The art and science of helping Thailand’s poorest
BY NOW the Prayut Chan-o-cha government should have finished its task of transferring Bt3,000 cash to each targeted poor or low-income person in the non-farm sector who earns less than Bt30,000 a year, and Bt1,500 cash to those with annual income not exceeding Bt100,000. Combined with an earlier programme under which the poor in the farm sector were given similar cash assistance, the number of poo
There are many ways in which poor people in any country can be given economic assistance by the government, and this kind of direct cash transfer is one of them. The role of the government in this respect can range from minimalist, where the government does nothing to help the poor and lets the market decide, to maximalist, where the government “owns” the poor and protects them from falling into any economic hardship.
In the real world, however, governments adopt wide-ranging policies that cover a broad spectrum of the above two extremes. Sound macroeconomic management may be carried out to ensure that the highest economic growth is attained through economic efficiency and stability. Certain sectoral policies are selected to counter inadequacies in a sector that hinders growth and development. When these two policies are unable to adequately help the poor, some social protection or social safety nets may be called for. It is to this social protection department that direct cash transfer belongs.
The idea of giving cash directly to the poor causes some uneasiness to many economists and development practitioners. The publication of an influential book titled “Just Give Money to the Poor” (written by Joseph Hanlon, Armando Barrientos, and David Hulme) in 2010, and the enthusiastic support by the World Bank later, helped to change that perception, as there is adequate evidence to show the poor are the best judges of how to make the best use of the money for their own needs and well-being.
If an unconditional assistance is not yet ready, perhaps some Conditional Cash Transfers (CCT) can be instituted when money is given to the poor families to fulfil certain tasks or obligations, for example, keep their children in school, get necessary vaccination, or to live in certain housing conditions. This practice of CCT, popularised first in Brazil in the early 2000s, is now widely accepted around the world.
But it is not easy for the government to decide which policy to propose and implement to help the poor. This policy selection has become “an art” and many governments will have differing stances. To overcome this problem, some economists have proposed “a science” of how to help the poor. One of these could be called “Welfare Subsidy Model” where the government will provide minimum guaranteed income to everyone in society, and collect tax on the earnings of these individuals. The relationship between these two variables will tell the government how much welfare subsidy it needs to provide each year. If S is the amount of welfare subsidy to be provided by the government, M is the minimum guaranteed income to everyone, E is the earnings of this person, and t is the tax rate that the government will charge on this individual’s earning, then the following equation will hold: S = M –tE.
Assume the minimum guaranteed income is Bt100,000 per person per year, and the tax rate for earnings is 10 per cent, then the automatic welfare subsidy by the government for this person will stop (S=0) when the earning of this person reaches Bt1,000,000 per year.
Medhi Krongkaew, Graduate School of Development Economics
National Institute of Development Administration (NIDA)
