Former chief economist talks on the end of USAID and what comes next

As the U.S. Agency for International Development dissolved, it instilled fear and uncertainty among staff, undermined U.S. relationships abroad, and proved fatal for the people who relied on USAID services, said former USAID Chief Economist Dean Karlan. Now, what’s left of USAID will be reconstructed through a new humanitarian assistance bureau in the U.S. State Department. Karlan, who spoke at a Devex Pro briefing with Devex President and Editor-in-Chief Raj Kumar on Wednesday, said the new institution will need evidence-based approaches to program funding and greater focus on long-term and preventative measures — but that, he said, will require restoring the previous budget that the Trump administration had sought to cut. The consequences of the cuts In the final days of USAID, as it once functioned, Karlan said fear paralyzed USAID functions. "The effect was to make people afraid," Karlan said. Now, weeks later, he said it has been fatal abroad. “If you’re not seeing the consequences now, your eyes are closed,” he said. “There are people who are dead,” referring to children who relied on HIV medication administered by USAID and died after the services ended. Karlan also emphasized the long-term damage to America’s relationships with other countries. “Foreign aid is a tool for diplomacy, for making America safer, strong, and prosperous through partnerships with other countries,” he said. This, he argued, is going to hit America hard in the long term. “How do you form an agreement with someone when they can’t trust you?” he said. “It’s a basic tenant of contracts and friendships and loyalty and partnerships.” This fallout won’t just be felt abroad, it will also erode trust within future institutions. Employees may hesitate to work for an institution they don’t trust, requiring higher salaries and more safeguards, which will increase the price of foreign aid overall. “You just made yourself less programmatically efficient,” he said. Moving forward No matter how USAID evolves, Karland expressed deep concern over a reliance on private institutions to fill the gaps. As USAID faces potential integration into the State Department and a shift towards greater reliance on the U.S. International Development Finance Corporation, or DFC, Karlan cautioned against relying solely on the private sector. He also pushed back against the notion that private philanthropy could fully compensate for government cuts. “If we leave public goods up to private philanthropy and private action, then there’s just a natural incentive to say, great, I’ll let everybody contribute. I don’t have to.” Karlan stressed that the future of aid relies on evidence-based approaches, but acknowledged that this will be even more challenging with a reduced budget and workforce. The focus now, he argued, must be on preserving the total budget and ensuring resources are used effectively. “We should simplify and focus on specific types of interventions,” he said. “But we shouldn’t be getting rid of an entire sector of work.”