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Marcelo Giugale Headshot

Memos From the Developing World: The State and Me

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Over the past two decades, most developing countries (35 of them in Africa alone) began to make direct cash transfers to their poor. Initially, this was meant to change the recipients' behavior -- say, we give you money if you vaccinate your children. But this social policy tool is beginning to transform the way citizens relate to the state.

To start with, the logistics of the transfer is simple and getting cheaper. In most cases, a debit card or a cell phone is all you need. At each transaction, information is generated -- on costs, preferences, impacts, needs. The accumulating data allows for better targeting, smarter design, less duplication, higher progressivity, closer monitoring, and more rigorous evaluation of social programs. You no longer have to second-guess people's needs; you can ask them directly. Your client is no longer "the people". It is the individual.

Of course, nothing prevents other public subsidies from being delivered in the same way. How about public services in general? And why using the direct-transfer technology only with the poor? Why not everybody? Let's work out a few examples to get a sense of the transformational power this would have.

Take tertiary education. Governments in Latin-America, the Middle East and other regions spend a fiscal fortune funding public universities. Most of their students are middle-class or rich. And the quality of the education they get is mediocre at best. What would happen if the equivalent subsidy were given directly to the students on their personal debit cards, for them to shop for colleges, public or private? Wouldn't good old public universities have to shape up? Wouldn't it then be easier to "means-test" the transfer, that is, to make it smaller for richer students? You get the point: by going directly to the individual you get a final outcome (education) that is better and fairer.

What works for education may also work for healthcare, for child nutrition, even for environmental protection. Rather than paying for public hospitals with all their running problems and poor service, couldn't you transfer the money to each citizen so they can choose health provider? And can't you load the debit cards of indigent mothers with baby formula or vitamins? Or with professional pest-control advice for farmers that can't afford it?

The new relationship does not stop at hand-outs from the state to the citizen. It involves trust too. Imagine if a percentage of the profits of a national oil company (think of Venezuela's oil giant PDVESA) were to be transferred directly to every resident, no questions asked. What do you think would happen with public interest in and scrutiny over the company's performance and transparency? There would be instant demand for "accountability" -- if they don't find and sell oil, you personally lose money. Now picture the same mechanism applied to Africa's bountiful extractive industries, from diamonds to gold to timber. Yes, it would make life less comfortable for foreign corporations and for the politicians that grant them concessions. That's exactly the point.

Finally, the mechanisms used to transfer money in one direction can also be used to transfer information in the opposite one. How about paying for people to fill out household surveys through their cell phones? Some of this is already happening. It is increasing not just the knowledge the state has of each citizen, but its frequency too. It will soon allow us to answer in real time (repeat, in real time) questions that, until now, took months if not years to answer, like: What jobs exactly did the global crisis destroy? How are rising food prices affecting families? Why people migrate? Are teenagers quitting high-school? Why is polio coming back? All this will help governments respond in more timely and more meaningful ways.

Needless to say, none of the above will happen overnight. The vested interests in the state-as-we-know-it are many. This is not only true in developing countries -- try to reform Europe's public universities. And there will be actual supply constraints -- what do you with a loaded debit card if your village has no hospital, or electricity for that matter? But the ballooning expansion, and collapsing cost, of communications technology even in the least developed parts of the world will put most of us in a direct relationship with our governments.