The Future of American Foreign Aid

USAID has been slashed, and it is unclear what shape its successor will take. How might American foreign assistance be restructured? How should we think about its future?

Clara: Todd Moss and Katie Auth are from the Energy for Growth Hub. I wanted to talk to them because, as most of you reading this know, there’s been an enormous amount of chaos in the international aid sector recently. In addition to all the destruction, a plan was leaked from some people in the administration — I’m not sure we actually know who — for reorganizing USAID. When I first saw it, I thought, wow, this is surprisingly good, or at least surprisingly non-nihilistic. And then I saw Todd's Substack post saying that it looked very similar to a reorganization he proposed back in 2011, when he was pitching the organization that would become the Development Finance Corporation (DFC). Why don’t we start there?

Todd: I should caveat up front that I had nothing to do with the leaked plan. There's an ecosystem of people who think about reforming US assistance programs and making them more efficient. It's been going on for many years. A lot of us know each other, and many of the issues today are what they were even 30 years ago. I don't want it to seem like I'm trying to take credit. We also don't know that this plan will even be the administration's plan. It's just the most concrete example we've seen that there are serious people in the administration thinking about how not just to tear down the aid architecture, which is what we've seen over the last several weeks, but how to rebuild and maintain those capabilities in a more effective manner.

Clara: Those are all important caveats. And of course there are big gaps between what has been proposed and what is actually happening. We’ll get into that.

Todd: Good. In my mind there are three big, longstanding issues. First, the laundry list of goals and objectives of foreign assistance continues to grow. We have incredibly unrealistic hopes for what US spending can achieve in different places around the world. We want aid to accomplish everything from economic growth to promoting human rights, fostering democracy, ending famine — a very long list of things, some business-related, national security-related, humanitarian. It makes for a very confusing set of activities.

Second, we have a lot of agencies. There are more than 20 federal agencies that have some kind of foreign assistance program, so the US approach is very fragmented.

Lastly, we don’t have a rational system for making all those disparate parts work well together. When you take a laundry list of goals, a lot of people with different aims, and no system for working it out, it shouldn't be a surprise that it's very confused and often doesn't lead to the outcomes we would hope.

Clara: Do you walk me through how the new proposal would address this?

Katie: I can walk you through that. There are three big things and a bunch of other details, which I'm happy to discuss.

First, it basically retains the outline of a USAID-like agency, renames it the Agency for International Humanitarian Assistance, and moves it under the State Department.

It would limit the purview of that new agency to humanitarian assistance — food assistance and a lot of the global health work that USAID did previously, for example.

The second big thing is that it moves the other trade and investment-focused agencies, specifically the US Trade and Development Agency (USTDA) and the Millennium Challenge Corporation (MCC), under the DFC umbrella. There are a lot of people who would love to see a more streamlined approach to these various agencies working on related tasks, and there are good arguments to put all the folks working on investment and trade-related issues in the same home. The plan does say that USTDA and MCC would retain some level of independence, maintaining their mandates and capabilities. That's something to think about moving forward — how would that actually work if they were nestled inside DFC?

There's one final component of the overall plan I wanted to highlight: it proposes using a compact model, which is what MCC has used since its founding, to govern all US assistance. Instead of having USAID programs that would go on for years and years, they would be structured around time-bound agreements between the US and another country that would say, "We as the US commit to do this over five or ten years. The other country commits to doing its own reforms and investments." That's a push to create more mutual accountability and focus within aid programs and structures.

Clara: That was a big question I had reading this document. As you said, MCC is focused on trade and private sector growth. Most humanitarian aid programs don't work this way. Some do — inside PEPFAR, in the last five year plan, there has been an increasing focus on figuring out how to hand off more responsibilities to partner countries and developing capacity there. So, how do you think this change will impact humanitarian aid overall? I don’t know what to think about it. Of course developing domestic capacity is hugely important, and we've seen success with programs where it's been implemented. On the other hand, if a country doesn't have the capacity to distribute vaccines or emergency food aid, tying aid to that capacity will just kill a lot of people. How do you see that playing out?

Katie: Ideally, the vision here — and I fully agree with Todd's caution that this is not necessarily the plan — is that you wouldn't tie assistance to assuming that capacity has to exist today. You would tie the assistance to a plan to create that capacity over a certain number of years. At its essence, it's about trying to hold partners accountable for saying, "How do we ultimately get off of aid?" There have been many commentators from Africa and other aid recipient countries who've talked about how reliance on aid actually disincentivized their own countries from investing in their own health capacities. The compact model is a way of hopefully re-incentivizing that and creating a time-bound structure for doing it.

Todd: If I can add to that — you want to create incentives so that whatever problem the aid program is trying to solve actually gets solved over time rather than the system perpetuating the problem. That means both incentivizing capacity in partner countries and getting rid of the disincentives for aid donors to just keep perpetuating the same thing. If you look at how the US budget is done with continuing resolutions, we literally do the same budget every year. The compact model would create a glide path — an exit ramp for both sides.

Clara: How has this worked for the MCC, which uses this model?

Katie: It's worked quite well. One of the great things about MCC is you can go onto their website and read really comprehensive evaluations of every program they've ever done, and they don't shy away from criticizing their own impact. Some interventions have worked better than others. MCC is critical because it can put money toward public infrastructure that's unlikely to be financed by the private sector but is crucial to later creating a market for private capital to flow in. I was relieved to see in this proposal that it retained MCC's capabilities, because I know there are others in the administration who perhaps don't see the value in MCC. This is an important debate happening inside the administration right now.

Clara: This also relates to another plank in this proposal: changing the way awards are done. Instead of tying payment to inputs, they want to tie payment to outcomes. And again I have wide-ranging confusion about how it would work in practice. On one hand, there's pretty widespread agreement that USAID did have efficiency problems. There was not a strong institutional culture of valuing results. On the other hand, I'm concerned that tying financing to outcomes makes it harder to do more speculative work, or disincentivizes trying potentially valuable things that have less probability of concrete success. What do you think?

Katie: I completely agree with you. A couple thoughts: First, reforming the procurement system inside USAID is something almost anyone who's worked there would agree with, and it has bipartisan support. For too long, the procurement system has been too rigid and uncreative. It's been narrowed down to a few contractors who tend to win everything because they have the experience and history with USAID that are weighed most in procurement decisions.

To clarify, paying for results is something USAID was already doing. In Power Africa, for example, we structured many of our awards that way, but it really came down to whether you had a contracting officer willing and able to be creative with you and work on different ways to build contracts. Moving in that direction is good, but I agree with you — you need to think about the specific thing you're trying to do. In some cases, paying for results may not be the optimum way to accomplish that. Ideally, I hope whatever comes out of this has flexibility to do different contracts in different scenarios. I don't think any across-the-board declaration of contracting makes sense.

Clara: Now, the thing we've all been champing to say is this specific proposal doesn't necessarily line up with things happening on the ground. The proposal talks about strengthening DFC, but there have been personnel cuts at DFC. The proposal says that emerging infectious disease tracking is important and serves US interests, but Charles Kenny and Justin Sandefur at CGDev have been tracking which USAID awards have actually been cut, and infectious disease work has basically been zeroed out. Obviously, there are different factions within the administration with different understandings of what we should be doing. I'd love to hear how you're tracking the political situation and how you see it developing.

Todd: The administration is not monolithic, and this administration doesn't have a policy formulation process that looks anything like past administrations. Clearly, the cuts are being led by Doge, who will have no role — or we wouldn't expect Doge to have a big role — in helping reformulate the aid capabilities with the restructuring plan.

I think they're borrowing tactics from the tech world: when you want to cut, you cut really fast and do it as harshly and quickly as possible — "move fast and break things." The rebuilding process is the next phase, often done by different people with a different skill set. The rebuilding should be done thoughtfully and carefully. I interpret this plan, whether it's the real plan or not, as a signal that there are factions within the administration thinking thoughtfully about what the US government needs from foreign assistance to achieve our foreign policy aims, trying to come up with a rational structure for rebuilding or protecting some capabilities. It doesn't surprise me that it's misaligned with the slash-and-burn tactics we've seen so far, but it gives us at least a little hope that there are some green shoots of a positive outcome.

Katie: I would add, when you think about the politics, there's a difference between asking somebody on the street, "Should the US invest in combating diseases around the world?" versus "Should the US fund PEPFAR?" In the plan, I read this as an attempt to separate the capabilities the US government should have from the names of past programs. The structure creates space for much of the capabilities we had before. It's seeking to depoliticize some of those capabilities from past institutions and programs that may not be popular, but the capabilities really are if you just talk to people about what they do and why they're important.

Jake: Katie, you wrote a Substack post about the Energy Secretary and how he expressed a plan that resembled what was done at Power Africa. Is that an example of where there's consideration going into how to rebuild? Can you talk about that more?

Katie: What I heard from Secretary Wright at the Powering Africa Summit in early March wasn't a plan in the sense of specific details, but he clearly committed to US assistance in the energy sector, saying, "We're going to partner with you, bring capital to the table, and provide technology." In spirit, it was very much a recommitment to the work we did under Power Africa. There are clearly different folks inside the administration who believe in the value of this type of work and are probably pushing to rebuild where they can. But I don't think anyone right now has clarity on who will actually have the leverage and voice to carry the day.

Clara: I'd love to start getting into questions about the nitty-gritty of what rebuilding might look like. Todd, one thing you said in your Substack post that I think is super important is: "I'm less concerned about where aid functions sit in the federal org chart as whether they can work." Lots of places have moved their aid agencies into their State Department equivalents, like the UK and Canada. So the question is: how do you do a reorganization like that successfully? A reorganization can fail by not incorporating elements of talent, institutional culture, and institutional knowledge. What would it take to functionally move the core competencies of USAID into State? How do you do that without losing stuff?

Todd: Before getting into the human capital aspect, there's a healthy tension with development assistance. If you're talking about building long-term food security, infrastructure, or promoting economic growth, you want to insulate that a bit from short-term, day-to-day diplomatic or military security concerns, because those have different goals and objectives. You want some distance so you can have longer-term goals and effectively help change long-term trajectories. That's what development should be about — that's the argument for having a separate agency, because the urgent will always push out the important.

At the same time, you want your aid programs tied to other national objectives, not just pursuing goals for their own sake. That's largely because you start to lose political support otherwise. Taxpayers should feel their money is being spent effectively. If we're buying vaccines, we want those delivered, but also the purpose should align with either American security interests, economic interests, or our values.

I wouldn't underplay values — this is super important. Supporting human rights and democratic institutions is part of who we are as Americans. We shouldn't pretend we don't have values, that we only have interests. Foreign assistance has always been part of that. But you always want to tie it back to something the American public can ultimately support, whether it's saving children's lives, ending poverty, supporting American business, or strengthening our allies against adversaries.

You want that tension between hard-core objectives and being able to have a long-term perspective. I worked in the State Department, and I can tell you that diplomats are the last people you want running long-term development programs. They move every three years and are thinking about the next summit or meeting with a head of state, not about drivers of child mortality or electricity prices. You need to get that healthy balance.

Katie: If we were to move everything to more of an MCC-like model, part of it is an attempt to deal with that cyclical nature of who serves in embassies. Foreign service officers come and go every couple of years, making it hard to get traction on any particular program. Building longer-term compacts that say, "Let's build a ten-year program to accomplish these goals" starts to build in some solidity and continuance that would be healthy for the system.

In terms of human capital, having worked at USAID, I'm seeing my friends and colleagues around the world in shock as a result of the rapid speed and cruelty with which this was all done. I'm worried about the long-term ability of the US to convince young people and skilled professionals to come into public service and serve overseas. How will you convince people this is still a place with stability, respect, and belief in the importance of what you're doing? I think that has collapsed overnight. If this administration wants to do work around the world — and they absolutely do, they have big plans for DFC — they'll need to show people it's worth coming to work here.

Something not talked about much in US media is all the human capital in USAID missions overseas. When I worked out of embassies, half of my closest collaborators were foreign nationals who were really building the aid programs because they worked there for decades and had all the institutional and local knowledge to understand what would work. Losing those folks is an enormous loss to the US.

Jake: We also know applications are surging at private foundations and philanthropies. It's not just young people but everyone now. Can we get them back?

Clara: Even in the private sector, contractors are folding. So many that did really important work are either shutting down completely or shutting down their international aid arms. This is a huge sector — I think Jake, you were estimating something like 100,000 people.

Jake: I was looking at Tetra Tech, who I used to contract for, and they've got 10,000 employees. Not all of them are consulting for USAID, but that’s just one major contractor.

Clara: They aren't all going to find new jobs overnight. Capacity still exists, but where do they go? More importantly, why would they come back? I keep thinking about this — if you're imagining an administration in four years or even in two years or a year that's in the rebuilding phase, where are those people? How do you draw them in?

Todd: We don't have an answer to that, because you've articulated the problem the administration will have. Unlike tech, you can't just offer crazy salaries. Nobody's joining the Foreign Service to get rich quick or to get rich at all. People do it out of public service, to have the experience of representing the government, to help make some contribution to the world — and you've just thrown them away.

I would be looking at Foreign Service exam numbers. If that plummets, which I'm sure it will — that might have been the objective of the cuts. It certainly seems the manner in which this was done was to destroy the will of people to want these jobs. That's not easy to recover from — it's broken trust. I was just speaking to development studies students at Cornell yesterday, and I could not say what I normally do about how wonderful development economics is as a field and all the different opportunities. I absolutely would not advise them to go into it right now. We're going to lose a lot of talent from the next generation, and that's a problem they're going to have to figure out how to solve.

Clara: This relates to another worry I have. You mentioned earlier that we should be pursuing core American values abroad, like saving children's lives. When I look at right-wing discourse about the USAID cuts, I can't help but think that saving children's lives is not right now a universally agreed-upon core American value. And then, a lot of us who have been thinking about aid criticism from an efficacy perspective just missed this sheer level of anger and mistrust in the conservative movement. I think that many people, particularly in DOGE, sincerely believe that aid is just sinecures to left-wing NGO employees and the results are all fake. If aid is going to continue as a political project, we need to figure out how to rebuild some level of trust there. I don't know how to do that when the discourse is so conspiratorial.

Katie: For me, that is the number one and most difficult thing we have to do over the next decade. We have to rebuild trust and learn to talk about foreign policy writ large — not just aid in its traditional sense, but why lower-income countries around the world should matter to the US, why things like saving lives and advancing economic growth outside our own country matter.

The aid community got sort of lazy over time with communication because we knew we weren't popular, but we were okay with it because we felt we had a congressional constituency that would back us up and keep funding us. We've seen over the past months that that constituency did not exist when push came to shove. Part of this has to be rebuilding a political constituency that understands and takes seriously the role of the US in the world. We need to learn to expand the pool of people we talk to and talk in words that normal people can understand.

We were talking about rebuilding trust with US Foreign Service officers and others, but there's also an issue of trust with the private sector. The Trump administration has made clear it wants to move the aid apparatus to focus more on supporting private sector companies and trade. But if you're a private company that was receiving technical assistance and early-stage grants from USAID five months ago because you're a small solar startup trying to operate in difficult places, and suddenly that support drops out overnight, there's immense distrust in the dependability of the US government. That's another challenge: how is this administration going to rebuild trust with the private sector when they've seen that our commitments and contracts mean very little?

Todd: Katie's being very self-reflective about aid advocates perhaps taking political support for granted and not doing a good enough job reaching other constituencies. I would also put some blame on groups that had been proponents of assistance. One reason PEPFAR was so popular was because the Bush administration had done a lot of work with churches to ensure religious communities became a backstop for AIDS prevention and treatment.

Now, when political leaders change and tell untruths that aid dollars are being stolen and it's "weird lefty communists" getting jobs — which is completely untrue — that's when church leaders need to tell their constituencies, "We still believe in saving lives." We have to push back there as well. The fault is not just on aid proponents, it's on a broad swath of people who have spent decades promoting these things and seem to have disappeared overnight as a political force. I'll put that on Republicans on the Hill for sure, but also on civil society leaders who know better.

I guess what I'm saying is not just Katie's point that we didn't do a good enough job communicating the benefits of foreign assistance programs and sharing the results. It's also that people are deliberately using misinformation about what those programs are, who delivers them, and what we're getting as taxpayers. That information is actually incorrect. There are lots of inefficient aid programs — I've seen plenty of them and have been on record for 30 years as a critic of foreign assistance. But what has been used to tear down the architecture is factually incorrect. The proponents and constituents able to talk to those broader audiences — not policy nerds like Katie and me, but people in communities that have been building support for PEPFAR, Feed the Future, and all kinds of aid programs that achieve results — they need to stand up for the facts, and we haven't seen that happen.

Katie: I'll add that it's not just disinformation in terms of completely wrong statistics and narratives. It's that coupled with rhetoric that is completely dehumanizing to folks inside USAID. When this started, Elon Musk was on Twitter calling USAID workers criminals, vipers, Marxists. That makes it really hard for normal people out in America who aren't closely following this and who already were suspicious of USAID because of disinformation over the years. It makes it much harder for them to stand up and recognize that those civil servants are their neighbors. It made it very difficult for anyone to come in and stand up for those people, and that's really dangerous in a bunch of different ways.

Jake: Katie, you said at some point the administration will realize, if it doesn't know already, that they need the services foreign assistance provides. Can you elaborate on what that is and when you think that might be recognized?

Katie: The administration has talked a lot about all the investments it wants the Development Finance Corporation to do — it's given DFC a really ambitious agenda. "We're going to invest in minerals around the world, we're going to do all sorts of strategic things that are in the US interest." The problem is that in many of these markets, especially lower-income markets where USAID had a strong presence, the financial markets aren't at the level where private capital is banging on the door to get projects done.

DFC can try to finance projects in these markets, but it can't do it alone. Right now, DFC sits back, waits for a bankable project to come to its attention, and then steps in with a financing tool to help it get across the finish line and de-risk things. But if a market isn't at a place where there's a huge pipeline of deals waiting to be financed — which is most countries in Africa — DFC is going to be stuck.

My point was the administration will realize they need all of the earlier-stage market development that agencies like USAID, USTDA, and MCC do. Whether they call those agencies what they're called today — again, to Todd's point, I care less about where things sit than that we retain the capability and focus on what's really needed.

Todd: I would add, if the administration thinks the United States is going to provide a credible alternative to Chinese political influence, we're going to need those capabilities, full stop.

Clara: I do have other technical questions about what situating this stuff at State looks like concretely, and how to reconcile it with the comparatively diminished role of State in foreign affairs in recent decades. But part of me wonders if it's naive to think about any of this happening constructively in the current political environment.

Todd: You're worried we're arguing about the ideal formation of the deckchairs on the Titanic, right? I think we need to put foreign assistance reform in the context of a broader attack on all public institutions from an administration that seems hell-bent on cutting public spending no matter what.

I was bemused talking about retaining and building expertise — they've killed the Presidential Management Fellowship, which is a hugely valuable way of getting young, low-cost, high talent into public service. They do six months in four different agencies, and usually if they're good, they convert to civil servants. It's an almost magical recruitment tool for government talent, costs almost nothing, and you get some of the best people. They just killed that. That's the context we're in.

With the State Department — yes, it is diminished and going to be cut. When I was there, it was so bureaucratic. You could easily have 20-25 people signing off on one memo, which strips out anything interesting. Reform is super necessary, but it's a question of whether you want reform done thoughtfully in a way that the outcome will be more effective and aligned with what the government is trying to achieve on behalf of the American people. What we're seeing now is really just a fire sale. I don't see the State Department being strengthened as the locus of capability. There's a chance DFC could be that pocket of excellence, but I'd want to see a lot more before accepting that as likely.

Clara: In another blog post, Todd, you talk about Hillary Clinton's attempt to do aid restructuring when she was Secretary of State, which resulted in a two-year process involving hundreds of meetings, memos, and an enormous number of person-hours with very few actual results. I believe there has to be a middle ground between being so thoughtful and process-oriented that you accomplish nothing, and what we're seeing now. But it's plausible to me that someone hitting that middle ground would still attract a lot of anger and backlash from institutions in the aid sector that benefit from the current arrangement. I've been trying to think: how do you distinguish, if you're not following this obsessively like we are, between "this is a disaster" and "these are just entrenched players complaining because we're changing things they don't want changed"?

Katie: That's a great question. I've been struggling with that too. There's a risk that if all of us in this community focus on the deck chair rearranging, which is interesting to us but not to anyone else, we miss the bigger picture. To me, the bigger picture isn't just about the attack on public institutions like Todd said, it's this question of: who do we want the US to be in the world? What do we stand for?

I think it's dangerous to separate the aid question from all the other things we're seeing. Do we want to be the country that arrests Tufts students on the street, or do we want to be a country that does good and recognizes that generosity and openness really is in our self-interest? Maybe I'm hopelessly naive, but I believe most Americans want their country to do good in the world. That's where this conversation about communicating with people, rebuilding a constituency, and pushing back against the administration's vision for the US in the world, which is hyper-transactional and devoid of values in many senses, becomes really important.

Jake: In the interim, how should philanthropy be thinking about its role in this space? Should they be thinking about taking over some of the roles of USAID? Is that even possible? Should there be more of a pivot towards effectiveness now that we’re even more resource constrained? There's room for philanthropy to have a larger effect than it had before. How should they be thinking about what they're doing?

Todd: Philanthropy cannot replace government — the scale is just not there. Philanthropy is the excess savings of the super-wealthy. I don't think it would be good for American democracy if our aid programs, which should be going through a political process, were outsourced to wealthy philanthropists.

At the same time, there are areas where philanthropy can do things government cannot. I would love to see more philanthropy take public policy seriously. There's a big trend, certainly in the energy and climate space, for philanthropy to go just toward technology — "we're just going to support a technology we think is cool and could have a big impact." Many people think government is too annoying to deal with, but this is actually a reminder that we need government. We need government to be effective, and we need to build constituencies to hold government to account.

I would like to see philanthropy taking public policy and constituency building for effective public policy seriously. One example is Renaissance Philanthropy, a spinoff from Schmidt. I think of them as scientists who take public policy seriously, whose mission is to get public policy to take science seriously. That's a good example of where philanthropy can play a role in helping make our public institutions better, not just funding private labs but actually trying to make our public institutions more effective.

Katie: One of the critiques of the USAID structure over the years is that its programs are slow, bureaucratic, and often the deliverables and targets are tied more to what the US wants to say it achieved than to what local markets really need. Those same critiques apply to most philanthropies as well. I would urge philanthropies to take the critique USAID is getting seriously and apply it to their own structures. If they step into this space and just replicate the dysfunctions the USAID bureaucracy had, we all lose. This has to be a moment for all of us, philanthropy and government, to really rethink the parts of the critique that are valid and important.

Clara: Before we close, what is your most honest prediction for how aid restructuring will play out in the next four years? I know this is crazy and nobody knows and we're all just guessing, but you are some of the more informed people who could be wildly speculating.

Todd: I'm generally an optimistic person. I think most people want to do good in the world and achieve something. I'd like to think the factions within the administration and their supporters will come around to recognizing we need some of these capabilities and will build back selectively. It's not going to be exactly the same, and it will be of a different scale, but potentially better—more effective foreign assistance programs that will be more sustained because they'll be more closely tied to the results we're trying to achieve.

This has been a huge shock to a system that was stuck in a rut — overly bureaucratic, fragmented, and frankly detached from the people it was intended to serve, both US taxpayers and recipients in developing countries. Starting somewhat fresh, if they're able to attract talent, I'm optimistic we'll get some vertical interventions that will be more effective than in the past. I'm hopeful not too much will be lost.

It's a bit like a forest fire, and hopefully the green shoots will renew us. My greatest optimism is that one of the most important things in the leaked plan is trying to get away from a Christmas tree approach — where we do everything and money is the answer — to having some core objectives framed around making us safer, more prosperous, and stronger. That's a useful framing for organizing what we're actually trying to achieve. We got away from that with "we're going to do everything for everyone." Hopefully, a little rationalization will lead us to focus resources and be tied more closely to results that link what American taxpayers want our government to do, who we want to be in the world, and what we're actually accomplishing with that money.

Katie: I'm thinking about this on two time frames. In the immediate term over the next four years, we need to focus on saving what needs to be saved, making the case for core capabilities that absolutely cannot be destroyed, and working on issues where there's opportunity to do really great things. DFC reauthorization is one space where there's quite broad bipartisan agreement around making it more effective, and the administration seems on board with that.

In the immediate term, we also have to think about how to keep talented, ambitious people in this sector. How do we retain human capacity, intelligence, and historical memory? How do we save that and keep it in this space so it's not lost forever?

Over the longer term, because personally I'm not confident we're going to reinvent US development assistance in a positive way in the next four years — but at some point we will — we need to prepare by thinking through what we want this to look like. What can we do in the next couple of years versus the next ten? How do we start to reinvent this whole structure? It's hard to think about those two time frames simultaneously, but we must.