A charity implemented a massive economic stimulus package for rural Kenya: 10,500 households received $1,000 each. A
study examined the effects. The result: the entire population benefited from the package and every dollar invested
boosted the economy by 2.6 dollars. We can learn a lot from this.
Economists founded the organisation GiveDirectly eleven years ago. They wanted to help the population in particularly
poor regions of Africa and at the same time examine the economic effects of their activities. The idea is simple: A
selected group of people receives money. Just like that and without conditions. The people were simply trusted to use
the unconditional basic income in a meaningful way. The outcome: The local economy grew and everyone’s wellbeing got
better - not only the recipients of the money. A particularly extensive study was conducted in Kenya in Siaya County,
near Lake Victoria.
1,000 for those living in thatched-roof communities
"GiveDirectly" distributed about $1,000 to 10,500 households. The money was paid out in eight installments. The only
criterion for being part of the project: You had to live in a thatched house. This was the easiest way to identify who
was among the poorest in the village. Those who live in modest prosperity in Kenya usually have a metal roof. And
indeed, one of the most striking changes made by the project was that the houses suddenly had better roofs.
10 million dollars made Kenya's economy boom
However, the changed village image was only a small part of the change that the project made possible. The ten million
dollars that the organization took in hand led to a veritable economic miracle. Every dollar invested increased the
local GDP by 2.6 dollars. To get an idea of the scale of the project: The program accounted for about 15 percent of
regional economic output - three times the stimulus package that Obama put together to combat the economic crisis in
2008.
Inflation remained low despite the money rain
Normally one assumes that with such a high inflow of money for the region, the goods will become more expensive. This
was also the fear of the scientists. However, this was not the case: Inflation remained very low at 0.1 percent. This
provides exciting insights for economic policy in poorer regions of the world. The fact that the rate of inflation did
not rise is because the local economy still had a large amount of unused capacity, noted Gharad Bryan, an economics
professor at the London School of Economics:
“Anyone who has ever been to similar villages will have seen the large amounts of 'excess labor'. It is a hallmark of
many developing countries that there is simply not much to do. In this case, the money seems to encourage people to
spend and this causes an increase in the number of productive hours in the economy.”
Even those who did not receive money benefited from it
Apart from the feared inflation, there was a second concern about the project: what would people think of it if they did
not receive $1,000? Other studies suggest that satisfaction among this group would decline in the short term. They feel
jealousy and social pressure to keep up with their neighbors’ new prosperity. Nevertheless, if you look at the results
in the longer term, it becomes clear that all the inhabitants of the region have benefited.
Average income of all rose
Households that did not receive transfers also benefited from the project. Their savings and income increased. They were
able to spend an average of $334 more in the following year and a half, similar to the households that received money
directly from the program. The explanation is simple: The people who received $1,000 were the poorest of the population.
They needed the money for urgent purchases - to build a new roof or furniture. The artisan sold more, so he went to eat
in a local restaurant and so on.
Austria development aid follows the wrong approach
The experiment of "GiveDirectly" is a contrast program to the development aid of many European countries. Instead of
helping the local economy, we support infrastructure projects that primarily benefit European companies.
This project has shown one thing above all: If you give money to the local population, it is used for sensible
purchases. The local economy grows without strong inflationary effects and the entire population benefits. The people
were free to decide about the money, and that is obviously a good thing.
Republished by permission of Scoop.Me - Originally published by: Kontrast.at/Marco Pühringer