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The Changing Face of United States Foreign Assistance: The Nexus of Private Aid and Executive Strategy

Since the end of the Cold War, United States (US) foreign assistance has been increasingly dispersed through nongovernmental organizations (NGOs). The result is a shift in focus from long-term, large scale projects to short-term, grassroots efforts; a transformation from top-down to bottom-up. This transition is reflected in the development policies of all presidential administrations since the end of the Cold War. As a result, it appears that NGOs are here to stay. Therefore, the US government, and more specifically the US Agency for International Development (USAID), must better manage its funds, to improve aid’s impact on the poor and to meet American foreign policy objectives. These changes will require leadership from the top.

Introduction: Background on Foreign Assistance Motivations        

The face of American foreign assistance has changed significantly over the past fifteen years. Assistance is used for many purposes and spent in many forms. It is a key diplomatic tool of US foreign policy. The funds can be used to support allies, for coercion, to help the poor, and, arguably the most important reason, to show American benevolence. Improving the lives of the poor not only leaves a favorable impression, but it also helps quell anti-Americanism (something that has become of the utmost importance in contem­porary, post-9/11, international politics). On a more practical level, reasons for distribution include economic, developmental, humanitarian and military/strategic. Money is primarily channeled through bilateral relationships, but multi-lateral efforts are also significant (Report for Congress 2004, CRS-5). Beyond inter-state relations, billions of dollars are spent to support projects on the ground; USAID is the primary conduit for this type of spending.

Previously, USAID engaged in large-scale, infrastructural projects, akin to the World Bank.  Although highly visible, over time these efforts created frustration because they were producing few, if any, tangible results (Lewis 2003, 326).  Furthermore, projects had been directed by geo-political and geo-strategic needs in the fight against Communism. As the Berlin Wall fell, the goals for US foreign policy shifted, thus allowing foreign assistance to do the same (Smillie 1999, 22). New mechanisms of distribution became popular, since USAID acquired increased discretion with its budget. USAID began to utilize NGOs more frequently in an attempt to diversify, work closer to the ground, and gain organizational flexibility. The modem of exchange became grants, cooperative agreements, and contracts[1] (GAO-02-471 2002, 4). This new trend has grown, and, because this has occurred through varying presidential administrations, it appears the practice holds advantages and will most likely continue.  Although, when the government does not fully adapt itself to functioning with NGOs, the traditional benefits of foreign assistance (eradicating poverty, providing education, public diplomacy, etc.) are left in jeopardy. 

Aid and Diplomacy: The Objectives and Aims of Foreign Assistance

Foreign assistance has many benefits, but this paper will focus on two key areas: soft power and aid’s effectiveness in poverty reduction.   Joseph Nye defines soft power as “the ability to get what you want through attraction rather than coercion or payments.  It arises from the attractiveness of a country’s culture, political ideals, and policies” (Nye 2004, x). Soft power deals with winning the hearts and minds of not only the population being assisted, but the rest of the world who can see visible manifestations of US benevolence. Foreign assistance is a form of soft power, to which an American presence in the developing world contributes. This goal is essential, in the short-term, to help alleviate anti-Americanism; American security interests also are better served with a more positive worldwide image. The second goal of assistance deals with ensuring that the lives of the poor improve. In the long term, the US stands to gain opportunities for economic prosperity through new markets as well as a greater potential for allies. These two goals, soft power and aid effectiveness, will serve as a motivating foundation and a metric by which foreign assistance can be judged.

Soft power becomes essential because globalization has meant that a state’s actions in international politics are quickly noticed. Modern information and communication technology spreads news and perceptions almost instantaneously. The media influences opinions, but human to human interaction can easily override preconceptions (Hocking 2004, 149).  In this environment, it is especially important to show the communities of the world American concern and compassion (Sfeir-Younis 2004, 32).  USAID already plays a major role in propagating this image, but the organization has much greater potential (Commission on Public Diplomacy 2004, 12).

When privatization and outsourcing of foreign assistance increases, so should oversight. NGOs, as they carry out USAID directives, become conduits of public diplomacy. Even former Secretary of State Colin Powell noted the importance of NGOs by commenting that “America could not succeed in its objectives of shaping a freer, more prosperous and more secure world” without the help of NGOs, describing the cooperation as “absolutely essential and necessary” (Powell 2001). This is where accountability becomes a priority. Because USAID is much further removed from its constituents than are NGOs (a reality of subcontracting), it is easier for the latter to pass the blame and take credit for success. A disconnect currently exists between NGOs and policymakers in Washington, DC that inhibits the two from working cooperatively. The primary result is a failure to meet the soft power goals of US foreign policy. In a 2003 speech, USAID director, Andrew Natsios, elaborated about the separation on the ground: “The NGOs do some very good work in communities, and the people think that the NGOs raise the money, do the work, and they have no relationship to the US government” (Timmreck 2001), when in reality the US government is a primary shareholder of the effort.  Similarly, if NGOs heavily promote specific religious or political ideas when dispersing aid, this can reflect negatively on the US government. Oftentimes, as Richard Robbins notes in his essay, “NGOs have had a bad reputation…because they have been seen as arrogant and going into poor countries and telling people how to do things, or doing things for them.  They have also been described by some as the modern missionaries” (Robbins 2002, 129).  Without accountability and strong oversight, elements of soft power and public diplomacy are put at risk.

Developmental programs not only help to improve America’s image in the world, but also help to reduce security threats in the future as well as provide new opportunities for American economic prosperity. Improved livelihood of the poor will help reduce terrorist recruitment and provide more allies for the US, since development efforts can help spread liberalism and democratization. Theoretically, as a country gains economic stability, the greater the chances it will have a stable government, which increases the likelihood it will be an American ally and not a breeding ground for extremists.  Economically, the US stands to gain new markets for American goods and services. The role of NGOs is important because they are a conduit that government is using to improve aid effectiveness. There exists a challenge, though, in ensuring that NGOs are able to function according to expectation.

To safeguard against failure, what is needed are appropriate levels of accountability.  The current disconnect leaves opportunity for US policy interests to be left behind or ignored (GAO/NSIAD-96-34 1995, 22). It is vital that USAID/NGO relations are positive and that communication lines are available (Bebbington 1997, 114). There needs to be assurance of NGO behavior and actions as necessitated by governmental objectives (Hocking 2004, 152). This will help to ensure the good (i.e. benevolence) is associated with the US government, the bad is not repeated, and that countries are improving their lots.

NGOs: Their Roles, Advantages and Disadvantages

According to the World Bank, an NGO is defined as: “…a charitable trust, nonprofit corporation, or other juridical person that is not regarded under the particular legal system as part of the governmental sector and that is not operated for profit – v., if any profits are earned, they are not and cannot be distributed as such” (Kilby 2004, 71).

Traditionally, NGOs are independent actors, or members of civil society, that specialize in various policy issues, and, on behalf of their constituents, work to either call attention to or improve any problems they perceive. As it has become more acceptable to be critical of government, NGOs now are able to gather more attention to issues and a stronger voice thanks to improved communications (Robbins 2002, 129). They are receiving more attention from not only constituents, the media, and the public, but from governments as well. By subcontracting to NGOs, the government is creating a unique relationship.

NGOs offer numerous advantages at multiple levels of governance. Operationally they have a cost benefit, have expertise, function locally, maneuver where government cannot, bring private funding,[1] and are more sensitive to local needs (Chege 1999, 6).  They also benefit the government in that they serve as a check and balance, are able to educate and sensitize the public, and increase donor program effectiveness (Clark 1997, 44-45). Furthermore, since NGOs are expendable, government gains flexibility through subcontracting, as opposed to using hired personnel.  These traits fit nicely into voids that currently exist in bureaucracy (Zaidi 1999, 261). Alternatively, for NGOs, government cooperation improves credence, credibility, influence and funding. For these reasons, combined with more contextual ones that will be discussed later, NGOs have found themselves as primary outlets of operation for USAID.

This relationship, though, has created challenges for NGOs. Initially their credibility derived from direct representation of the grassroots (Kamat 2004, 159). They were a distinct part of civil society, but that distinction has blurred as NGOs have partnered with and acted as subcontractors to government. As financial and political ties increase, independence is tarnished because of their increased role in public affairs as unelected facilitators of government work with minimal accountability (Kilby 2004, 69).  The fear is that NGOs become overly competitive and lose sight of their true goals as a result of privatization.  It has even been described as a Faustian compromise (Hulme and Edwards 1997, 279).

Political Environment: How Subcontracting Has Persisted Through Changes of Administration

The 1990s were marked by continued efforts to trim state bureaucracy and make government more efficient. In terms of aid, this meant protection from the politics and bureaucracy that corrupts and slows distribution (Robinson 1997, 60). Using the free market model that was working so well in economics, hopes were that where government failed, NGOs, as private entities, could pick up the slack (Kilby 2004, 69). President Clinton took the first major steps with his results-oriented reinvention of government; USAID became the first governmental agency to adopt the new standards (Smillie 1999, 10). The concept was based on Third Way ideology: where the “nation state [is] too big for small problems and too small for big ones” (Dickson 1999). The value of government lay with its ability to oversee and plan at the federal level, but the means through which it governs is not restricted, meaning that much discretion could be left to local communities (Dickson 1999). This thought process opened a path for NGO involvement, since they were cheaper, arguably more effective, closer to the grassroots, and much more expendable.  A delicate balance between government oversight and functionality within the community was made possible.

It was only natural that a Republican administration would continue towards privatization. Free markets and community governance are very tangible concepts in conservative ideology. For traditional conservatives the locus of action falls locally, and for the neo-conservatives, this solution offers a way to retain control at the organizational level.  Building on President Clinton’s reforms, President Bush and Andrew Natsios have made significant efforts to increase the role of private organizations in development. Numerous Presidential Initiatives at USAID disperse funds to be used mostly at the discretion of the private organization being subcontracted.  Institutions such as the Global Development Alliance (GDA) and the Millennium Challenge Account (MCA) are two examples of efforts that have recently received special attention. Republican and Democrat motivations may differ, but both parties have advocated the use of NGOs (the only divide comes with how the government views its role as a coordinator of aid efforts). This trend is important because the relationship has engrained itself within USAID and aligned with executive strategy.

Evolution: How NGOs are Integrating Themselves in USAID Programs and the Implications Thereof

Although exact levels of funding for private voluntary organizations (PVOs) are not readily available, the shift towards NGOs is reflected in other ways, most vividly through USAID’s cooperative initiatives that use grants and contracts to distribute funds.  Numerous programs designed for NGOs (Private Voluntary Cooperation, GDA, NGO Sector Strengthening Program, etc.) are spread throughout the horizontal network of USAID.  The GDA is a prime example; it solicits applications from private organizations and works to co-opt their resources and specialties. Andrew Natsios, USAID director, views it as an opportunity “to coordinate ideas from the worlds of business, education, and public service…” (Timmreck 2001).

As programs increasingly utilize NGOs, the dependence factor becomes significant.  An opening line from a recent GAO review of USAID reads: “USAID has evolved from an agency in which US direct-hire staff directly implemented development projects to one in which US direct-hire staff oversee the activities of contractors and grantees” (GAO-03-1771T 2003, 1).

A short analysis of financial and staffing data will quickly reinforce this statement. Over the past 15 years, USAID hires have dwindled and private voluntary organization (equivalent of NGO) registration has increased, all while funding levels have remained relatively stable (see Figure 1). Specific amounts spent through NGOs are not depicted in the graph, but it still strongly implies a shift in the allocation of funds towards them. A 2002 GAO report revealed that in FY 2000, allocations to NGOs through USAID contracts and grants had reached nearly 60 percent of all money dispersed (GAO-02-471 2002, 6): out of $7.2 billion in funding obligations, NGOs received four billion dollars. Recent estimates indicate that 80 percent of resources are now sent through private organizations (USAID 2004).

Benefits can be derived from the growing dependence between NGOs and USAID.  If there is no oversight, though, the government will only derive some minor benefits at a reduced scale (mobility, flexibility, efficiency, etc.), and the costs will be greater (declining returns, no soft power control, inability to track projects, etc.). The optimal situation comes with cooperation. USAID’s capabilities are enhanced by NGOs if accountability is central to the relationship.Returning to the two goals of foreign assistance as defined in this paper, it is apparent how the government-NGO relationship adds a new dimension to soft power and aid effectiveness.  Diplomatically, once USAID has defined the message it wants to share with the world, it must ensure that the distribution mechanisms are in place. As for effectiveness, USAID will need to raise the level of oversight and utilize the research and knowledge gained from its many, varied projects. Both dimensions of foreign policy can benefit from the quasi-public relationship, but only if USAID can better manage itself and function with appropriate levels of accountability

The unique relationship developing between government and NGOs leads to a conflict of interest. There is temptation to pass the blame and assume the credit, thus leaving the lack of accountability as a major concern.

Geof Wood aptly notes the conflict: “…adherence to neo-liberal views about the efficacy and responsiveness of the market as an allocator of public goods crucially slides over the issue of responsibility. The state as guarantor and regulator implies a different view of responsibility to the state as implementer” (Wood 1997, 83). As for NGOs, proximity to government provides for an awkward situation; they need to be able to maintain autonomy, which can be difficult if receiving federal funds (Smillie 1995, 180).  Both sides are gradually learning to overcome these challenges, but cooperative steps are still necessary.

When it comes to soft power, there have been recent attempts to increase communication between the State Department and USAID. This will help US diplomatic efforts on a number of levels.  First, it can begin to bridge the divide between USAID and State, as they currently have an “on the rocks” relationship.[4] A joint public diplomacy strategy is an opportunity for the two to cooperate on issues that do not relate to funding and aid programming, areas which have been points of conflict in the past. The newly created Public Diplomacy Policy Group, which is a subcommittee of the State-USAID Joint Policy Council, is an example of a cooperative effort to improve the soft power associated with aid (Commission on Public Diplomacy 2004, 12). State will be able to advise USAID directors about the diplomatic interests of America in specific regions.[5]  In reviewing literature on the current efforts, though, two problems exist.  First, in the charter defining the role of this new group, there is no mention of these efforts being relayed to NGOs (State/USAID Charter 2005, 1). Given the large role of NGOs, it appears that the challenges of government/NGO relations are still not receiving appropriate attention. As previously mentioned, this disconnect can severely hamper public diplomacy efforts.  Secondly, it appears that there has been a lack of initiative within this group (GAO-05-323 2005, 13). The addition of the newly created office of policy, planning and resources for Public Diplomacy and Public Affairs may further complicate the organization and communication of a cohesive public relations strategy. Any initiative must first be coherent and cohesive and then be promoted agency-wide from the highest levels of USAID. The role of the President can be important here, as his support will surely catalyze the necessary changes.

The next step to ensuring long-term American interests are successful, as they relate to aid effectiveness, will be the institution of credible methods of oversight.  Realizing minimal levels of accountability should not be viewed as onerous or unnecessary (the altruistic nature of NGOs does not remove them from responsibility); inappropriate oversight means the government is short changed and leaves opportunities for deficiencies in project applications. Instead USAID should see the opportunities of strong management.  Over the years, USAID has begun the transition from an implementing to a coordinating agency (Report for Congress 2004, CRS-26). For example, it has made efforts to be more business-like in regards to operations, create an institutional structure that offers agility and speed, and increase cooperation with partners (USAID Management Improvements 2004).

Learning to gain the most productivity from NGOs is only a first step. USAID must also use its regional bureaus and missions to communicate with NGOs. Updates should be sent to Washington to allow for better coordination. Oversight of the numerous smaller projects can provide valuable data and insight into what does and does not work in development.[6] Since it is difficult to gauge the success/failure of developmental projects on a standard metric, trial and error is one of the best learning curves the industry currently has. All USAID must do is raise the level of precision in its record-keeping; this will provide valuable data for research along with the beneficial side effect of accountability. The results derived then could be diffused and make for more effective aid programs.

Money and recognition pose another problem. Both USAID and subcontractors can easily take credit for success, but it is even easier for each to blame the other for failure.  This creates a mutual interest to dismiss failure. For NGOs, falling short of quotas can lead to admonishment and/or a shortage of funds (because donors are less likely to give if effectiveness is not established). Also, the proximity of oversight from multiple sources (government, donors, media, etc.) forces NGOs to delicately balance the needs of their constituents and employers, i.e. government (Smillie 1999, 34). For USAID, failure means budget cuts. USAID is accountable partly to the State Department but ultimately to the executive branch for its policies and Congress for funding (Smillie 1999, 21); it is important that the organization continues to demonstrate its usefulness. Results are even more pressing when one considers that foreign assistance holds no natural constituencies, who could otherwise provide external support and apply pressure on the government.  Compared to domestic social issues and security, aid tends not to be a priority in the public agenda (Hulme/Edwards 1997, 279). For these reasons, presidential leadership will be essential not only to galvanize support for assistance programs, but to assist USAID in transforming itself to better function in the new aid paradigm that has been created.

 Looking at the NGO/government relationship from a broader stance, focusing on aid effectiveness and soft power, the current quasi-private setup is beneficial and should be maintained.  Structurally, too much government can create inefficiency and stagnation.  On the other hand, a free market extreme lacks the ability to ensure that there is compliance to democratic ideals/values, that corruption is prevented, and that projects are well-planned and coordinated at a federal level (Giddens 2002). Government offers distinct advantages in terms of political capability/access and macroscopic oversight. There is no way for NGOs to do individually what the government does collectively, especially in terms of aid (Zaidi 1999, 268). As USAID continues along its current path, it must guard against NGOs acting as Public Service Contractors (Robinson 1997, 77), implying that profit-motivations or “grant seeking” would alter the motivations of NGOs. This could lead to corners being cut, reduced effectiveness and an exaggeration of development results.

A second point of concern relating to USAID, generally, is its organizational structure.  It is well known that USAID is horizontally structured, but in order for aid to be increasingly effective and soft power be maximized, USAID will have to consolidate its varied departments and coordinate its NGO relations. This is a challenging task that will best be accomplished from within the organization. The creation of an agency-wide strategy depends on such consolidation. Any soft power framework will require co-operation from all divisions of USAID; the same is true for oversight mechanisms.  NGO relations need to be consolidated and managed from the highest levels.


A consistent trend to privatize foreign assistance and shift to micro-scale projects has been espoused by the last three administrations. This is in response to changes in foreign policy and governmental mechanics since the end of the Cold War. NGOs are here to stay, and as a result USAID must adjust accordingly. USAID has committed itself to a cooperative relationship with NGOs, but for any mutual benefit, accountability is crucial.  It will be necessary to reinforce all existing oversight mechanisms as well as improve data collection, collect reports, use personnel to review programs, and do all these things consistently. This will allow for top-down coordination to combine with the new bottom-up functionality. Better management of assistance funds will improve aid effectiveness and present an opportunity to gather knowledge about what does and does not work in development. Communication with NGOs also must be improved to allow for better oversight of public diplomacy. Presidential support can only help further these efforts.  USAID is an organization that has been evolving since the end of the Cold War, but with the new dynamics of assistance, it must speed its modernization. 

Please see the PDF of this article for a list of Works Cited.

Personal thanks to the support and advice of Dr. William Long.

[1] Grants tend to allow NGOs much freedom, while contracts are primarily directed by USAID. Cooperative agreements offer a more lenient balance of power and, for this reason, are slightly more common (a reflection of the growing relationship between USAID and NGOs).

[2] This item taken from GAO/NSIAD-95-37.

[3] Sources include GAO-03-946 for hires and government reports for funding. The PVOs are from a compilation of GAO reports and data.  Some points are filled using a trend line based off data from mid-1990s and early 2000s.

[4] USAID is technically under the directorate of the State Department, but they do not function as such.

[5] Such cooperation would also open channels of diplomatic communication for the State Department (GAO-03-951 2003).

[6] This also assists soft power oversight.  

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Sam Nunn School of International Affairs, Georgia Tech; Council of American Ambassadors Fellow in 2004