to be able to see that they did not receive their money this month? It is true that consistent poverty does not produce a shock to the system in the way that war does, which Herbst argues is crucial to enabling significant change. However, the risk that poverty presents to the health and safety of citizens in many developing countries is certainly comparable to that of war.

A growing middle class has also been speculated to be a key factor in the development of effective states. In this argument, the middle class relies on a strong economy and government service provision. Benefits provided to a small group of elites are not broad enough to serve the needs of the middle class, and the benefits broad enough to serve the middle class end up benefiting the rest of the population. The Center for Global Development’s Nancy Birdsall has argued that focusing on supporting the development of a middle class can actually be more beneficial to the poor than specifically pro-poor policies. This argument rests on the idea that the middle class supports policies that create growth, and that growth then comes to benefit the poor. Yet instead of relying on growth to end up meeting the needs of the poor, why not just give cash transfers, which provide for the basic needs of the poor, in the first place? It is also not clear why an accountable and transparent government, a strong economy, and effective service provision would appeal to the middle class and not the poor. And like the way a desire for growth is theorized to lead the middle class to sustain pressure on states to develop, cash transfers could cause a similar tightening of the bond between the poor and the state. While the middle class does have greater means to channel political pressure, there is little reason to think the poor could not participate in effective political movements that lead to improved states, especially as they generally constitute a larger segment of the population. In fact, India has had reasonably successful development gains and democracy, and poor Indians are actually more likely to vote than middle class or rich Indians. In any case, if cash transfers target a wide enough segment of the population, as would certainly be the case in a universal basic income, they could strengthen the demands for accountability and effective governance from both the middle class and the poor.

Of course, while cash transfers could have this transformative effect on states, they first have to be implemented. A significant barrier to implementation could be finding sufficient funding for the programs. However, funds could be found by moving government budgets towards service provision and cutting down on corruption. While it could be difficult to convince wealthier citizens to pay higher taxes for programs that would overwhelmingly benefit the poor, they do represent a significant potential source of revenue, and reducing tax evasion by foreign corporations would give developing country government large increases in revenue while causing less anger from domestic citizens. Also, cash transfer programs that start relatively small in scale could start the process of citizens holding the government accountable. This would cause a decrease in corruption and increased bureaucratic capacity, which would then enable greater revenue for expanded cash transfer programs. Funding has also not been an insurmountable barrier to large cash transfer programs even in poor countries such as Namibia and Zambia.

When examining why developing countries would choose to implement cash transfers in the first place, several reasons come to mind. The threat of a country’s large poor population growing angry, difficult to govern, and pushed towards desperate means in order to survive is a common one for governments in poor countries. That seems to have been at least partially the case in the development of southern African cash transfer programs, where Ferguson argues the context of evaporating wage labor has been a key factor in the expansion of social payments. Fear of the poor turning towards communism was a significant motivator of community development programs, and that same fear of a radicalized poor could lead to cash transfer programs. Yet while community development was designed to pacify the poor and create further distance between the poor and the government, cash transfers bring citizens and the state into closer contact, allowing for further pressures for effective states. According to Ferguson, southern African cash transfer programs seem to have led to increased political pressures, defying fears that they would purchase citizen compliance.

Governments would also receive encouragement to implement cash transfer programs if they were promoted as one of the developmental norms that developing country governments are expected to follow. While this remains a somewhat distant goal, cash transfers are receiving positive feedback from mainstream development actors, with even the World Bank giving limited support to state-run cash transfer programs.

Still, the best and perhaps most likely cause of cash transfer implementation is organized domestic political movements demanding them. Concerted political pressures led by organized citizens will help push states in the right direction by themselves. If they do win major cash transfer programs, it is likely that these programs will cause further increases in transparency and accountability, improve the state’s ability to collect revenue and deliver services, and help transform the meaning of the state from a removed predator to a valued provider, not to mention significant reductions in poverty. Major cash transfer programs are too recent a development to provide clear evidence on their long-term effects on the state, but they might just be able to alleviate poverty in the short-term and create a state that enables prosperity in the long-term.

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