Why Bolsa Familia Works

Brazilian economist Carlos Góes on the libertarian roots of Conditional Cash Transfer programs

A good idea- but where did it come from?

A good idea- but where did it come from?

Milton Friedman and Lula would agree on this one.

And that might catch you by surprise.

After all, in the back of your mind you might still have an image of the stereotypical American libertarian: a Ron Swanson-like figure who idolizes the founding fathers, stashes guns and gold in his backyard, and carries Ayn Rand’s “The Virtue of Selfishness” under his arm. Even worse (but hopefully not), your reference for a “libertarian” might be GOP-brat Paul Ryan.

And if you’re familiar with the far-left lingo, then you probably call libertarianism by its “proper” name – neoliberalism!

How could a selfish-praising, poor-hating ideology be the root of conditional cash transfers (CCTs)?

Luckily, the truth is far more interesting than the stereotype.

From a historical perspective, classical libertarians such as John Stuart Mill advocated limited government precisely to prevent majorities from tyrannizing minorities. More recently, Black libertarians like Thomas Sowell and Walter Williams wrote on the harm the war on drugs was bound to have on minorities and inner city youth back in the 1980s when both the right and the left supported substance criminalization.

CCTs also focus on the disenfranchised.

CCTs (like Brazil’s Bolsa Familia and Mexico’s Progresa/Oportunidades) aim at helping individuals who fall under a certain income threshold by giving them cash.

This cash allows them to act as consumers at the marketplace. The largest advantage of such a scheme is that it reduces politicians’ and bureaucrats’ discretion to make decisions for the people and lets the people make the decisions themselves.

The return of choice

The return of choice

In a centralized social policy, government decides what the poor need, when they will get it and how the goods will be provided and paid for. I witnessed some of these policies when I was growing up in Brazil.

Joaquim Roriz, a populist politician who was governor of the Federal District between the late 1990s and early 2000s, wanted to be seen as a man who helped the poor.

To accomplish that he created a program called “Bread and Milk.” From its name, it’s not hard to imagine how paternalistic it was. The government bought bread and milk and then handed it to the needy. The poor loved Roriz. As a side benefit, he chose which companies would provide the bread and milk and who would work in the distribution venues: a large open door for cronyism (side note: he would later be prosecuted and found guilty for corruption).

By contrast, CCTs are decentralized social policies. At the market, people make decisions about how and when the money will be spent. The government’s role is limited to transferring resources based on a simple, transparent, and universal rule: the poverty line.

Individuals, not bureaucracies, take care of resource allocation – the most important characteristic of a market economy. With CCTs, resources remain public, but choice is privatized—and the poor are the largest winners with such a privatization. CCTs are market-oriented (i.e., libertarian) designs for social policies.

Not surprisingly, Nobel laureate and libertarian patron saint Milton Friedman designed the framework upon which CCTs would later stand. He makes three main points in the poverty alleviation chapter of his popular Capitalism and Freedom, published in 1962.

First, he says, it is acceptable to establish, due to externalities, a desired income floor in a society (though defining that level is a complicated moral and social decision). Second, he adds, for any such program to reach this objective, it should directly target the poor and shouldn’t indirectly subsidize employers to incentivize employment stability.

Lastly, he concludes, the policy should be strictly transfer-based and government shouldn’t buy or produce goods and services, to avoid distorting the price system.

He concludes that the best system to help the poor would be a system of a “negative income tax.” In such a system, all those who made less than a given income threshold would get money from the government – rather than pay taxes.

They would not get bread and milk. They would get cash! And they would go to the market decide whatever they want to buy. Does it ring any bells yet?

It’s true that Friedman was not the only one to support this idea (Friedrich Hayek, another Nobel laureate who’s celebrated amongst libertarians, also supported a basic income to every citizen). But his outstanding position in the economics profession was essential to help multilateral institutions embrace poor-focused social policies (rather than universal welfare schemes).

The first CCT with a nationwide outreach was Mexico’s Progresa/Oportunidades, created in 1997.

The World Bank emphatically supported it. Later, the World Bank liaised between Mexican and Brazilian authorities, aiming to expand Bolsa Escola, a Brazilian CCT created in 2001, thereby helping to create what came to be known as Bolsa Família – the award-winning social program championed by the charismatic talented former Brazilian president (and former socialist) Lula da Silva.

Knowing the Friedmanian and Bretton Woodsonian origins of CCTs, left-leaning Mexican scholars have deemed cash-transfers through Progresa/Oportunidades a “neoliberal” public policy. Regardless of that (or maybe precisely because of that), since its inception in Mexico and Brazil, similar programs spread like wildfire to other parts of the world.

Other social policies that decentralize choice and bring decision-making to the private sphere – such as school choice through educational vouchers replacing state-run schools – are clearly recognized as libertarian (or market-oriented, if you will) policies.

The same should apply to Bolsa Família and other CCTs. Governments that aim to design innovative solutions to deal with poverty should look at them as examples.

Bolsa Família is a cheap program (annual payouts are 1/7 of what the Brazilian Development Bank provides in subsidized credit to corporations) and very efficient in lifting people out of extreme poverty (levels have fallen uninterruptedly since the program has been first implemented).

CCT

In 1997, few countries had CCT programs. Today, it is common place.

CCTs empower individuals – not bureaucrats.

They rely on individual decision-making and enlarge the poor’s ability to choose what they want for their own lives. They make the poor more free, since socio-economic development and the ability to be a consumer at the marketplace are constitutive parts of freedom.

Concomitantly, because individuals have more liberty to take part at the marketplace, beneficiaries can innovate, save money, invest, get training, and build skills – for themselves and (more often) their kids. With that, they can thrive and eventually get rid of the need for governmental handouts. In fact, more than 12% of the families who have received Bolsa Família transfers in the past have voluntarily walked out from the benefits, as they grew a bit richer.

At the end of the day, by opting for a market-oriented social policy we are making a statement. We are saying we trust the poor. We are saying that decisions about their lives should be taken at their homes – not at a restaurant table while a politician and a lobbyist negotiate over government contracts and the next election.

We are saying that they should be able to exert their own consumer sovereignty in the marketplace, deciding on their own what and where to buy what they need.

The lessons of the last decade are that such a design imposes a much smaller burden on society and reaches its goals in a much more efficient fashion than traditional welfare schemes. Despite of the stereotypes you’ve heard, Ron Swanson would approve Bolsa Família and would be glad to replace centralized welfare with conditional cash transfers.

Ron approves

Ron approves

Carlos Góes, originally from Brazil, is an economic analyst who lives in Washington, DC, where he works in the multilateral sector. He blogs at www.mercadopopular.org.

Disclaimer: This article should not be interpreted as reflecting the opinion of his employer.

Read more from Carlos HERE

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2 Responses to Why Bolsa Familia Works

  1. Pingback: A Gringo’s Guide to the Brazilian Presidential Election | No Se Mancha

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