Aid for Profit: The Dark History of USAID

For decades, the suffering of poor countries has been a boon for U.S. corporations.

Imagine Poor Country X is recovering from a long war and struggling to meet the basic needs of its citizens. Rich Country Y steps up and offers to help X. It’s not just an ethical thing to do, but also a smart political move—it helps stabilize the region and improves relations between X and Y. Sounds good so far. But what if the way in which Rich Country Y helps Poor Country X is by partnering with the world’s most powerful corporations to “develop” the war-torn nation? In return for the corporations’ apparent benevolence, Rich Country Y then uses its power to remove all roadblocks the corporations might face in doing business in Poor Country X. Now the corporations are free to do business as they please, making huge profits out of the resource-rich parts of Poor Country X, and even continuing practices for which they’d face criticism in Rich Country Y. Not only that, but Poor Country X continues to struggle to meet the basic needs of its citizens—except now it has the added burden of being indebted to Rich Country Y and its corporations. Is it starting to sound a bit unethical now? You might start to wonder who, after all, is getting “helped” in all this. 

It seems like madness, yet this has also become the blueprint of U.S. foreign aid. 

The history of foreign aid in the United States goes back to the Marshall Plan and the Point Four Program. The Marshall Plan, passed in 1948, was a foreign aid initiative aimed at rebuilding Western Europe after World War II. It paved the way for large scale U.S. private sector investment in the region, removing trade barriers and opening the European market to U.S. goods. Following this, President Harry Truman proposed an international development assistance program in 1949, called the Point Four Program. This had two goals: “(1) Creating markets for the U.S. by reducing poverty and increasing production in developing countries; (2) Diminishing the threat of communism by helping countries prosper under capitalism.” Notice how “reducing poverty” and “helping countries” were just byproducts of achieving the other goals.

Soon, these programs morphed into a larger and more permanent entity: the United States Agency for International Development, or USAID. Formed on November 3, 1961, USAID became the country’s single agency “charged with foreign economic development” around the world. John F. Kennedy, who oversaw this transformation, described the birth of USAID in his message to Congress as an obligation of the U.S. As Kennedy put it, this had three components. The U.S. had:  

  • a moral obligation as “the wise leader” of nations  
  • an economic obligation as “the wealthiest people in a world of largely poor people”  
  • a political obligation as “the single largest counter to the adversaries of freedom”

In USAID’s early years, it focused on supporting poor countries by removing obstacles for private businesses—but over the decades, the line between USAID and those private businesses has begun to blur. USAID’s strategy during the first few decades involved creating an infrastructure within developing countries where private businesses and U.S.-style market principles could thrive. This meant easing trade regulations, offering loan guarantees to businesses, providing scholarships for students to come study in the U.S., and creating agriculture development programs that opened the markets of poor countries to large agribusinesses. These policies may have benefitted the private sector, though corporate representatives  were not actively involved in deciding or implementing them. But starting from the early 2000s—spread across three, going on four, different administrations—the private sector’s role in foreign aid has grown and grown, and now it is paraded around as the future of foreign assistance. USAID’s role is described sometimes as “catalytic” and sometimes as an “enabler,” with the private businesses being catalyzed and enabled. It now sets up direct contracts with those businesses to design and execute foreign development programs—programs undertaken under USAID’s banner, with the purported support of the American people that such a banner represents. 

This escalation of the private sector from a vendor to a partner of the USAID was helped by two new set-ups in the early 2000s— GDAs and the DCA. A GDA, or a Global Development Alliance, is a “partnership where USAID and the private sector work together to develop and implement market-based approaches to solve development challenges.” Through these GDAs, corporations work with USAID to co-create programs that exist in that shining intersection of the Venn diagram circles of the profit interests of corporations and the development interests of USAID. In common parlance, this is referred to as a “win-win” solution or “doing good by doing well.” The DCA, or the Development Credit Authority, on the other hand, was the initiative used by USAID to give loans, loan guarantees, and risk assurances to businesses—which essentially protected those businesses from any financial risks when they entered into new markets and privatized public infrastructure in developing countries. The DCA has since been removed from USAID, and has become part of a separate entity solely tasked with giving financial assistance to private businesses implementing projects in developing countries.  

USAID’s embrace of the private sector has set disastrous precedents over the years, where the “win” of the private sector was often built on the “losses” of the people it was supposed to help. In the 2000s, while the U.S. military was bombing Iraq and Afghanistan, USAID was tasked with “rebuilding” the two countries, supposedly “with an eye to getting the most bang out of its funding allocations” (the language is theirs, emphasis mine). The GDA and DCA initiatives were instrumental in securing contracts with U.S. companies for this rebuilding effort. More than a month before Iraq was actually invaded by American troops, USAID began soliciting bids for rebuilding the country from a few  “pre-qualified” corporations. 

Bechtel was one of these companies, thanks to its close political connections in the U.S. administration. In the early 2000s, for instance, Bechtel’s leadership sat on different influential bodies advising the Department of Defense and drummed up public support for the invasion, ensuring the company would profit from the war (Bechtel ended up receiving more than $1 billion  in contracts). The lines between war, development aid, and corporate profit had not only started to blur, but also turned out to be a costly endeavor for both U.S. and Iraq. In 2006, after being unable to complete more than half of its rebuilding projects and with 52 of its workers killed (most of them Iraqis), Bechtel left the country. 

By the time USAID “pre-qualified” Bechtel for rebuilding Iraq, the company’s incompetence in executing privatization projects in poor countries was well known. In the 1990s, Bechtel was one of the companies that set up a power company (with the help of loan guarantees from the U.S. government) to privatize energy in Maharashtra, India. The company was soon mired in controversies around human rights abuses, corruption, and potential environmental damage. The government of Maharashtra ultimately realized that the electricity produced by the company was so expensive that it was cheaper to pay a yearly $220 million in fixed charges (to maintain the plant) instead of actually purchasing power from it. Similarly, in Bolivia in 1999, Bechtel signed an agreement with the dictator-turned-president, Hugo Banzer, for the privatization of water in the city of Cochabamba. Soon after, Bechtel increased the price of water so that Bolivians earning $100 per month had to pay a monthly fee of $20 to buy water, which then led to a series of protests in the city, a “state of siege” being declared by the government, and the eventual reversal of the privatization process. The company has since abandoned both these projects and sued the governments in both India and Bolivia for lost profits.

The Bipartisan Disaster of Modern Foreign Aid Policy

USAID’s devolution and its embrace of the private sector has been a bipartisan project. If the Bush administration started formalizing the private sector’s engagement in foreign development through GDAs and the DCA, then it was the Obama administration that really took that engagement to its large strategic proportions. In 2016, the ex-staff member at USAID who oversaw the GDA initiative under Bush spelled this out when he said that “public-private partnerships are not a Republican or a Democratic concept.” He was accompanied by a representative from Coca-Cola and another from Obama’s USAID as “witnesses” when he made that statement. 

Eric Postel, who worked in the USAID during the Obama administration after spending 25 years in the private sector, described this growth in engagement with the private sector like this: 

  • Version 1.0: in the 1990s, the U.S. tried to build a supportive environment for the private sector in Eastern Europe and the former Soviet Union
  • Version 2.0: in the early 2000s, this mission was expanded through project-level partnerships of the public-private partnerships (PPPs) and the DCA
  • Version 3.0: under the Obama administration, strategic alliances were built with the private sector to function on a multi-year and multi-administration scale 

The biggest examples of the kind of programs overseen by the Obama administration are Power Africa and the New Alliance for Food Security and Nutrition programs. Both are USAID-led multi-country and multi-organization alliances that have helped open the doors for the private sector to enter into the lucrative energy and agribusiness sectors of developing countries, particularly those in Africa.

USAID’s growing dependence on private sector partners (and the problems that go along with this) can be illustrated through its partnership with DuPont. DuPont, the agriculture giant, has been one of the most loyal partners of USAID. It is part of what used to be called the “Big Six” of the pesticide and GMO corporations— though given recent mergers, the Big Six is well on its way to becoming the Big Four or maybe even the Big Three. DuPont, like the other agro-giants, is also one of the world’s most dangerous corporations. Its history includes making gunpowder during World War I, the atomic bomb during World War II, and Agent Orange during the Vietnam War. It is heavily involved in lobbying for GMO legislations and forced patenting of seeds, which bleed farmers dry.

DuPont is also associated with a pesticide, called chlorpyrifos, that causes brain damage in children. This pesticide has been on the radar of the Environmental Protection Agency (EPA) at least since 1995, but it was only last year when DuPont finally announced it would stop producing chlorpyrifos, citing reduced sales as the reason. Despite its controversial and dangerous past—and its continued efforts that go against the livelihood and health of farmers and their families—DuPont has received lucrative contracts under one of the biggest global food-security programs led by USAID, called Feed the Future (FTF). 

FTF was launched in 2010, as part of the New Alliance for Food Security and Nutrition program, with the goal of ending global hunger, poverty and malnutrition.  In 2013, under FTF, DuPont, USAID, and the government of Ethiopia entered into a partnership for agricultural development and food security in the country (which continues to be active). Through this partnership, DuPont has set up plants and warehouses and distributes seeds to the farmers in Ethiopia. Since that time, DuPont has also been settling thousands of lawsuits for a chemical (perfluorooctanoic acid, sometimes called PFOA or C8) that is used for making Teflon—and was linked to devastating effects on the health of humans and animals in the U.S. and other countries. But these litigations do not impact DuPont’s suitability for partnering with USAID. Instead it gets rewarded with a wider playing field. 

Partnerships like FTF have helped DuPont enter into the African agriculture market to further consolidate its control over the global seed market. This has grave implications because corporate consolidation in the agriculture market kills any potential for local competition in these countries. After the recent mergers in the agriculture industry, 70 percent of the agrochemical industry and more than 60 percent of the commercial seeds industry (in the whole world) is controlled by just three companies. We have enough evidence now demonstrating the “devastating ecological effects” of the industrial agricultural model, with consequences like climate change, biodiversity loss and “threats to long-term food security.” DuPont has been front and center of this model, and partnerships like those with USAID help the company to perpetuate the model, threatening the very global food security that it is supposed to protect. 

In recent years, USAID has faced a conundrum—it was supposed to help shape a world where “foreign aid will no longer be needed,” and yet we’re much further from that goal than in 1961. The agency is responding by shifting its goalposts. While USAID operated like a contractor of the private sector in its early years, it is now slowly billing itself as a junior partner of the private sector. It calls this a “Journey to Self-Reliance” of the host countries, borrowing the language from Kennedy’s original vision when he spoke of transitioning less developed countries into “self-reliant nations.” But the self-reliance that USAID is now working toward is premised on a handover of responsibilities, networks, contracts, and opportunities to the big corporations. Essentially, it’s replacing one kind of dependence for another.

“Self-reliance” has become a mantra for USAID and “private sector engagement,” or PSE, is the main tool it claims to be using to attain it. In the new Private Sector Engagement Policy, for instance, the USAID administrator enthusiastically states that the “future of international development is enterprise driven.” The PSE Policy is supposed to help the USAID attain two goals: (1) end foreign assistance (aka self-reliance); and (2) create opportunities for American businesses. The Policy sets out “institutionalizing private-sector engagement as a core tenet of USAID’s operating model.” On the one hand, it is shifting its funds and responsibilities toward private businesses. On the other hand, it is streamlining the communication and procurement process with businesses to make it as simple and inviting as possible for the companies to hop on the ship. To illustrate: USAID now has a list of points of contact for the private sector in each of its operating countries; similarly, financial assistance to businesses has been simplified by forming a separate development bank (merged with the DCA) to take care of it directly. 

By institutionalizing PSE, it’s clear that USAID is essentially institutionalizing a profit motive in its foreign aid programs, which began (at least on paper) from a moral imperative. A 2016 Brookings Institution study found that since 2001, more than 1,600 PPPs had been initiated by the agency. Of these, 54 percent were directly linked to the commercial benefit of the business partner, and another 29 percent to a more diffuse “strategic benefit” of the partner. The profit margin of the private companies, it is argued, will ensure the long-term sustainability of the PPP programs, since the companies can continue to function even when USAID no longer provides any assistance. 

However, this profit margin is also premised on an unsustainable consumption of resources that robs poor countries of the ecological and human resources that their self-reliance can be built on. Let’s return to DuPont, one of USAID’s favorite private partners. In 2018, it was fined over $3 million for environmental violations by the EPA; in 2019, it had the distinction of being the biggest contaminator of water in the United States, ranking highest on an index of 100 water polluters. Yet the very next year, DuPont partnered with USAID to provide clean water in a drought-stricken village of Ethiopia. 

Somehow, we are supposed to believe that the biggest contaminator of water in the U.S. will provide sustainable clean water solutions in Ethiopia. Similarly, Coca-Cola, which has repeatedly come under criticism for water depletion, water pollution, and drying the wells of farmers, also has a long-standing partnership with USAID to improve “access to water” in developing countries of the world. These partnerships help these companies to both manage their images and continue their business operations in these countries—operations directly linked to heavy water depletion. The same companies which are mired in environmental and human rights controversies within the U.S. are rewarded with backdoors to the markets of poor countries to fix those same problems that their operations are known to create or exacerbate. 

But once all the resources are sucked dry, and there is no profit margin to be made, what will be the incentive for the companies to stick around? 

USAID: Helping American Businesses Get Rich Quick

Over the last few years, USAID’s priority of helping U.S. businesses above all else has become even more explicit. A 2019 statement from USAID doesn’t mince words when it claims that “[USAID] helps to open up new markets for U.S. businesses, improve the policy environment for responsible private investment, and create demand for U.S. innovations and expertise.” The agency markets this model using the corporate world’s favorite playbook: celebrating diverse entrepreneurs. A prime example comes from Nigeria, where the success of a young woman’s fruit snack company has become a cornerstone of USAID’s marketing efforts. ReelFruit, a Lagos-based company selling dried fruit snacks, won FTF’s Accelerating Women Entrepreneurs Prize in 2018. Professionally taken photos of the founder, a young Nigerian woman, beam across different marketing and outreach documents of USAID. She was also the feature story of FTF’s 2019 Progress Snapshot

But success stories like these could not be more misleading. In Nigeria, as per World Food Programme’s July 2020 Situation Report, 4.3 million people are food insecure. In parts of the country many people eat one meal or less in a day. The problem, FTF tells us, is the restrictions imposed on imports and the private sector’s ability to develop agribusinesses. In a 2018 Nigeria country plan released by FTF, it promised to fix this by facilitating private sector investment in the country’s agricultural economy. Stories like that of ReelFruit help to capture the public imagination and show us what successful entrepreneurs can look like once all restrictions on agri-businesses are lifted. Meanwhile multi-million dollar contracts are being signed between USAID and big businesses (like DuPont or Walmart). These contracts don’t make it into the progress documents. But it is these contracts that will ultimately change the way people eat and grow food (and even do business) in countries like Nigeria. 

Despite the control these big businesses wield over developing countries, they are almost never based in places like Nigeria. In 2014, for instance, 48 percent of the partners in  USAID PPPs were non-local partners. These non-local partners were responsible for 72 percent of the total investment in the region of the PPPs. In 2015, USAID engaged with at least 54 of the Fortune 500 companies, which included creating PPPs with at least 48 of them. It had more than five partnerships each with Microsoft, Intel, Cisco, Coca- Cola, and Johnson & Johnson. 

Partnerships with multinationals are justified on the basis of their size and resources, but often those corporations make problems worse (or just don’t have the ability to address them). Child labor in cocoa supply chains is a prime example. Big Chocolate companies like Hershey’s, Mars, Mondelez (the company behind Cadbury), and Nestlé have partnered with USAID to address this issue. All the big chocolate corporations have a Child Labor Monitoring and Remediation System (CLMRS) in place. These plans particularly focus on the two largest cocoa-producing countries, Cote d’Ivoire and Ghana. Between 2012 to 2016, Nestlé alone invested around $10.9 million in child labor monitoring. It also invested more than $21 million between 2012 to 2018 in school building. In both cases,  the goal was to reduce child labor in the company’s supply chain. 

And yet child labor has not only not been reduced, it has increased! A new study by NORC at the University of Chicago has found that in these two largest cocoa growing countries, child labor has increased by 13 percentage points between 2008-09 to 2018-19, even as cocoa production has grown by 62 percent. Meanwhile, all the big chocolate companies talk of sustainable farming, about uplifting the lives of the farmers. Mars has a Cocoa for Generations program, Hershey’s has a Cocoa for Good strategy. They are all committed to doing good for the farmers while doing good for themselves. Yet the rewards stay concentrated amongst the big businesses (in the U.S., more than 74 percent of the chocolate industry is controlled by just four businesses), cocoa production is still linked to deforestation and child labor, and the farmers see very little of the billions of dollars they are helping make. An average African farmer makes $0.78 a day from cocoa, while the chocolate industry is worth more than $100 billion a year in sales and is projected to reach up to $171.6 billion by 2026. Around 60 percent of the world’s cocoa comes from Côte d’Ivoire and Ghana, where very little of it is consumed. The profits accrued are shared as little as possible. 

USAID’s private partners say problems like child labor are so tricky to solve because countries like Côte d’Ivorie and Ghana are underdeveloped—but it’s that underdevelopment that makes the opportunities so lucrative. Lower income countries offer cheap labor, middle income countries new untapped consumers, and the lack of strong local institutions in both means that huge, wealthy corporations are free from the constraints placed on them in wealthier countries. USAID insists on a neat overlap between the profit-seeking interests of the private sector and the development outcomes of the poor countries. But if there is an overlap, it is small and tenuous and held together by the exploitation of the vulnerabilities of the developing countries for the benefit of the U.S. private sector. In 2016, global hunger rose for the first time this century. These numbers have continued to rise since. In Africa, which receives the most attention under food security programs like FTF, around one-fifth of the population—or more than 250 million people—were reportedly undernourished in 2019. This is more than double the global average, and up from the 2014 estimates. The prevalence of undernourishment in Africa is projected to rise even further, from 19 percent in 2019 to 26 percent in 2030. Yet again, the private sector has failed miserably to solve the problems it claims governments can’t solve themselves.

USAID, as all public institutions in the country, claims to work on “behalf of the American people.”  Not only is this untrue, but USAID’s embrace of the private sector goes against the very “moral” premise on which it was founded. We know that at least some of those “American people” that it claims to represent have put up long battles against the same companies that USAID partners with. We have also seen how the profit motive of the private sector is, even with supposedly noble intentions, incompatible with the development interests that foreign aid is supposed to serve. And by helping corporations who have a dangerous history of using their power to twist the arms of government to the detriment of its citizens, and to exploit opportunities in poor countries—many of which do not have the institutional infrastructure or civil society freedom to check these corporations’ misuse of power—USAID is not only failing to help developing countries, it is helping big corporations further consolidate their power. 

In recent years, USAID has used the language of “transformation” to push for policies aimed at  greater private sector engagement. However, it’s time to imagine a transformation that does not depend on the kindness of the world’s most unethical corporations. 

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