Lending Hands to Someone Is Better Than Giving a Dole

The medieval scholar Moses Maimonides, writing in the twelfth century, set out eight degrees of charity in his code of Jewish law. The lowest is giving grudgingly. The highest, he wrote, is to strengthen a person's hand by giving a gift or a loan, or by entering into a partnership with him or finding him work, so that he need no longer depend on others. Eight hundred years later, the same ranking appears in the saying behind the topic, that lending hands to someone is better than giving a dole. The phrase also echoes the proverb about giving a man a fish and teaching him to fish. The proposition is old, and yet policy still argues over it every year in the budget.

A dole is a payment given without any expectation of work or effort in return. It meets an immediate need and is quick to deliver. Lending a hand means helping a person to produce, through training, credit, tools, land or a job, so that the need is removed and not merely met. The difference is in time. A dole addresses today's hunger, and a hand addresses tomorrow's, and the person who is helped to stand can in turn help others.

The case for the hand rests first on dignity. A person who earns feels respect for himself, and the community respects him. Amartya Sen has argued that poverty is a deprivation of capability, the freedom to do and be what one values, and that the aim of policy should be to enlarge capability. Charity that leaves a person as he was does not do so. Work, even humble work, gives structure to life, and long unemployment damages health and self worth, as studies of the unemployed have repeatedly found.

Evidence also favours it on cost. Muhammad Yunus's Grameen Bank began in 1976 by lending small sums to poor women in Bangladesh, and its loans were repaid at rates above ninety eight per cent. Borrowers bought cattle, looms and raw materials and earned incomes from which they paid the loan and fed their families. The Mahatma Gandhi National Rural Employment Guarantee Act of 2005 offers a hundred days of paid work a year to rural households and has built ponds, roads and soil works in return for wages. Economists who studied it found that it raised rural wages and gave particular support to women. The Self Employed Women's Association in Gujarat has shown how organising poor women can raise their income more than handouts could.

Work, even humble work, gives structure to life, and long unemployment damages health and self worth, as studies of the unemployed have repeatedly found.

The Mudra Yojana, launched in April 2015, extends loans of up to ten lakh rupees to small enterprises that had no access to banks. Skill India, begun in July of the same year, aims to train millions. These are attempts to lend hands on a large scale. They follow the logic that the poor are not lazy but constrained, lacking capital and information, and that removing the constraint releases energy that was always there.

Yet it would be wrong to dismiss the dole altogether. Some people cannot work, among them the very old, the severely disabled, young children and the victims of floods or famine. For them a payment is the only humane response, and India's pension schemes under the National Social Assistance Programme and the midday meal in schools are forms of it. The Food Security Act of 2013 guarantees subsidised grain to around two thirds of the population, and it has helped keep hunger from turning into starvation. In an emergency, to withhold relief while insisting on training would be cruel. The Bengal famine of 1943 is a reminder of how deadly it is to let the market decide the fate of the hungry.

There is also evidence that cash transfers, when well designed, can build the capacity to work. Brazil's Bolsa Familia gave money to poor families, on condition that children attend school and receive health checks, and it reached more than thirteen million families while contributing to a fall in extreme poverty and school dropouts. Experiments with unconditional transfers in Kenya and in Madhya Pradesh, where pilot projects in 2011 gave small monthly sums to villagers, found improved nutrition and schooling and no sign that the recipients stopped working. These results challenge the belief that all handouts breed idleness.

The concern about dependence is nevertheless real. Subsidies that are poorly targeted can become permanent, and those who receive them may come to expect them. Politicians may find that freebies win votes and so promise televisions, laptops and loan waivers, which cost the exchequer heavily without building any lasting capacity. The Supreme Court in 2013 questioned the legal basis of such promises in election manifestos. Leakage is another problem, as the cost of the public distribution system shows, with a large share of grain failing to reach those meant to receive it. A dole that does not reach the poor is worse than none.

The wise policy is therefore a ladder and not a choice between two alternatives. The state provides a floor, such as food, health care and a basic income for those who cannot work, and builds steps above it, such as education, training, credit and employment, so that those who can climb are helped to do so. Direct transfers to bank accounts using the Jan Dhan accounts opened in 2014 and the Aadhaar number can reduce leakage in both. The test of any scheme is whether the person is better able to look after himself next year than this one.

Timing matters as well. A hand is best lent early, when a child is given nutrition and schooling, because the returns of such investment come over a lifetime. A dole given late, to an adult who has lost his skills and health, can do little more than keep him alive. The sequence suggests that the argument between the two is partly an argument about when to act.

Maimonides did not say that the lower degrees of charity were worthless, only that they were lower. What he left unsaid is how one can tell, in a given hand held out, whether it asks for bread or for a rope. A policy maker who cannot tell them apart will do harm in both directions, and the people who hold out the hand seldom say which they want.