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What Brazil can teach America about fighting poverty

Published: Wednesday, March 20 2013 8:00 p.m. MDT

Favela de Paraispolis (swimming pools). This favela (shanti town) on the left is ironically called Paraispolis (Paradise city). Photo: Tuca Vieira

Tuca Vieira

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Luxury condominiums with tennis courts and swimming pools border the white sands of Rio De Janeiro’s famous Ipanema Beach. Tourists note the striking resemblance to Miami or Southern California. But looking up, away from the ocean, to the homes perched on the cliffs above Ipanema, a very different Rio comes into focus. It is the neighborhood of Rocinha, the city’s largest slum, where precarious looking shacks are stacked one on top of the other.

The dichotomy between the posh apartment buildings on the beach and the shanty towns in the hills is a visual reminder of the income inequality that plagues Rio and other Brazilian cities. Brazil has the one of the highest levels of income inequality in the world.

But the chasm between rich and poor Brazilians is narrowing, according to the World Bank. Between 2003 and 2009, the income of the country's poor grew seven times as much as the income of Brazil's rich. The World Bank also reports that during this period the Brazilian poverty rate fell from 42.7 percent of the total population to 28.8 percent. Contrast this with the United States, where more than 80 percent of income growth in the last 10 years has gone to the top 1 percent of earners. Moreover, poverty rates in the United States have remained between 14 and 15 percent of the total population for the last 50 years, according to Census data.

While several factors contribute to Brazil’s impressive feat, and much of its growth has slowed, experts say that a major component is a 10-year-old anti-poverty program called “Bolsa Familia.” The idea behind the program is that poverty can be reduced in the short and long term by regularly paying low-income families cash for meeting certain socially desirable requirements, like sending their kids to school or going for regular medical checkups.

Brazil isn’t the only country that has had success fighting poverty with conditional cash transfer programs. Thirty-eight other countries in the developing world, including Bangladesh, Pakistan and Mexico, also use this model to improve the standard of living and job prospects for those on the lowest rungs of the economic ladder. Their success has generated interest among those concerned with poverty in America. Researchers are now experimenting with conditional cash transfers in this country. But will an anti-poverty measure from the the developing world work in an industrialized nation?

Results from Brazil

Bolsa Familia was introduced by President Luiz Inácio Lula da Silva in 2003. The program pays families a monthly stipend of $12 for each child that attends school. Participants also receive rewards for ensuring their children receive all their vaccinations by age 5.

An additional payments is made to any qualifying family below the poverty level, which in Brazil means those who earn less that $70 per month. Families living in extreme poverty, meaning their income is less than $35 per month, also receive $40 per month with no conditions.

Each month money is distributed, primarily to mothers, via a government issued debit card. The money can be withdrawn from most banks and can be used for any purpose the parent chooses. Analysis of Bolsa Familia by World Bank economists suggests that by putting money in the hands of mothers, the program contributes to women’s empowerment.

Many economists cite Bolsa Familia’s impressive returns on investment. Although the program only costs about .5 percent of GDP, it has been extremely effective at reducing poverty and economic inequality, according to analysis from the World Bank. A family living in extreme poverty more than doubles its income just from the basic benefit. Analysis of the conditional cash transfer programs by researchers at MIT’s Poverty Action Lab found that more than 70 percent of participating households spend their benefits on more and higher quality food for their families.

But Bolsa Familia doesn’t just reduce short term financial hardship. By tying benefits to school attendance, the monthly stipends also function as an investment in low-income children’s future. “Parents know that sending their kids to school is better in the long run,” said James Riccio, who works for MRDC, an organization that evaluates programs designed to reduce poverty.

In most part of Brazil, school is free, but many families aren't able to send their kids to classes because they depend on the money their children earn during the school day to put food on the table. The cash benefit makes school a viable option for families struggling to get by. The hope is that this helps minimize inter-generational transfer of poverty.

While poverty in Brazil went down roughly around the time Bolsa Familia was introduced, critics suggest it is responsible for only a small amount of the improvement. These critics argue that in fact the improvements are the result of growth in harvesting minerals and fuels. These sales pumped money into the economy at the highest levels that tricked down to the poor.

Before Bolsa Familia, there was no safety net for the poor in Brazil. In fact the only large scale social program was old-age pensions, which were awarded only to formal sector workers, which is not a benefit most of Brazil's poor qualify for because they do not have formal sector jobs. Some observers question the effectiveness of a conditional cash transfer program in a country like the United States where there is a more established safety net.

Experimenting in the United States

To test the possibility of a program like Bosla Familia working in the United States, New York City Mayor Michael Bloomberg, along with the Center for Economic Opportunity, launched an experimental program called Family Rewards, funded entirely by the nonprofit economic development organization Seedco. The first phase of the program started in 2007 and ran until 2010.

Researchers responsible for the creating the Family Rewards project decided to give families many ways to earn benefits because they were not sure what incentives would resonate with American families. The program offered rewards ranging from $20 to $600 for things ranging from perfect school attendance and maintaining health insurance coverage to receiving preventative medical and dental care, and sustaining full-time work.

The average participating family earned an annual $3,000 payment per year from Family Rewards, according to James Riccio who participated in the evaluation of the program. His analysis reveals mixed results. While it reduced immediate material hardship for all participants, its impact on human capital development was unclear. The program only had a measurable impact on high school students who met the minimum academic standards coming into grade nine. Among these, student attendance improved, and they were more likely to pass their state achievement exams and graduate on time.

Riccio also said the participants of the program had increased the rates of health insurance coverage and reduced reliance on emergency rooms for routine care. Participants in Family Rewards were also significantly more likely to receive preventative dental care. Still, “two years is too short a time to see any real health outcomes,” said Riccio.

Some observers called the Family Rewards experiment a failure, but according to Riccio the jury is still out. “In the first generation of the pilot we noticed some promising things and some things that aren’t working,” he said, “Now that we have a bit of information to work from we can revise incentives. Poverty in America and Latin America are different.” What works there might not resonate here — the only way to figure it out is to test and test and test, he said.

Currently, Riccio is evaluating a second generation Family Rewards program that is being administered in Memphis and the Bronx. For this phase they pared down the benefits offered and changed the benefit structure. Instead of an annual lump sum, families receive their benefits once a month. “We think people will be more likely to participate in the program if payments are made every month, reinforcing the positive things they are doing,” he said. They are also experimenting with paying kids for grades — $30 for an A, $20 for a B, $10 for a C — for each subject on every report card.

Political criticism

While many agree that conditional cash transfer programs like Bolsa Familia have reduced poverty, there is opposition from across the political spectrum. According to Riccio, progressives suggest that offering benefits for good behavior “diverts attention from structural causes of poverty like low wages.” Conservative critics argue that it is inappropriate to pay parents for things they have a moral obligation to do, like taking kids to the doctor and making them go to school. Finally, libertarians feel the conditions required to receive payment are paternalistic and demeaning to low-income people.

Riccio acknowledges that these criticisms are valid, but suggests another perspective. “The reward provides families with more resources to accomplish the goals they are most likely to embrace. Giving people rewards now for things that benefit them in the future could be powerful,” he said. Still he cautions that “we can’t adopt it just because we want it to work or it works in other countries. Good poverty reducing policy relies on evidence and honest evaluation. It's not something that can be answered in one or two pilot projects.”

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