Reforming Foreign Assistance | National Affairs
The United States Agency for International Development (USAID) was founded in 1961 as the nation’s premier international-development agency. Throughout its 65-year history, it has endured criticism and varied reform efforts, but nothing like what happened after Donald Trump began his second presidential term on January 20, 2025.
Within hours of his inauguration, the president issued Executive Order 14169, “Reevaluating and Realigning United States Foreign Aid,” which froze foreign-aid spending and launched a purported review of agency programs. Two weeks later, Elon Musk and his DOGE team effectively destroyed USAID. On February 7, USAID’s name was unceremoniously ripped off the face of its longtime headquarters in Washington’s Ronald Reagan Building. All but 3% of its staff have since been fired. More than 80% of its programs have ended, and the day-to-day operations of programming and managing foreign assistance have shifted to the State Department.
This unprecedented takedown of a longstanding federal agency that had broad bipartisan support raises important questions about executive power, government process, and America’s reputation in the world. It also offers a unique opportunity to reform the nation’s approach to engaging low- and middle-income countries.
USAID suffered from vices that ail all government bureaucracies: incentives against risk taking, overlapping mandates, internal processes that distracted from the agency’s mission, and poor feedback loops between those who designed and those who implemented programs. Other problems stemmed from decision-making by committee, structural difficulties in quickly matching resources to changing needs, and a time-consuming planning process with no clear relationship to budget allocations.
While these issues demand redress, two barriers to better performance stand out. First, the pre-2025 program design, procurement, and delivery processes at USAID languished in a web of bureaucratic mandates. Second, the agency suffered from a fundamental misconception of economic development, which it viewed as a government-driven process rather than a phenomenon to be unleashed. State Department officials, along with all those who care about effective foreign assistance, have a chance to build a new approach that avoids these pitfalls.
BIPARTISAN SUPPORT AND ATTEMPTED REFORMS
President John Kennedy created USAID early in his administration through the Foreign Assistance Act. This law consolidated various existing foreign-aid programs scattered across multiple agencies into a single, coherent development agency, drawing on lessons from the Marshall Plan’s successful reconstruction of Europe. The president tasked the agency with a dual mission: promoting economic development and social progress in newly independent nations, and advancing U.S. foreign-policy interests during the Cold War. Kennedy believed systematic development assistance could help countries in Africa, Asia, and Latin America achieve self-sustaining growth and democratic governance, preventing them from falling into the Soviet sphere of influence.
USAID was designed to make itself obsolete through successful development programming. At its peak in the late 1960s, the agency employed more than 15,000 direct-hire staff worldwide. It also maintained significant operational autonomy to design and implement programs based on local conditions and development needs. Every administration since Kennedy, however, has expressed frustration with USAID’s performance and institutional capacity.
In 1971, Richard Nixon attempted to eliminate the agency, proposing to fold its functions into other departments. Ronald Reagan shifted its focus to market-oriented structural-adjustment programs, while the Clinton administration criticized the agency’s bureaucratic inefficiencies. The latter undertook a government-wide “reduction in force” that led to the dismissal of a large percentage of the agency’s workforce. Without a concomitant reduction in scope, and a budget that increased over the following decades, this required a new reliance on contractors. This changed the role of USAID to a procurement and compliance agency and marked the start of the “development industry.”
In the aftermath of the terrorist attacks on September 11, 2001, federal officials viewed aid as a way to alleviate the conditions that had bred desperation and violent radicalization overseas. They also saw development aid as a means of seeding future trading partnerships. Yet despite his support for foreign assistance, George W. Bush created parallel institutions like the Millennium Challenge Corporation and the President’s Emergency Plan for AIDS Relief (PEPFAR), which were headquartered at the State Department. These moves enabled major new initiatives to effectively bypass USAID. Barack Obama also launched high-profile programs such as Feed the Future, but rather than rebuilding USAID’s direct-implementation capacity, he continued to rely heavily on contractors.
The first Trump administration proposed large cuts to foreign assistance but was repeatedly rebuffed by Congress. USAID spending increased from $20.5 billion in 2017, when Trump first took office, to $29.7 billion when he left in 2021. His political appointees, including administrator Mark Green, had significant experience in the international-development world and used their tenures to undertake widely supported reforms.
The USAID leadership under Joe Biden continued its reform efforts. Led by administrator Samantha Power, it focused on using better evidence to determine what projects to fund, pushed staff to gauge the cost-effectiveness of programs, and reduced bureaucratic burdens on agency members. Biden officials also directed more funding to local organizations, viewing this approach as more cost-effective and better justified than centralizing spending in the traditional, American-based aid industry.
DEMOLITION AND REBUILDING
As this brief history demonstrates, USAID administrators from both parties promised reform. And indeed, their efforts bore some fruit. In the last 15 years, successive administrations tackled weaknesses in the agency’s functioning. By helping recipient nations become self-reliant, they attempted to fulfill USAID’s initial goal: making itself obsolete.
Congress has also supported a robust foreign-aid budget and reform efforts. Funding rose steadily in the post-9/11 era, as spending increased from $7 billion in 2001 to $44 billion in 2023. At the same time, lawmakers also passed major reform bills like the Foreign Aid Transparency and Accountability Act of 2016, the Global Food Security Act of 2016, the Foundations for Evidence-Based Policymaking Act of 2018, and the Global Fragility Act of 2019.
In late 2024, close to Donald Trump’s second election victory, respected mainstream aid-reform groups like the Modernizing Foreign Assistance Network and the Center for Global Development published some proposed reforms for the new administration. The focus was on continued incremental tweaks to the U.S. foreign-assistance infrastructure. While Trump’s antipathy toward foreign aid was widely known, these groups anticipated changes like those outlined in the Heritage Foundation’s Project 2025, not wholesale demolition of USAID. That expectation proved badly misplaced.
In the early weeks of February and March 2025, news reports highlighted individual tragedies from the sudden aid cuts: participants in clinical trials being left with medical devices in their bodies, pregnant USAID staff stuck in conflict zones with no safe means of evacuation, and the like. As the spring and summer wore on, attention turned to the large-scale consequences of the aid reductions, including predictions that millions would die as foreign governments struggled to take on the health programming that USAID previously supported. Court challenges proliferated but largely did not prevent cuts from moving forward. In July, the administration secured a rescission of $8 billion in previously appropriated funds. By September, nearly all USAID employees had been fired, with a mere 700 transitioning to the State Department.
Critics of slashing foreign assistance appropriately highlighted the good that some USAID programs did, and the harm caused by suddenly halting them without a clear plan for transitioning to a new approach. To its credit, the Trump administration has responded to this criticism with promising steps toward setting up the foreign-assistance system of the future. Its officials have contracted with proven private-sector firms that can immediately deliver key services and have rolled out new health strategies. It has moved money to multi-lateral agencies but with additional oversight and reporting. It has signed dozens of agreements with countries to fund accountable health programming and build in handover timelines. It has followed up on a series of executive orders on procurement reforms by issuing solicitations with streamlined process and bidding requirements.
Contrary to critics who only see destruction, the Trump administration is making promising moves to encourage private-sector growth, host-government responsibility, and national self-reliance. These are promising green shoots of a new and better foreign-assistance model. But in order to build an approach to foreign assistance that is truly fit for purpose, the Trump administration must consider two major barriers that historically prevented foreign assistance from reaching its potential: The unworkable web of bureaucracy that prevented staff from designing and managing effective programs, and the agency’s statist orientation that fundamentally misunderstood the nature of development and crowded out support for innovative private-sector firms.
A FOREIGN ASSISTANCE “KLUDGEOCRACY”
During my time in the USAID foreign service, I witnessed many failures of a system in dire need of reform. In programs with five layers of implementation, the ultimate intervention came through volunteers with two weeks of training. Sustainability plans relied on poor local trainers working pro bono after the program ended. On one occasion, I took our financial controller to see a large, multi-million-dollar program that helped rural households grow vegetables in old bags and repurposed truck tires. His reaction was simple: “It’s hard to see where the money goes.”
The mismatch between planning and allocating funds, despite an intensive multi-year budgeting process, was galling. As one example, 45% of the budget for Rwanda’s office was devoted to HIV/AIDS programming — even though the country had a national HIV rate of just 3%. Poor feedback loops were persistent, with less than 5% of programs receiving evaluation on an annual basis. Staff time was misallocated: Some personnel were required to spend weekends escorting congressional spouses on shopping trips.
More troubling examples abound. A major initiative to lower energy costs for Africans ran up against well-connected American energy providers, who wanted the agency to stop advising local governments to slow down their energy purchases as supply outstripped demand. A global famine early-warning program reported no food insecurity in Rwanda despite a pending famine and work by the embassy to procure emergency food aid. An exasperated colleague tracked water and sanitation reports demanding “no more business as usual” every year, for 15 years.
What links all this haplessness? It was not the quality of staff, who were highly educated, sharp, and dedicated. It was the two problems mentioned above: a bureaucratic system that pulled staff off their central task of managing programs, and a view of development as driven by government rather than a phenomenon to be unleashed and supported.
The first issue, the tangled web of bureaucracy, perennially plagues government agencies. In 2013, Steven Teles wrote an influential essay in these pages on “kludgeocracy” — the idea that, over time, government gets bogged down by the accretion of rules, mandates, and laws. This creates a matrix of often inconsistent rules that bind staff. As former USAID administrator Andrew Natsios observed, USAID’s obsession with accounting for every penny distracted from maximizing the effects of its programming.
This resulted in the development industry’s true expertise being not poverty alleviation, but compliance with USAID rules. USAID’s Automated Directives System (ADS) was its internal bible of requirements for designing and procuring programs. Staff spent their careers trying to do sensible development without falling afoul of all the parameters it contained.
Every step of the ADS’s required program cycle needed an overhaul. Getting a new program solicitation approved and released to bidders could take up to two years, plus another year or two to get the program up and running. Such delays demoralized staff but also had real human consequences: Infants went malnourished, households sunk further into poverty, and people died for lack of medical care. Aid advocates understandably decry the effects of the Trump administration’s cuts, but they should also condemn the agency’s slow-moving and ineffective programs for producing similar results.
STREAMLINING THE PROGRAM CYCLE
The good news is that most of the ADS’s rules were obstacles of the bureaucracy’s own creation. Legal requirements are much lighter, and with congressional help, could be lighter still. The best thing the State Department can do to manage foreign assistance with a small staff is to avoid bringing back the thicket of rules and regulations that had accumulated over the years. If you don’t create binders full of rules, you don’t need thousands of agency members to figure out how to follow them.
Improving the situation does not require a sea change. The State Department must heed established but often ignored guidance to prioritize solicitations that state the desired program result without mandating a particular means. This approach has two benefits. First, it frees up staff to skip a complex design process. Second, by inviting innovative, evidence-backed proposals, it encourages more cost-effective programming. The State Department should welcome the smartest and best-proven ideas rather than the lowest common denominator that can withstand the gauntlet of internal approvals. Doing so would allow fewer staff to move funds more quickly and to greater effect.
Another approach the State Department should use to enable the quick transfer of funds to cost-effective programs is creating a procurement fast track. The first step would be identifying interventions and vendors — for example, cash transfers by the implementer GiveDirectly — that have an established record of success. This would improve on the pre-qualified lists of vendors formerly used at USAID. Second, officials should create a list of proven interventions that a variety of vendors could implement. The last two administrations made major advances in using data and evidence to guide programs. The current administration should build on that progress to compile a list of “smart buys” with track records of cost-effective success, independent of the implementer. Those effective aid interventions can then be fast-tracked for procurement.
More freedom for implementers would also boost efficiency. Rather than requiring a defined work plan for the life of a program before it starts, the State Department should allow an initial phase for experimenting with several approaches, or “A/B testing.” Fixed-amount awards with milestones for paying implementers would give them flexibility to spend time and talent on program success rather than reams of reporting. Moreover, the government would only have to pay when programs produce meaningful results.
The Trump administration is moving in the right direction. Executive Order 14402 “Promoting Efficiency, Accountability and Performance in Federal Contracting,” issued in April, makes fixed-price contracts with performance-based metrics the default. This builds on Executive Order 14271, which instructs agencies to prioritize existing commercial solutions, and Executive Order 14275, which de-kludges the Federal Acquisition Regulation back down to statutory requirements. These are strong steps to improve the process of soliciting and procuring foreign assistance.
USAID also struggled to evaluate how programs were implemented and their results. An internal analysis conducted (and later replicated externally) found that nearly half of the agency’s impact evaluations failed to meet the agency’s own standards for rigor. Data monitoring was used mostly for congressional reporting, not measuring program performance.
After clearing the decks with USAID, the Trump administration has a chance to develop a lean and operationally focused monitoring program. Evaluation work requires expertise; USAID outsourced too much of it to overwhelmed and undertrained field staff. A dedicated unit, perhaps the State Department’s Office of Foreign Assistance Oversight, can and should take the reins to ensure sound evaluations are conducted.
UNLEASHING GROWTH, NOT PLANNING IT
Streamlining the program cycle from design through procurement, implementation, and evaluation is only half the battle: The foreign assistance of the future must rely on emergent, unplanned private-sector growth to raise incomes and reduce poverty. This is a bipartisan insight. At the end of her tenure, Biden-era administrator Samantha Power expressed surprise at how far USAID had moved from a core focus on economic growth. The current administration has a chance to fix that.
USAID has long said the right things about such growth. The agency once described its strategy this way:
The success of a few firms or communities can provide a sense of tangible accomplishment, but sustained economic growth that affects thousands of firms and millions of people depends on systemic change — especially improvements in government policies and practice that significantly improve the incentives facing all businesses….It means that USAID will generally not finance development directly, but will seek instead the systemic reforms that can mobilize much larger savings and investment by others.
While some USAID private-sector programs attempted to remove broad constraints to economic growth, many adopted the easier yet less-effective approach of picking individual firms and sectors to support with loan guarantees, business training, tickets to trade fairs, and similar small-ball efforts. Such top-down economic planning misses the opportunity to unleash broad, poverty-reducing growth. Former World Bank economist Lant Pritchett has pointed out that despite “the amount of time, energy, intellectual firepower, academic publication, and advocacy that go into discussion of anti-poverty programs,” they have failed to be “a large part of the ‘solution’ to global poverty.”
Moreover, far too many USAID programs focused on developing vocational skills, issuing small grants to small firms, and attempting to turn small businesses into commercial standouts and large employers. Former USAID chief economist Louise Fox has shown that such programs rest on faulty assumptions. Interventions meant to foster skills largely fail to increase employment; studies that purport to show the benefits of these interventions do not account for whether net employment in the economy has risen, or whether program participants took jobs that would have gone to other people.
Many problems stem from overconfidence in government-planning capacity. My first assignment as a USAID officer was to advise Nicaragua mission leadership on which three crops the agency should support local farmers in growing. Leaving aside the fact that I had no background in agriculture or global commodity markets, the assumption that USAID staff would possess better information than Nicaraguan farmers themselves about what crops to grow underscored a fundamental misunderstanding of how growth happens.
Approaches like this, or like USAID’s former Development Credit Authority (since transferred to the U.S. International Development Finance Corporation, an entity that subsidizes loans by commercial banks to favored sectors) operate with unreasonable assumptions about government knowledge and planning. These strategies misunderstand the emergent nature of broad-based private-sector growth.
They also misunderstand poverty. Recent work by Paul Niehaus, Vincent Armentano, and Tom Vogl of the University of California, San Diego, shows how varied the pathways out of poverty are. People exit and fall back into poverty by changing sectors, but also by moving up or down within one field. This heterogeneity means that top-down aid programs, which foist a single solution on tens of thousands of individuals, are unlikely to reduce poverty for many.
In light of all this, the State Department should move beyond a foreign-assistance system that picks which local firms and sectors it will support and imposes one-size-fits-all interventions on large groups of households. Keeping in mind that the department currently has a limited crew of staff devoted to foreign aid, it should do the following.
First, department officials should avoid lengthy, top-down design documents. The acquisition regulations that control federal contracting already give precedence to solicitations that avoid detailed designs. These solicitations state the government’s goal and welcome innovative proposals to achieve that goal. USAID often ignored this guidance; the next foreign-assistance system should abide by it and make it the norm.
Second, the State Department should expand the Millennium Challenge Corporation (MCC), which already targets the most severe constraints to economic growth by negotiating with governments to identify not only the best policy reforms in theory, but also the best possible in a given economy. The State Department should adopt the MCC’s basic analytical and dealmaking approach and extend it to sectors beyond economic growth, such as nutrition and food security.
Third, the department should focus on interventions that can plausibly increase economic growth without relying on government staff to pick priority sectors. Interventions to improve the business climate, support implementation of trade and investment treaties, or to encourage first movers in an economy regardless of sector all would fit the bill.
THE RIGHT WAY TO ENGAGE FIRMS
While pursuing broad-based growth accomplishes more than targeted interventions, this doesn’t rule out ever working directly with specific private-sector firms. U.S. foreign assistance can accomplish many desired outcomes, from delivering drugs and medical equipment to treating acute malnutrition, and it can do so by selecting private-sector and social-enterprise vendors that are already achieving these ends on the ground. Innovative startups such as those in the Unlock Aid coalition (for which I was policy director from 2025-2026) provide cutting-edge services in developing markets. The State Department should contract with them directly using simplified procurement procedures. Building on its approach in the annual program statement “Advancing Global Health,” published in March 2026, the State Department should release similarly flexible solicitations for other sectors.
This approach brings two benefits: It reduces risk for the American taxpayer, and it eliminates much of the backend financial management and invoicing that deter small, innovative startups from bidding on U.S. foreign-assistance programs in the first place. To avoid the dependency cycle often found in assistance programs that repeat indefinitely, the State Department should require revenue-diversification tests to ensure that vendors can continue operating without endless assistance.
As for the goal of no longer picking winners, the U.S. International Development Finance Corporation can achieve this by becoming sector agnostic — that is, by considering deals with any firm working in a new sector in a given economy. (A new sector might be defined as one composing less than 2% of GDP or exports.) This policy would embody sound economic logic on market failure: Pioneer firms would bear all the losses if they flopped, but they could also spawn copycats and wouldn’t monopolize the benefits if their investment showed a new sector to be profitable.
To ease the path for new partners — particularly innovative private-sector firms and social enterprises — the State Department should emulate the Department of War. A decade ago, the Pentagon established the Defense Innovation Unit to guide new partners through the procurement process and connect them to opportunities. The department also uses a procurement pathway called the Commercial Solutions Opening, which was created to “provide opportunities for startup companies to fulfill new innovative commercial products and/or commercial services for the Federal Government using streamlined procedures.” The State Department could do something similar regarding foreign assistance.
The Trump administration is already making the right moves. The Commercial Diplomacy Strategy of the Bureau of African Affairs launched in May 2025, for example, capably combines individual deals with the removal of broad constraints to growth. However, there is a risk that firms already well placed to receive private finance will enjoy a leg up as ambassadors hustle to sign deals. Without eligibility parameters, the program may accomplish less than it promises, as ambassadors rack up wins in the form of investments that would have occurred anyway. Better to focus on firms in sectors that are new to an economy (first movers), which wouldn’t enter a market if not for some kind of insurance product.
Aid should also be distributed to favor firms that demonstrate an ability to survive after government funding ends. To ensure added value, firm partnerships should leverage the U.S. government’s ability to convene roundtables between investors and firms, pressure host governments to improve business environments, and underwrite risk.
KEEPING THE BEST OF USAID
As the Trump administration works to overhaul the foreign-aid system by streamlining the program cycle, unleashing growth, and engaging with new firms, it should also be careful to preserve what worked under USAID. The State Department can retain parts of the old model that worked well while jettisoning what did not.
It is true that many programs, even ones as essential as agriculture and nutrition, yielded poor results. Some were worse than what would have occurred if the agency had simply given money directly to needy individuals. But USAID also sheltered pockets of excellence and innovation — some of which were established under the first Trump administration — that deserve to be preserved.
PEPFAR, the initiative to eliminate HIV/AIDS globally, was one such bright spot. Another was the Higher Education Solutions Network, a series of awards to major American universities that gave the U.S. government access to world-class expertise by holding university groups on retainer.
Development Innovation Ventures (DIV) ranked as one of USAID’s most successful programs. It created an open window to fund and generate evidence on innovative solutions to development problems. Unlike the rest of USAID, DIV pursued a portfolio of approaches rather than mandating specific solutions. It worked. A Nobel Prize-winning economist showed that DIV generated $17 for every dollar it invested. These results came from welcoming ideas from all comers and supporting the ones with evidence behind them.
Prosper Africa presents another opportunity. Launched under the first Trump administration as a whole-of-government initiative to drive investment by American firms in Africa, the program had a promising start. But in its later years, it suffered from poor management and mission creep. Given the second Trump administration’s emphasis on commercialization, this initiative deserves a reboot.
Some public international-organization grants should continue to be awarded, while others should be discontinued. USAID grants to multi-lateral institutions had a somewhat negative reputation as a quick way for staff to get money off the books. An inspector-general report released last year included claims that the money was managed in opaque ways and circumvented Congress’s prerogative to fund international organizations.
That said, pooling American funds with those of other donors can be efficient in some circumstances, and can ensure that partners and allies have skin in the game. In certain difficult environments where an international organization already has established infrastructure, such grants can make more sense than reinventing the wheel with a standalone U.S. government program. The current administration should take time to properly vet the enormous list of organizations and reduce it to a few trusted groups that have proven to use funds well.
A STARTUP MOMENT
The Trump administration tore down a system that satisfied no one. USAID was slow, expensive, and overly complex. The agency’s sudden dismantling marked a fork in the road. Whether this disruption enables the birth of the foreign-assistance approach America has long needed or simply represents costly destruction depends on what the government builds in its place.
The window for fundamental reform is narrow. The State Department must show that lean can mean effective. This is American foreign assistance’s startup moment. The administration’s first moves are encouraging. Whether they become the foundation of a high-performing new system, or fade into another round of incomplete reform, depends on what gets built in the next 24 months. If the administration follows through, it can build a system that avoids the mistakes of the past and becomes the pride of America and a model for the world.