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The Middlemen of U.S. Foreign Assistance
For the past several decades, the U.S. government has tried to reform how it approaches foreign aid. It’s goal is to be in greater sync with people in the countries it aims to support. Through the U.S. Agency for International Development (USAID), America’s foremost non-military foreign aid organization, the current administration has aimed to achieve this elusive goal by funneling grants and contracts directly to locally registered organizations in recipient countries.
According to USAID, the policy goal of this localization process is to shift “funding and decision-making power to the people, organizations, and institutions that are driving change in their own countries and communities.” This is a key step, USAID says, towards “equity, effectiveness, and sustainability.”
The stakes are high because of the long-running debate on aid effectiveness. Given the competitive context of U.S.-China relations, the role of aid policy is more urgent than ever. Of the $36 billion that USAID obligated to third parties last year, only $1.6 billion went directly to locally registered organizations. What happened to the other $34.4 billion?
The Intermediaries
USAID spending is intended to benefit over 100 countries worldwide. This spending has a myriad of objectives, including addressing humanitarian crises, improving health outcomes, enabling economic growth and advancing democracy.
But how exactly does taxpayer funds flow through USAID to achieve these intended benefits? A close examination of the data reveals that more than 2,000 institutions received direct grants and/or procurement contracts. And approximately 1% of those institutions, almost entirely based in the U.S., received roughly 80% of the $36 billion in funds.
These top awardees, illustrated in the above graphic, come in three distinct flavors:
- Multilateral institutions and public-private partnerships like the Gavi Alliance and the World Bank. They aggregate money from multiple sources and then distribute those funds to contractors and governments to achieve various objectives.
- Nonprofits like Catholic Relief Services and World Vision. They provide services ranging from humanitarian relief to health service delivery and rely on fundraising and their nonprofit tax status.
- For-profit entities like Chemonics and Palladium. They are privately held and provide a diverse set of services primarily through procurement contracts. They realize a profit margin from the revenue they generate.
Power, Authority, and Wealth
Given the billions of dollars that flow through these organizations, how should their role be understood in the context of USAID’s stated policy goals? Are they "...shifting funding and decision-making power to the people, organizations, and institutions that are driving change in their own countries and communities”?
There are two considerations:
- Flow of Funds: According to several studies and reports, roughly 15-30% of obligated funds support the global operations and administration of these institutions. Most administrative functions and major leadership roles are staffed primarily in the West. The for-profit intermediaries also capture additional profit margin from those U.S.-based operations. By extension, when that money flows through these intermediaries, billions of dollars that are obligated by USAID do not make it to the countries of policy interest. Over the past decade, the U.S. provided more than $200 billion of foreign assistance to recipient countries. This means roughly $30-$60 billion of those funds remained mainly in the U.S.
- Power and Authority: For anyone who has worked in an organization of more than a dozen people, it’s clear who has power and authority and who doesn’t. This is especially true for decisions about resource allocation: who gets how much money, who gets to hire whom, which projects get taken on, what gets purchased, and what is the strategic posture of the organization. In the case of USAID’s intermediaries, most of the individuals making these decisions are often U.S. or European-based staff, far from the countries where the projects are being implemented or where the funding is supposed to go.
It’s clear that the data is at odds with USAID’s policy objectives. You might object that it’s risky, difficult, or will take a long time before locally registered organizations reach the level of maturity to handle their own funds.
But if this is the case, why aren’t USAID’s large intermediaries shifting their operations to the countries that are meant to benefit from this foreign assistance? Why aren’t they hiring all their global operations staff from these countries? Why are their leadership ranks not filled with people who live in these countries, who would better understand how their own citizens could benefit from this work?
Without answers to these questions, USAID's goals of “localization” are likely to remain aspirational. The U.S. government's foreign policy goals of enabling local ownership will be a distant dream both for the United States and for the citizens of the countries it wants to support.
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Between 2008 and 2015, the various islands making up the U.S. territories received half the total media attention of equivalent-size states (4,936 vs. 10,138 articles).
An uptick in coverage of the territories in 2016 and 2017 was largely driven by the Puerto Rican debt crisis and the devastation of Hurricane María in the Caribbean.
North Korea’s 2017 announcement that Guam would be the target of its nuclear missile program also contributed to increased coverage that year.
In 2018 The New York Times reported heavily on the destruction caused by Typhoon Yutu in the Northern Marianas Islands.
The historic election of 2020 and the COVID-19 pandemic exacerbated the disparity in coverage between states and territories.
While native residents of the territories are generally U.S. citizens (except in American Samoa where they are U.S. nationals), they do not have the right to vote in general elections. Coverage about COVID-19 levels in different states and counties often excluded the territories.
The Enormous Federal Data Disparity
Federal data collection largely stops short of U.S. territories. Over the next 10 years, the Census Bureau will release approximately 264 key datasets for the 50 states. But for the territories of Guam, the Northern Marianas, American Samoa and the Virgin Islands, the Census Bureau will release only three total datasets over that same period: one decennial count and two economic surveys.
All told, the data collected by the Census Bureau will help direct at least 2.8 trillion dollars annually to 353 federal-assistance programs. While data on the 50 states helps the government direct funding where it’s needed most, a lack of territory data forces officials to operate in the dark.
For its most populous territory, Puerto Rico, federal data collection is a little better. The Census Bureau conducts an annual “Puerto Rican Community Survey” for the region’s 3.2 million residents. But the resulting estimates don’t use the same rigorous control methods as the “American Community Survey.” And data is only available on the county level instead of more specific geographies like zip codes and census tracts.
A Blindfold for Local Officials
Around the turn of the 20th century, the U.S. expanded its colonial influence over seas. Long left to the rule of the U.S. Navy, the nation’s territories were neglected by the government that claimed to rule them. This neglect hampered the development and assessment of the regions’ social programs. In recent years, a lack of federal data has hindered the ability of island territories to respond to disasters like the COVID-19 pandemic and extreme weather.
For example, in 2018, Typhoon Yutu devastated the Northern Mariana’s islands. By 2020, the recovery effort had just gotten underway when the spread of COVID-19 crushed the region’s critical tourism industry. When the federal government asked the region’s department of labor to estimate how many workers lost their jobs during the pandemic, they had no idea.
Speaking to the Honolulu Civil Beat, the head of Northern Mariana’s labor department Vicky Benavente said, “This is one lesson we learned. Data is so critical for justifying our asks to the federal government.”
State governments had ready access to reliable data. They used monthly reports from the Current Population Survey to monitor pandemic-induced rises in unemployment. Working without this data, the Northern Marianas government had to rely on a survey of employers conducted every two years. By 2021, so many businesses had shut their doors that few were left to reply.
About the Data
Data is sourced from USA Spending and includes FY2022 obligations for both contract and grant awards. For more information, visit usaspending.gov.
Note on the estimation of costs:
Unfortunately, the data on costs and profits is opaque, including for the privately held for-profit institutions. However, a study published with the National Library of Medicine on funding for HIV programs concluded that the indirect operating cost rates had a broad range of 10% to 36%. Additionally, we applied a corporate profits average of 6.6% to the for-profit institutions. This average was based on reports from the Bureau of Economic Analysis, which produces consolidated results across the U.S. economy for corporate profits.
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