Foreign Aid Was Supposed To Help Nations In Need. It Has Instead Enriched Western Contractors

How the aid-industrial complex undercuts regional expertise and gives a competitive advantage to Western contractors with networks of ‘independent consultants’

Foreign Aid Was Supposed To Help Nations In Need. It Has Instead Enriched Western Contractors
Iraqi engineers and construction personnel work to restore electrical power generation capabilities in Baghdad on March 14, 2004. (Scott Nelson/Getty Images)

In his farewell address in 1961, President Dwight D. Eisenhower warned the nation about the increasingly close and lucrative relationship between the U.S. government and the defense industry. He famously labeled this constellation the “military-industrial complex,” introducing this term into the American political lexicon. More than 60 years later, in January 2023, President Biden’s United States Agency for International Development (USAID) administrator applied the same idea to the American system of international aid.

“We’re massively overweighted toward working with large international organizations or U.S.-based contractors,” said USAID Administrator Samantha Power from the World Economic Forum in Davos. “So we’re trying to change that by bringing down the barrier to entry by reaching out beyond the traditional kind of aid-industrial complex.”

According to USAID, the goal of foreign aid should be ending the need for its existence. But USAID and the U.S. private sector have grown together since the agency’s founding, integrating a profit motive in much of USAID’s programming that sustains its longevity. USAID’s reliance on Western contractors has cemented the private sector’s control over development, rendering it almost indistinguishable from the government agency that it serves. “These consulting firms are essentially USAID,” said a former USAID employee. “They’re doing what the government [USAID] should be doing. But they’re doing it for profit.”

There are examples of this dynamic around the world. In Haiti, USAID relied on Chemonics to implement its response to the 2010 earthquake through no-bid contracts that the agency released days after the emergency. The consulting firm’s failures began to surface through numerous scandals. In one instance, Chemonics failed to hire significant numbers of Haitians when implementing USAID’s “cash-for-work” program. But just three months after the scandal surfaced, USAID awarded Chemonics an additional $53 million to implement 141 new projects in Haiti. The aid-industrial complex sustains itself through its failures.

USAID was established in the 1960s by the Kennedy administration with two central goals. The first was to lead countries to self-sufficiency. The second was to open markets and business opportunities to American companies. The development agency was part of America’s response to the Cold War and an effort to win the “hearts and minds” of people in developing countries. USAID funded countries of strategic importance, looking for opportunities to export neoliberal market principles through easing trade regulations, guaranteeing loans, giving out scholarships and opening developing countries to agribusinesses.

For example, in the 1960s, President Lyndon B. Johnson refused to send emergency food relief to stem a famine in India until the country adopted certain agricultural and economic reforms. “You sup at our table. You mind your manners,” Johnson explained to a USAID official. In 1967, after India followed course, the Johnson administration supplied grain and agricultural technology from the West, including new strains of wheat and rice, fertilizers, pesticides and hydraulic schemes. For Johnson, USAID’s mission was to encourage the purchase of American industrial farm inputs and the abandonment of traditional, local agricultural methods.

Beginning in the 1970s, the U.S. increasingly outsourced government functions to the private sector through contracting. Domestically, the government began delivering social services like child welfare, adoptions and mental health care through private companies. At the same time, U.S. officials were increasingly focused on “performance-based measurement” and “management by objectives.” During the Vietnam War, Secretary of Defense Robert McNamara developed ways to measure U.S. military operations, including “kill ratios” for different weapons systems and military operations. These trends extended to USAID. In 1969, the development agency introduced its Logical Framework approach, which required all projects to describe their Activities, Outputs, Purposes and Goals in a systematic manner. The Vietnam Bureau became USAID’s largest mission, with over 2,000 staff members.

These frameworks later served as the basis for preventing waste, fraud and abuse through the Offices of the Inspector General, which were established during the Carter administration. The offices increased accountability in government but also resulted in growing managerialism and a focus on short-term performance outcomes, which are often antithetical to development approaches. As Congress increased its oversight over USAID, the agency grew mired in expanding regulation and performance metrics, transforming from an organization that planned and implemented projects into one that solicited bids and oversaw contractors.

Domestically, the delivery of social services by for-profit companies exploded during this period. Between 1977 and 1997, the number of for-profit providers of social services, including individual and family services, job training and vocational rehabilitation, child day care and residential care, increased by 202%, while the number of nonprofit providers increased by 125%. These companies were adept at using the government’s performance metrics system. Some of the largest USAID contractors, such as Creative Associates International and Abt Associates, began during this era as social services contractors.

In practice, the difference between for-profit and nonprofit companies also started to evaporate. CEO salaries at nonprofit development and humanitarian firms increased, including World Vision and Save the Children, where they can exceed $500,000 annually. Companies began creating complex webs of partnerships and coalitions, where nonprofit and for-profit firms had overlapping staff and contracts.

The contracting state, run by consultants, took form. Instead of people on the ground dealing with government representatives, they were often speaking with consultants who reported to their managers and company shareholders. The thrust toward privatization extended to USAID during the Reagan administration, which established the Bureau of Private Enterprise to encourage more partnerships between USAID and the private sector.

But it was the Clinton administration that ultimately realized the Regan revolution, claiming that “the era of Big Government is over.” Clinton implemented strict, performance-based measurement, contracted out USAID technical and program design and reduced the size of the federal workforce. In the 1980s, USAID had hundreds of engineers and agricultural experts. By 2001, it had only six engineers and 16 agricultural experts.

Many in-house experts who previously worked at USAID moved to private-sector companies that won contracts from the U.S. government. Their compensation packages were often much more lucrative in the private sector, despite doing similar work. The few experts who remained at USAID were often required to abandon the day-to-day work of development and focus instead on overseeing a broader portfolio of projects and programs. Their roles became managerial, with a focus on auditing budgets and performance metrics.

These trends only accelerated during the Bush and Obama administrations, which brought the private sector into greater coordination with USAID through the increased use of public-private partnerships.

USAID’s portfolio grew during this time as well, even as its staff numbers were dwindling. Between 1990 and 2008, USAID witnessed staff reductions of up to 40%, while the agency went from administering $5 billion to $8 billion during the same period.

People working in USAID-recipient countries began to feel the shift as well.

“When I first started working with USAID, the voices of the technical experts were strong,” said Mais, a Jordanian expert on gender who has been working with USAID for decades. (She asked that her full name be withheld to speak freely.) “Now the auditors dominate the conversations.” In practice, this means that Mais spends more of her time discussing performance metrics and less time discussing real-world outcomes. The agency often emphasizes easy-to-measure outputs, like the number of women who attended skill-building training. But Mais argues that this focus on auditing easy-to-measure outputs often obscures the lack of actual progress on issues like women’s labor-force participation or financial independence.

These companies use USAID money not only to complete specific projects but also to cover their operating expenses. For four out of USAID’s top five contractors, over 50% of all their historic awards have originated from USAID. For USAID’s largest contractor, Chemonics, about 95% of all its awards are from USAID. Among USAID’s top five contractors, four are for-profit companies and only one is a nonprofit.

USAID and its massive budget have spurred a network of firms, lobbyists, academics and logistics personnel that would cease to exist without government funding. Over 85% of USAID contractors originate in the U.S. Meanwhile, less than 25% of U.S. economic assistance goes directly to recipient governments. USAID directed just 6% of its funding to organizations based in USAID-supported countries.

These consulting firms rely on a top-down model of development that can be packaged and exported around the world. Amorphous aims such as women’s empowerment and countering violent extremism have been transformed into “best practices” and “performance metrics” that can be easily digested by government bureaucracies and integrated into contracting language. This approach deemphasizes regional expertise and heightens the competitive advantage of Western contractors, who have networks of “independent consultants” prepared to apply their methodology from Albania to Zambia.

The results often defy common sense. In 2021, Lydia Wilson wrote in New Lines about her experience as a consultant on countering violent extremism in the Middle East. In her meetings with Western governments, she was pushed to skip over context-dependent factors that trigger disillusionment and promote extremism, factors that included foreign policy in the Middle East. Instead, government officials were eager to see nebulous and context-dependent concepts like “extremism” masquerading as science and plotted on graphs.

This pseudo-scientific approach is partly born of politics. “Addressing corruption that is society-wide was not a palatable recommendation, and so it was cut from the messaging entirely,” Wilson recalled. “And Western donors are unwilling to offend allies by pushing for this more honest storyline, despite admitting the truth of the grievance.”

According to Zeid Qiblawi, a former development consultant, these “scientific” approaches also permeate employment and skill-building programs, which often focus on the number of people trained, rather than the number of jobs created or people employed.

“The projects and indicators are often set up in a way that can be easily achieved. Instead of addressing unemployment, they would conduct a lot of trainings because that’s much easier than employment,” Qiblawi said. “That’s to present good numbers for donors without addressing root causes of unemployment. There’s no real world impact, but the numbers look good.”

To gain access to communities and complete infrastructure projects overseas, Western consulting firms rely on complex networks of subcontractors, who are paid a fraction of the overall contract value. The chain of contracting and subcontracting eats away at the overall sum of money that USAID allocates to each project, as firms along the food chain take their share of “overhead” expenses. Byron Dorgan, a former representative and North Dakota senator, described this legal practice in Iraq, saying:

There is the story about a contract for air-conditioning a building in Baghdad. The contract goes to a subcontractor, which goes to another subcontractor, and a fourth-level subcontractor. And the payment for air-conditioning turns out to be payments to four contractors, the fourth of which puts a fan in a room. Yes, the American taxpayer paid for an air-conditioner and, after the money goes through four hands like ice cubes travel around the room, there is a fan put in a room in Iraq.

These opaque chains of contracting and subcontracting are nearly impossible to trace — for either journalists or government officials. For example, the Special Inspector General for Afghanistan Reconstruction reviewed the more than $17.7 billion that flowed from the Department of Defense, the State Department and USAID to contractors from 2007 through 2009, testifying that:

The plethora of contracts, the billions of dollars involved, the tens of thousands of contractor employees, and differences — including in languages and record-keeping systems — all combine with shortages of competent and conscientious contracting officers and supervising/technical representatives.

For journalists, understanding the chain of contracts is even more difficult. In Haiti, a journalist working for The Nation submitted a Freedom of Information Act (FOIA) request for information on Chemonics’ work. USAID provided documents that were heavily redacted, explaining that to “release the information … could willfully stir up false allegations … and cause strife within the target communities.” USAID also noted that “the release of the information … would likely instigate demonstrations and create an unsafe environment.”

These chains of contracting and subcontracting also undervalue local experts and prevent local institutions from gaining strength. Western consulting firms often bring in local institutions as subcontractors only after projects have been designed and are ready for implementation.

The salary differentials also reflect the undervaluing of localized expertise. In research conducted by the Economic and Social Research Council, local aid workers received four times less than their international counterparts for doing a similar job. The ratio rose to nine times less among workers in Papua New Guinea and the Solomon Islands. Salaries for expatriates conversant in the pedagogy and jargon of development swell with bonuses for “hardship pay,” the term used to describe countries where living conditions are substantially below those in the U.S.

Further, the pay differentials between Western and local development companies create their own brain drain, weakening local institutions. Experts working for local consulting firms or local governments can unlock higher pay and generous per diems by working for Western consulting firms abroad. In a report prepared for USAID, one Filipino leader described how local institutions are hollowed out by these dynamics:

When DAI [Development Associates International] or others like it leave the country, they don’t leave behind a capacity gap. The capacity was local anyway — the heart of the problem is salary. The tendency for someone who worked for an INGO [international nongovernmental organization] or a big U.S. contractor is to move out and up — and not come back. That’s why you find Filipinos running projects in many other countries. The local organizations here cannot afford them.

As a result, developing countries have an increasing reliance on private firms that have diverse interests spanning electricity, transportation, management consulting, banking, finance, managing economic reform and privatization, and military and security-related services.

Underlying USAID’s reliance on Western contractors is a mistrust of institutions and companies in the developing world. In countries where the rule of law is weak and corruption is rampant, USAID is hesitant to hand money over to the recipient government directly. But Western contractors themselves have a dismal track record, with examples of poor performance or abuses spanning USAID projects in Haiti, Pakistan, Afghanistan and elsewhere.

According to former USAID officials interviewed for this article, Members of Congress often laud the outsourcing of development work to these companies. “When we go to the hill, we’ll argue, ‘Hey please give us more money next year. Look at all the great things we’re doing with U.S. universities and look at our partnerships with U.S. companies,’” said a former USAID official who worked at the agency’s headquarters in Washington, D.C. “Projects are more popular on the hill when money is going back into the U.S. versus abroad. That was a huge talking point. It depends on your audience, but a lot of times Congress members just don’t understand development at all — and lobbying 100 percent plays a role.”

At the same time, companies have emerged that profit equally from war, reconstructing war-torn areas and promoting development during peacetime. From the outset of the 2003 U.S. invasion of Iraq, counterinsurgency entwined itself with development, often under the pretext of progressivism. In its “Vision for Post-Conflict Iraq,” the Bush administration used USAID contracts to demonstrate its resolve to improve the quality of life in Iraq, even as it planned its misguided invasion. The strategy document included plans to rebuild Iraq’s water systems, roadways, ports, hospitals and schools within 18 months. USAID began soliciting bids valued at as much as $900 million from prequalified U.S. companies to complete the reconstruction of the country. “We are attempting to do something unusual, which is to begin humanitarian assistance and reconstruction simultaneously,” said Bush’s USAID administrator.

The only prequalified vendors to apply for the lucrative reconstruction contracts and meet the U.S. government’s security requirements were American. These American companies included Bechtel Group, Fluor Corporation, Halliburton Co., Kellogg Brown & Root, Louis Berger Group and Parsons Corporation.

These U.S. companies all had close ties to the politicians who made the decision to invade. For example, Bechtel and its employees contributed $1.3 million to federal candidates from 1999 to 2002. The firm’s Senior Vice President Jack Sheehan was also on the Defense Policy Board, which advised the Pentagon to pursue its invasion.

USAID later awarded Bechtel $1.8 billion in infrastructure contracts to rebuild sewage, electrical and water systems in Iraq. By the end, Bechtel left Iraq unable to complete over half of these projects and with 52 of its workers killed, most of whom were Iraqi.

The use of contractors to rebuild Iraq hampered the success and speed of reconstruction. But the effects on Iraq’s institutions were more pernicious, as USAID’s strategy of outsourcing reconstruction to American companies left Iraqi companies as passive observers.

Even as USAID privileged these U.S. firms for Iraq’s reconstruction, opening up bidding to this select group of prequalified vendors, American officials were stripping Iraqi industries of their protections. Michael Fleisher, head of private sector development for the Coalition Provisional Authority, ironically explained to a group of Iraqi businesspeople that “protected businesses never, never become competitive.”

Since 9/11, the private sector has taken note of the strategic advantage of merging military and development functions. Major military and security firms have acquired development firms to expand their offerings, including Tetra Tech’s acquisition of ARD, L-3 Communications’ acquisition of IRG and AECOM’s acquisition of ACE.

Many of these private-sector companies that profit from development have also contributed to the problems that they are now paid to remedy. For example, Chemonics and American Rice were both subsidiaries of the same corporation, ERLY Industries, until 1999. American Rice profits by exporting their taxpayer-subsidized rice to Haiti and undercutting the local markets. As a result, Haitian agriculture has been demolished and the country is increasingly food insecure. Meanwhile, ERLY Industry’s former subsidiary, Chemonics, secured a multimillion-dollar contract from USAID starting in 2006 to monitor food security in Haiti through the Famine Early Warning Systems Network. Chemonics has also distributed Monsanto’s hybrid corn and vegetable seeds throughout Haiti, which were treated with pesticides banned in the U.S.

In other cases, USAID implements projects to mitigate the impact of American foreign policies. U.S. sanctions have led to fewer digital communication platforms being available in Cuba. But after the Arab Spring, the U.S. government realized the importance of social media in fomenting dissent. To get around the impact of its own sanctions, USAID paid a contractor to build a new platform in Cuba called ZunZuneo. This was later discovered by the Cubans in an embarrassing episode that also laid bare the political nature of USAID.

Several presidential administrations have attempted to reform USAID. Most recently, Samantha Power has said that USAID will direct 25% of agency funds to organizations based in USAID-supported countries. Prior to this, the Trump administration toyed with the idea of having the State Department take over the semi-independent development agency. Prior to that, the Obama administration launched the USAID Forward initiative and the “journey to self-reliance,” which aimed to direct 30% of aid to local partners.

These attempts have all failed to curtail the aid-industrial complex. Further, development companies are leveraging a defense to thwart any attempts at reform. In 2011, Chemonics joined with 50 other American development contractors to form the Council of International Development Companies (CIDC), which spends thousands of dollars lobbying Congress against a cash transfer model of foreign aid. Instead, CIDC promotes a technical assistance approach in which their consultants remain relevant.

The emphasis on “capacity building” and “technical assistance” is strategic and aligns with Power’s focus on localization, which involves training people and strengthening institutions in developing countries to take control of their own development. But as capacity building spurs its own esoteric pedagogy, the result is likely a continuation of the decontextualized aid-industrial complex, in which expertise flows from North to South.

Despite the systemic issues discussed above, USAID supports contraceptive purchases, fights malaria, treats HIV/AIDS and makes other positive contributions around the world. But the profit motive integrated within many of its programs works against its mission: to end the need for USAID development assistance.

USAID has experience pursuing other models of development, with some success. In Senegal, the agency shifted from for-profit contractors to partnering with the Senegalese government to build new schools. Whereas it cost $425,000 per school through American contractors, the Senegalese government was able to construct schools for $200,000.

Approaches that strengthen local institutions and staff members are likely to result in the best prospects. This means translating USAID programs and initiatives into formats that are accessible to smaller, local organizations in developing countries. The excessive focus on compliance has acted as a barrier for these small companies, which lack teams of high-powered lawyers and lobbyists. USAID can begin to break down the aid-industrial complex by making smaller-scale awards to local companies and supporting them by helping develop financial capacity. But to do this, USAID will need to increase its staff members and rebuild its own in-house capacity.

USAID should also acknowledge the impossibility of achieving development results within one or two years. Programs that focus on the long term — 10 years out — are more likely to result in systemic change. Long-term programs will also help local organizations to build up their own capacity, without facing an existential crisis every few years.

USAID’s current efforts to localize development often leave local organizations in a state of limbo, unsure of whether their projects will be renewed. This has kept Mais’ business weak and reliant on Western companies for subcontracts. After working on women’s empowerment in the Arab region for decades, she hopes to gain more of a voice in USAID’s development efforts.

“Bringing localization to life means putting us on the boards where decisions are made,” said Mais in her office in Amman, Jordan. “It means breaking these power dynamics.”

The views expressed here do not represent the views of the New Lines Institute, the Fulbright Program, the U.S. Department of State or any of its partner organizations.

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