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Elon Musk’s sharp critique of USAID, as the head of the Department of Government Efficiency, created a stir. Whether driven by political motivations (given that 95% of campaign contributions went to Democrats) or other factors, the Trump Administration is targeting a wide range of areas, from civil society to education, health, infrastructure, and reproductive rights. The planned cuts to humanitarian aid and public health are particularly concerning, including the reported defunding of programs that have saved millions of lives and reducing support for key U.N. organizations.
However, “development” aid has produced inconsistent and often disappointing results, warranting careful examination. Decades of aid to poorer nations have yielded setbacks like , , , and increasing . These issues often arise from “conditionalities”—austerity measures, privatization, and trade liberalization—imposed by the World Bank and IMF from their positions of influence in Washington, D.C.
Misunderstandings also exist regarding the amount and destination of aid. Aid constitutes roughly of the U.S. federal budget. Instead of being wasted overseas, the majority is spent within the U.S., primarily benefiting that receive most of USAID’s funding. Such of aid represents one of several ways donor countries benefit themselves.
Against this backdrop, U.S. foreign aid is facing increasing competition. In the 21 years leading up to 2022, China provided approximately in aid-like investments (mostly loans), exceeding U.S. spending by around 75% during that period. Even considering the U.S.’s significant influence (including veto power) in the World Bank and IMF, which gives it leverage over other Western donors, China is a notable competitor in the aid landscape. Chinese aid is frequently motivated by commercial interests (similar to Western donors, whose aid is than China’s) and does not impose conditions related to political change or market liberalization. Emerging donors such as India, Turkey, and Brazil are also offering assistance on terms that are less patronizing, similar to China’s approach.
Adding to recipient countries’ concerns are issues related to “spillovers.” The U.N. has begun them—examining how some countries’ actions can impede progress toward achieving the U.N.’s Sustainable Development Goals (SDGs), which aim to ensure health, justice, and prosperity for all. The U.S. many negative spillovers, and its aid doesn’t address them. It’s not surprising that the Trump Administration “” the SDGs.
One major Western spillover is the flow of wealth from poorer to richer countries. One estimated this at $62 trillion since 1960, noting that it has been 14 times greater than Western aid in recent years. While some of these flows are legitimately earned through fair trade, technologies, and investments, many consist of rents—value extracted through unfair political and legal advantages.
The rentier is central to the current flawed system. U.S. economist Lawrence Summers, a long-time advocate of free trade and globalization, recently acknowledged the financial drain from poorer countries, writing, “Millions in, billions out.”
These losses cannot be directly blamed on the aid system. However, policies promoting smaller government and tax cuts have limited revenue collection, hindering self-reliance. Furthermore, the IMF’s approach has poor countries to divert capital from domestic investment and public services into international currency ; these essentially become low-interest loans, primarily to the U.S.
A few exceptional donors, like Norway, recognize spillovers such as tax evasion and illicit financial flows, which disproportionately harm poorer countries. Those donors and policy activists advocate for policy changes to stop these flows and help poorer countries , mainly by increasing domestic revenue collection.
Angus Deacon, a professor at Princeton and Nobel laureate in economics, sees too many downsides to conventional aid. In his book, , he encourages people to “agitate for our own governments to stop doing the things that make it harder for poor countries to stop being poor.”
In my opinion, this means stopping these spillovers and harmful aid conditionalities. Instead of dismantling aid agencies, as the Trump Administration appears to want, we could, as economist John Maynard Keynes suggested in 1936, begin with the euthanasia of the rentier.