Every decade or so, the global aid industry finds that it must transform to survive. During these periods of change, donor countries restructure their aid agencies, shrink or expand their assistance budgets, and lobby for the creation or dissolution of a UN initiative or two. Typically, once the aid industry conforms to the whims of donor countries, the crisis is averted and business continues as usual. Since U.S. President Donald Trump began his second term, the aid industry has found itself at another inflection point. The Trump administration has gutted USAID, the world’s largest development agency, ending 86 percent of its programs, shuttering its headquarters, and terminating nearly all its 10,000 employees. At the same time, the Trump administration has slashed funding for various multilateral initiatives on climate, global health, and education.
Today’s crisis, however, is different from those that came before: this could truly be the end of foreign aid as we know it. For decades, global development—that is, the attempt to improve and save lives of the poor—has been driven mostly by foreign assistance provided by wealthy governments. Some scholars and analysts deride this process as the “aid-industrial complex.” But even advocates of foreign aid have come to see it as an industry, including in their efforts to reform it, which approach its defects as matters of business inefficiency. And now that governments in many rich countries have sharply lurched to the right and taken more skeptical stances on aid, this industry is collapsing. As a result, many charity workers, researchers, and academics will be out of jobs. More important, millions of poor people around the world will suffer.
Proponents of global development now face a choice. They can wait for attitudes in donor countries to shift back toward support for foreign aid at some point in the distant future. Or they can reimagine the entire concept of global development, detaching it from aid and rooting it instead in industrial transformation: helping countries shift from subsistence farming, informal employment, and primary commodity production toward manufacturing and services. In truth, the aid industry was already adrift. Its interventions had become spread too thin and often failed to address the key obstacles that poorer countries faced as they tried to upskill their workers, build energy and transport infrastructure, and access new markets. Raising people out of poverty in Africa, South Asia, and parts of Latin America will not only improve their lives but also allow rich countries to maintain their prosperity by creating new markets, and by now, industrial transformation has a strong track record for improving economies. If proponents of global development do not adjust its methods with the times, it will lose its relevance to rich and poor countries alike.
AID AND ABET?
The foreign-aid industry’s primary commodity is official development assistance (ODA), or money from donors that flows to governments, individuals, or groups in poorer places, either directly—such as through budget support to struggling governments—or through projects run by organizations such as Save the Children, Oxfam, or FHI 360. Governments in rich countries are the primary purveyors of ODA. According to the Organization for Economic Cooperation and Development (OECD), in 2023, governments spent $230 billion on development assistance, compared with $11 billion spent by private foundations. Like any industry, foreign aid has middlemen. But in this business, the middlemen are particularly conspicuous. Third-party entities known as “implementing partners” include international nongovernmental organizations, large private contractors, and consulting firms. If the U.S. government wanted, for example, to distribute fertilizers to small-scale farmers in Bangladesh, they might contract Chemonics, a U.S.-based development contractor, to do it. Indeed, in 2023, Chemonics received the most USAID funds of any of the organization’s contractors: over $1 billion.
To take advantage of network effects and economies of scale, implementing partners cluster around the main sites of production of foreign aid, the capitals of the major donor countries: Berlin, Geneva, London, Paris, Rome, and Washington. As a result, very little aid is distributed by organizations or people in poor countries. In 2020, less than nine percent of U.S. aid was administered by recipient governments or firms based in recipient countries, according to Charles Kenny and Scott Morris, researchers at the Center for Global Development. The visibility of middlemen based in rich countries has long provided fodder to detractors who claim that the aid industry operates inefficiently or even unjustly. There is some truth to this critique. According to an analysis by Devex, a news organization, 47 of USAID’s top 50 contractors are located in the United States.
Previous efforts to correct the distortions in the foreign aid industry focused on trying to reduce waste and increase the proportion of aid money that gets to beneficiaries. Ninety countries signed the 2005 Paris Declaration on Aid Effectiveness, an agreement that encouraged reforms such as aligning donors’ objectives with recipient countries’ priorities, harmonizing various development interventions, and involving more partners on the ground. Mark Green, USAID’s administrator during the first Trump administration, tried to reduce recipient countries’ dependence on foreign assistance by building their capacity to plan, finance, and manage their own development. Green’s successor, Samantha Power, aimed to increase the share of funding administered by local organizations based in recipient countries to 25 percent by 2025.
The consensus over how much rich countries should spend on aid and what they should prioritize has shifted over time. A 1970 UN resolution recommended that countries should dedicate 0.7 percent of their gross national income to ODA, but as of 2023, only five countries had reached that goal: Denmark, Germany, Luxembourg, Norway, and Sweden. In the United States, successive Democratic and Republican administrations maintained a broad commitment to foreign aid, although arguments also simmered, even within the industry itself, about the proper goal of aid. Since 2000, when 189 countries agreed to the UN’s Millennium Development Goals, the industry’s main objective has been to reduce poverty; after the Paris Agreement was signed in 2015, many governments embraced the idea that, in addition, aid should also be directed toward fighting climate change.
SUPPLY CRISIS
But behind these recent debates lurked a massive shift in the politics and public norms that had allowed the industry to survive. If one sees aid as a form of philanthropy, then rich countries appear as donors and poor ones as beneficiaries. But if one sees aid as an industry, then rich countries appear as sellers and poor ones as buyers. With their development assistance, rich countries are providing a set of projects and institutional norms to achieve a set of expected outcomes: improvements in material conditions in developing countries that will eventually boost their own economies and security—or, failing that, at least a sense on the part of rich countries that they have tried to make a difference. The role of poor countries is to consume these development projects in the hope of achieving desired outcomes—or, failing that, at least a sense that they might be possible someday.
Now this market is experiencing an unprecedented supply crisis. Around the world, people and politicians in the rich countries that had long bought into the basic idea that providing aid is valuable have become skeptical. The aid industry has, for decades, undergone boom and bust cycles resulting from shifts in the domestic politics of donor countries. What is different this time is a deepening disaffection about the prevailing economic model and the aid paradigm associated with it. Since the global financial crisis of 2008, many donor countries have experienced economic stagnation, slow productivity growth, declining competitiveness, and widening inequality. Citizens of rich countries who no longer feel economically secure are questioning why scarce public funds should be devoted to causes abroad when there are needs at home.
This doubt goes beyond the Trump administration. The United States is not the only donor that is cutting foreign aid: in 2024, eight of the top ten donors within the OECD’s Development Assistance Committee reduced their foreign aid budgets and announced their intention to align international development programs more squarely with their national interests—such as by ensuring that development projects use goods and services produced in the donor country. In 2024, Germany, the world’s second-largest bilateral aid donor, announced a $5.3 billion reduction to its foreign-assistance budget. In February, the United Kingdom announced a 40 percent reduction to its aid budget so that it could focus on defense spending. In March 2025, the Netherlands said it would cut 37 percent of its bilateral aid over five years and scale down its financial contributions to some UN agencies.
Many right-leaning voters in rich countries now see foreign aid as wasteful and excessively focused on promoting causes they perceive as linked to the left, such as climate action, gender equality, or democracy promotion. Voters are more dubious of technocrats, policy wonks, and academics committed to foreign aid. Consequently, even left-leaning politicians, such as the Labour government in the United Kingdom, are slashing aid in response to popular sentiment. According to a February 2025 YouGov poll, 65 percent of Britons are in favor of increasing defense spending at the expense of foreign aid.
BLEEDING OUT
The speed and scale of the policy changes make the crisis facing the aid industry existential. Donor governments are fast destroying the industry’s marketplace of actors in irreversible ways. In January, Trump issued an executive order to freeze all U.S. foreign aid, ostensibly so that the secretary of state could review it to make sure that it is aligned with U.S. interests. Within weeks of the order, the world’s largest bilateral development agency, USAID, functionally ceased to exist, and its destruction unleashed a domino effect.
Dozens of small and midsize nongovernmental organizations are folding. Large organizations that implemented projects for USAID, such as FHI 360, Chemonics, and DAI Global, have terminated some country programs, announced the closure of field offices, and laid off hundreds of staffers worldwide. Multilateral organizations are also suffering from U.S. aid cuts. UN agencies such as the International Organization for Migration, the Joint United Nations Program on HIV and AIDS, the UN High Commissioner for Refugees, and the World Health Organization rely on the United States for 20 to 40 percent of their funding and have been forced to downsize.
This disruption will likely be compounded by funding cuts to universities. The Trump administration has canceled or frozen hundreds of billions of dollars’ worth of research grants to leading American universities, such as Columbia, Johns Hopkins, and Princeton. These cuts will reduce the number of young professionals who are trained in fields related to development, end projects that evaluate the impact of aid, and erode the institutional memory of how aid projects are designed, delivered, and assessed. Entire academic and advocacy fields such as global health, climate action, gender equality, and democracy promotion may collapse.
The short-term impacts of the aid industry’s demise are already appearing, but the long-term effects are unknown. Foreign aid makes up a large percentage of the gross national income of about 25 countries, including Burundi, Liberia, Malawi, Nauru, Somalia, South Sudan, and Yemen. These places have seen the termination of crucial education and health programs. And it is unlikely that private donors can fill the gap, because private philanthropy makes up less than ten percent of annual foreign aid flows tracked by the OECD. Furthermore, American individual and corporate philanthropists—which constitute more than half of the world’s top 40 private donors—may well draw back, wary of retaliation from the U.S. government.
GET RICH QUICK
Foreign aid has rapidly become a sunset industry. But that does not mean that rich countries should give up fighting poverty entirely. It is in the interest of wealthy states to reduce the pressure of migration by trying to improve the economies and stability of countries in Africa, Latin America, and South Asia. Therefore, policy experts, intellectuals, activists, philanthropists, and humanitarians must save global development by decoupling it from the aid industry and anchoring it in a strategy of industrial transformation. A country becomes industrialized when it adopts technology that allows it to mechanize and digitize, leading to increases in productivity and the skills of its labor force. Eventually, an industrialized country’s workers shift from subsistence agriculture toward higher-productivity sectors such as electronics, pharmaceuticals, green technologies, and digital services. And closely associated with higher incomes and employment in these modern industries are social changes such as more women working in formal jobs, more girls in schools, and fewer child marriages.
Industrialization has transformed many once poor societies into prosperous ones. Over the course of several hundred years, countries including China, Germany, Japan, Poland, Singapore, South Korea, the United Kingdom, and the United States got rich by industrializing. Today, Thailand and Vietnam are undergoing industrialization thanks to foreign direct investment in manufacturing industries, good connectivity infrastructure, skilled labor, and expanded access to export markets.
Part of the problem with the aid industry is that its benefits have been spread too thinly across a multitude of domains and not focused enough on productivity-enhancing sectors. To this end, advocates of global development should focus on enabling poorer countries to access cheap development financing for targeted investments in sectors that connect people, such as electricity, telecommunications, and mass transit. Development financing must include efforts to stem illicit financial flows. African countries, for example, lose a combined total of about $90 billion every year to elite corruption, illicit capital flight, and tax evasion by multinational corporations. That is more money than the $60 billion of aid that donor governments used to send to the continent annually. Such waste could be reduced if rich countries tightened their regulations on tax havens and offshore financial centers and if the 138 signatories of the global tax treaty—an agreement reached in 2023 that sets a minimum rate of tax for large corporations—accelerated its implementation.
Very little aid is distributed by organizations or people in poor countries.
Poorer countries also need a stable trading environment to thrive. They need access to export markets in wealthy countries for goods and services they produce. And decades of evidence shows that neither poor nor wealthy countries ultimately prosper from protectionism or autarky. Firms in rich countries, especially those in rapidly changing fields such as artificial intelligence, batteries, drones, and renewable energy hardware, need to be able to sell to growing markets in Africa, Latin America, and South Asia.
Professionals who work in global development will need new codes to guide their efforts to support industrial transformation. These may entail creating new rules to regulate the scramble for critical resources that wealthy countries need to manufacture electronics, such as cobalt from the Democratic Republic of the Congo or copper from Zambia. Ethicists and social scientists around the world must help craft rules for the limits of artificial intelligence, drone warfare, and other ways that new technologies directly interface with human societies.
If proponents of global development embrace industrial transformation as their lodestar, they can help lift people out of destitution while avoiding political blowback. If poor countries industrialize, the entire world will benefit. Global development has the best chance of surviving—and delivering results—if it is seen as more than just charity.
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