Paying the Poor, the Pittsburgh Promise and the Politics of Welfare

The City of Pittsburgh operates a program similar in some ways—but different in others—to  Brazil’s Bolsa Familia program analyzed in the article “To Beat Back Poverty: Pay the Poor.”

The Pittsburgh Promise offers $ 40,000 to any child who meets the following criteria

• Graduate from the Pittsburgh Public Schools or one of its charter high schools;
• Be a student in the district and a resident of Pittsburgh continuously since at least the 9th grade;
• Earn a minimum of a 2.5 GPA;
• Maintain a minimum attendance record of 90%;
• Earn admission to any accredited public or private post-secondary school located in Pennsylvania.

In sharp contrast to BF, the program isn’t means tested.  A student’s financial background doesn’t affect their eligibility.  However, the Promise was conceived within the context of severe racial and socio-economic achievement gaps among students in the city.  $40,000 is quite an incentive to stay in school and keep the grades up.  

I would argue that the program would be more efficient in meeting graduation and dropout goals if it only targeted lower-income students.  Or, perhaps someone could create a matrix that incorporated the numerous variables that cause a student to be more likely to drop out and target the program based on that criteria.  If we could eliminate the set of students who would graduate anyway (without the $40K incentive,) we could spend less money and achieve the same increases in graduation rates!  Why pay someone to graduate when they will graduate whether you pay them or not?  Why give anyone of us a scholarship to CMU when we would have come here anyway?

The Promise has other goals besides decreasing achievement gaps in the Public Schools.  They want to attract families with children back into the city and the into city schools.  UPMC, the main funder, wants to generate goodwill and thereby lessen the threat of the city pushing to make the $600 million “retained earnings” per year generating ostensibly non-profit behemoth pay property taxes on their considerable holdings in the city. 

Let’s pretend that the Promise’s only goal is reducing the socio-economic and racial achievement gaps, measure by graduation rates and GPA.  Spending money on students who already get high grades and will graduate and go to college regardless if they get $40K is wasted money!  So why pay it?

It wouldn’t work politically any other way.  Despite ambivalent empirical evidence regarding the validity of the moral hazard, American political discourse focuses on the moral hazard of welfare payments.  The reasoning goes like this: if you only offer the Pittsburgh Promise to, say, families under the poverty line, it gives families who are marginally above the poverty line an incentive to earn less in order to qualify.  Or, let’s say another criterion is that the student’s GPA has to be less 2.5 in middle school.  We have just created an incentive for students to underachieve in middle school. 

Programs like Medicaid (insurance for the poor,) food stamps, housing subsidies and TANF (Temporary Aid to Needy Families) cash transfers are more controversial because they are means-tested and therefore create a moral hazard.  They create so-called “government dependence.”  In 1996, Bill Clinton and the Republican congress reformed welfare with the express goal of making poor people less dependent on government and incenting them to seek, find and hold down a job. 

Social security and Medicare are much less controversial.  Why?  Because every senior is eligible.  Unlike the Pittsburgh Promise, which gives each student the same amount of money, regardless of their exact GPA, regardless of what school they are going to, regardless of other scholarships they have been offered, Social Security and Medicare scale their payments based on how much the individual has contributed into those programs via their income taxes. This increases these programs’ brand of fairness. 

Is the Promise inefficient (according to some wooden assumptions about its goals?)  Yes.  Would it have even been created if it was a means-tested program?  Probably not, at least not on such a large scale of $40,000 for every eligible student.

One last note: the (libertarian-leaning) economists who are most likely to emphasize the power of the moral hazard are also in strong agreement that cash transfers are more efficient than in-kind transfers.  From a utilitarian point of view, cash transfers enable the greatest good for the greatest number by giving the recipients more choice—I can only spend food stamps on food, but what if my sister can help out with the groceries and need to repair my car instead?

So I'm a little small-minded. Who knew?

The future of social innovation, enterprise, and the policies that aim to enhance and regulate them is an uncertain one. The current financing landscape is dynamic and policies are changing under peoples’ feet. There are no standard practices and finding ways to assess and measure both fiscal and social returns on investments poses questions that are not just math problems but also moral ones.

As I examine government strategies to select, foster, implement, and expand on proposed social ventures, I find myself battling preconceptions of how I believe government and innovation to interact.

Government:  a huge, slow-moving, money beast that funds reliable and essential infrastructure. Although I am a firm believer in the essential organizations that maintain public roads, manage the judicial system, and support our police and military, I also associate these organizations with bureaucratic nonsense, paperwork, and long lines at the Department of Licensing. Regulation, rules, lines, and all of the essential evils of a hyper-structured organization that has to keep 300+ million people coexisting in the same country.

Social enterprises: the antithesis of government in my mind. They epitomize nimble, dynamic, and innovative endeavors that are unbound by the endless hierarchy and process of government. Although taxes and laws apply to them just the same, these ventures benefit from creativity and defying convention.

Although these stereotypes are undoubtedly a sign of inexperience in closely examining public policy or business, my awareness of these biases at least reassures me that I’m learning. The challenges that face policy-makers and social innovators have more in common than I had expected. How do you get funding? How do you decide what’s successful or not when money in vs. money out is not the only metric?

Small realizations on policy have cropped up throughout the course of this class, the catalyst in really altering my conceptions is the Big Society Capital funding platform. I hate to admit it, but I found myself surprised to hear about it. This platform uses money from long-dormant bank accounts to fund social enterprises. 

(Excellent overview and discussion of the investment mechanism here.)

 So not only was there a really unique, interesting idea that the government not only came up with, but they actually implemented it. So here’s the catch: it’s in the UK. So unfortunately, my skepticism remains: the US government isn't taking the kinds of risks that seem to be crucial in making headway in the social venture space. Our current response is the Social Innovation Fund, which is still precariously supported by a government in debt. So while the UK has money in-hand, the US asks that their money be matched but continues to send the US further into debt. This doesn't inspire the same kind of excitement in innovative policy that the Big Society Capital Fund does. Or am I missing something?

Yet the original question remains: is this preconception of such a severe mismatch between social innovation and government a personal bias, social belief, or an actual problem with the US government? 

Conditional Cash Transfer

The focus of my  blog this week  is ‘Conditional Cash Transfer’. This is an example of why this program is more successful in rural area as opposed to that of urban area.  The article “Condition Cash Transfer” flops in NYC by  John Derbyshire. It cites reasons for why this programme  could not  succeed in metropolitan city like New York.  Conditional Cash Transfer program was designed with an objective of eradicating poverty. As a part of the program, government would transfer money to the persons who meet certain criteria defined by the government.  According to the world bank report.

 “ Conditional Cash Transfer programs provide cash payments to poor households that meet certain behavioral requirements, generally related to children’s health care and education. Poor families are aware of the benefits of investing in their children but cannot afford the monetary costs of attending school or the opportunity costs of sending children to school (the income or value of income that children would earn if they were working, rather than attending school). Since families need this income for current consumption, they take their children out of school at early ages and send them to work.”

This shows that the CCT programme was designed on a premise that institutional and social barriers prevent poor people from having an access to education and health facilities. However, author informs in the article that no such barriers exist in NYC. Healthcare is free (through Medicaid and emergency room service. There are lots of public funded job training opportunities. If the poverty is there , is not the result of any social or institutional barrier but because of low intelligence and  lack of drive.  In such cities, programmes like CCT are bound to fail .On the other hand this programme is a big success among rural population in  Philippines, Mexico and  Brazil.

 The only concern I have at this point is ‘Do we have any model in place that ensures sustenance of the impacts of this program?

The way forward

"The future depends on what we do today." - Mahatma Gandhi

Since the turn of the century, the field of Social Innovation and Enterprise (SI&E) has taken significant strides.  Entrepreneurs and innovators have demonstrated in varied geographies and cultures that SI&E can foster economic growth and social change. Undeniably, a part of the responsibility to strengthen this momentum is with the policy makers in our governments. There is no dearth of great ideas or enthusiasm with in the community of innovators. However, the chances of SI&E making a widespread impact depends on having a sophisticated support framework like in business or in academia.

According to OECD, Innovation policy is seen to have an important role in influencing innovation performance. In the long run, a collaboration between the innovation efforts in business, academia and the social paradigms  have a potential for tremendous pay-offs for the governments. EU's 2020 agenda recognizes the need for  framework for financing and mobilizing social change. The need of the hour is policy decisions which propagate these initiatives. As discussed in this article, making internet access universal is one such crucial decision.

Skeptics of SI&E often argue about the ability of it to make a large-scale change. It is important for us to understand that without the supporting infrastructure, it would be unreasonable to expect SI&E to do wonders at a mega-scale. Imagine, a place with no infrastructure to conduct business or a system of universities to conduct research. Would it be possible to have sustainable businesses or institutions of learning? Barring a few exceptions, perhaps not! The economic growth and social well-being in the coming decades will be determined with the decisions we make today. The choice is with our leaders, policy-makers  and most importantly us. Will SI&E be a solution to a number of the world's problems or just a utopian dream?

Challenges for Social Innovation

Globalization has shortened the distance among cultures and sets of beliefs, enabling some values to influence and prevail over others. A wide acceptance and application of market based principles around the world has changed the way in which people think, turning community values into individual beliefs. This era could be seen as a modern Renaissance in which the individual is the central piece of the puzzle and in which a new reality is being human-centered designed. As this individualization phenomenon expands, the definition of “what people need” has disintegrated, in a literal sense, into the needs of smaller units: a country, a community or even an individual. Hence, as demand has sophisticated, innovations in every level and dimension of supply have been exerted in order to respond to a more complex reality.

In this sense, new institutions have surged to norm, regulate and set a framework for action of firms, governments and civil societies trying to supply an increasingly complex demand. In the near future, the greatest challenge social innovation will experience will be related to institutional change. As Samuel Huntington says, the survival of an institution depends on its ability to adapt to a changing reality.

Therefore, ties among private, social and public sectors will have to strengthen to improve and increase the information flow. If governments do not assume their co-responsibility on social innovation and development by legislating and creating a favorable environment for that can norm new forms of social enterprises, there will be a bottleneck, entrepreneurs will be discouraged and many social needs that cannot be met by the government won’t be met by other actors either.

Also, the survival of traditional non-profit organizations will most likely be put at risk. As new and more institutions are created, the sources of funding will be more limited for existing non-profits. Consequently, they will have to increase their fundraising efforts or revaluate their business models. In addition, innovators should focus in developing new ways for reducing transactions costs derived between non-profits and donors, and between entrepreneurs and investors.

Moreover, another challenge for social innovation will occur inside the firms, which are discovering new frontiers in the base of the pyramid. In the near future, corporative ethics and corporative social responsibility will take a central role and will possibly make many enterprises to question the balance between their profit-maximization principles and their social impact concerns.

The future is uncertain, but nature is wise. So, only the fittest will survive this major changes driven by social innovation. Then, the question that arises is which institutions will be the fittest to survive? Which new business models and institution will be created? The limit is set by individual imagination.  

Can we believe in the human cornucopia of infinite innovation?

Since the earliest times of our economy we have depended on innovation to bring us the things we need. Our inventions have moved mountains and let us soar through the sky and our collective futures look bleak without trust in our power of invention, but innovation has much harder to muster. True innovation overcomes the cultural, physical and emotional barriers which separate so many of humans. "First world problems" are so significantly different than what happens in the rest of the world that we have made it a comical reference:


"I have an itch on my foot... but it tickles when I scratch it" FWP


So we see a vast difference in the entire way of thinking between our world cultures. There is a deep difference from the way we approach and identify problems. That is why the people who look to inspire the greatest and deepest change get to know these cultural differences intimately before trying to bring about change. Levitt Capital Management is an investing firm which tries to bring something deep and powerful to third world communities through his investment. Levitt mentions a television show where some American paramedics went to Pakistan and gave their services to Parkistani's and said that they did more for American-Pakistan relations than any government agency. In the same video he discusses the deep cultural difference which he tries to overcome when investing in other countries. These practices are the types of innovation in the financial market which can overcome our vast cultural differences and physical distances.

While our innovations for change around the world might not be seen as a bottom-up operation there are so many ways in which our innovation comes from the spirit of innovation. Innovation and entrepreneurship have a cultural spirit which ebbs and flows by the demand and cultivation brought about in our society. For America, I believe there is a great force of youth who drive this spirit today. Our need for developing change isn't as much in America now-in-days though. We need to find a way to spread entrepreneurship to the people of the world, to help cultivate innovative ideas in places where we wouldn't be the angels of prosperity bringing them opportunity but where we engaged in the communities which showed promise for innovation, promise for a culture of idea development. While I respect the role Kiva has played in bringing opportunity to small businesses. I believe we should be educating people around the world and offering a way to truly inspire innovation from the people who have the need for these things. The perfect program for inspiring a culture of innovation might not exist because it is impossible to simply create this. But we are growing a mainstream of mavericks in our culture and I believe we can spread our culture of innovation more than we had spread out culture of fast food and democratic politics. Becoming an entrepeneur is harder than reading a guide or taking a class. But we must innovate to bring prosperity to the world. Will we run out spirit? Will our infinite cornucopia of ideas and innovations fall from our expectations? And a harder question, is it only a special few who get to innovate in a worldwide pyramid of resources?

The future is not so safe. The intersection of policy and innovation

With this week's theme of the future of social innovation, I want to address the future concerns of innovating in an undefined space. 3D printing is being recognized as one of the prevailing technologies of this decade, and maybe century. With the ability to construct virtually any consumer product in ones basement will inevitably disrupt the manufacturing industry. Furthermore, 3D printing brings the ability for consumers to innovate in their garage, and become inventors of the next big thing.
A recent Economist article titled "Solid Print: Making things with 3D printing changes the rules of manufacturing," discusses how 3D printing is quickly being adopted in the household. The article goes on to state:

http://www.economist.com/node/21552892

"The new range is not just about printing things, says Abe Reichental, 3D Systems' chief executive. It is also about simplifying the process of making products and letting people use the power of the web to share ideas."

The future of 3D printing, however, has its consequences. After reading an article in the NY Times titled "Disruptions: With a 3-D Printer, Building a Gun With the Push of a Button," highlights how 3D printing of guns is already occurring.  Individuals are easily able to download the renderings of a lethal handgun and replicate it in the comforts of their home.  Furthermore, these guns are not registered and ammunition can be obtained over the internet without a license.  With over 30,000 deaths annually as a result of guns in the United States alone, this poses a substantial policy problem. How should policymakers decide to regulate innovative technologies with regards to 3D printers has yet to be understood. Here is an astonishing quote from the article: 

http://bits.blogs.nytimes.com/2012/10/07/with-a-3-d-printer-building-a-gun-at-home/

"Given the number of existing loopholes and the ease with which people can buy firearms on the Internet, people printing guns might seem like adding a drop of water to an Olympic-size swimming pool. According to an annual report released by the A.T.F., more than 5.5 million guns are made in the United States each year, and millions more are imported."

By utilizing plastic found in lego pieces, individuals are able to manufacture parts to a gun, and legally purchase other gun accessories online.  The good news is that current technology makes it difficult to manufacture plastic strong enough to withstand the firepower of a handgun or rifle. However, it is only a matter of time before technology can keep up with this demand.  

The National Rifle Association has yet to comment on the 3D printing of weapons, but it is an issue that will need to be addressed in the near future.  It is in their best interest to protect the second amendment, but how many more people need to die through illegally purchased firearms before policy reform?

Another article I came across yesterday discusses this very issue. "Will the Guys with the [Printed] Guns Make the Rules" discusses how a University of Texas Law Student, Cody Wilson, freely distributed plans of how to manufacture a 3D gun on regular 3D printers. Here is a picture of Cody with his 3D printed AK-47:

http://www.huffingtonpost.com/josh-horwitz/will-the-guys-with-the-pr_b_1953692.html

If Cody Wilson gets his way, it will be easy for any person to print their own deadly weapon in the comfort of their home, without anyone knowing about it. Policy needs to be changed immediately so that this catastrophe does not happen.

Achieving Social Innovative Policy

Just like individuals can address social problems through social ventures, the government itself can become a catalyst of innovative policy to bring change. While it is more common to hear about social innovations, innovative public policy is harder to come by. Many social enterprises try to deal as little as possible with the government when selling a product to meet social needs while one has to always deal with the government to pass innovative public policy.  But just like there are ways to incentivize social entrepreneurship, there are also ways to incentivize innovation within branches dealing with public policy.  

New ways to address problems using policy can result in dramatic changes for the public. The conditional cash transfer program had significant results reducing poverty in Brazil and Mexico. It is sometimes harder for social enterprises to succeed at alleviating a social problem than for a government to address the problem through innovative means. A government often has more resources and capabilities than a social venture. Governments are often slow or incompetent to address certain social problems, but there are ways to bring innovation into a government.

In the article “How Social Innovation is Helping Homeless Veterans,” Ron Ashkenas describes how an innovation approach by public administrators resulted in a dramatic improvement to address chronic homelessness among veterans. Ashkenas’ article led me to believe that we could facilitate innovative public policy by:

• ·      Creating a sense or urgency for the social problem
• ·      Bringing together a diverse group of passionate leaders to address the problem
• ·      Establishing a supportive environment for innovation

Whichever social problem we are addressing, we have to make it a priority among public officials. In the article, US Veteran Affairs Secretary Eric Shinseki made sure that institutions and agencies dealing with veterans were aware of the high rate of homelessness among veterans. He raised the issue and brought people and organizations together to address homelessness among veterans.

In the article, Rapid Results Institute organized a boot camp with teams from 4-5 cities to house homeless veterans. Members of teams included case managers and program managers from organizations like the Public Housing Authority, local VA offices and local NGOs. The team only had 100 days to address the problem and then their strategy was implemented and improved. Bringing in people that care about the same problem is beneficial because they not only bring in different ideas, but can also bring in different resources.  

Innovative public policy can have a bottoms-up approach. We often like to think that the national government needs to address all our problems. People often target the national government to bring change and neglect to act locally. But we can start locally by creating a grassroots movement to address a social problem. It is sometimes easier to have a narrower target. We need to get people to be more politically involved and create a supportive environment. We need to get communities excited and passionate about social innovation. And we can start locally and expand. Many social enterprises will at some point have to rely in government to expand and grow; this can be eased if we create a grassroots movement for social innovation. As individuals, we can promote social innovation within government. 

Are Scalability and Sustainability a Trade-off?

I came across this ted talk “India’s Hidden Hotbeds of Invention” by Anil Gupta this week.  this is not a new one but a very interesting talk showing how indigenous entrepreneurs could change people’s life. I feel that this is exactly the idea social innovation starts with. Trust the power of local people. As Anil said, minds on the margin are not marginal minds. I agreed. Inventions happen in the field, in everyday needs, not necessarily happen in the well-equipped labs in prestigious research institutions.  

Anil mentions one thing that particularly catches my attention and I actually paused and thought.  “higher the local fit, greater the chances of scaling up” and also on the slide he presented: Should scale be the enemy of the sustainability? Logic of the Long Tail, investing in ideas, technologies with limited diffusion, without the sustainability is threatened.  Wait, this runs counter to my common sense. Does scalability equal standardization in a certain sense? While it is true that the more local fit the more sustainable a project will be. So I kind of feel that scale and sustainability are trade-offs here. I recalled a certain report stating the fact that many small local NGOs can not get funding for their project because they are too rooted in the local community and could not scale up. So is Anil wrong?

I searched more on the concept of Scalability and found this article: What Do We Lose with Scale? published on the website of center for social innovation in Stanford Business school. The author thinks that there are trade-offs between scale and comprehensive locally driven solutions.  He testified the report I read before:  he has personally witnessed many funders dismiss some highly efficient solutions simply because they are not scalable to replicate or expand. Investors’ considerations are legitimate and understandable, given the limited resources they have.   They hope to find the solution that is effective locally and more importantly they want to reach more customers, buyers with few alternations, which is more financially efficiently.

I think a very critical thing here is the way we define and evaluate “scalability”. When we look at the project to judge whether it can be scalable or not, we should pay more attention to the inherent idea and the multiple approaches it uses. Maybe they are more transferrable and replicable.  However, I still have many questions:

Can the local community be better served with local community efforts and initiatives or outside problem-solver with their “scalable” solutions?  

How can we help those highly community-relevant projects alive? Should government do something in this field?

In real world, how can we measure scalability?