Rethinking development funding means making it matter to the median voter

Is foreign aid dead? Budgets, headlines, and public opinion polls would have you believe so. But the real story isn’t just about decline — it’s about evolution. As public budgets tighten and skepticism grows, the old aid model is giving way to a new one built around partnership, private capital, and shared prosperity. By the numbers, the traditional aid model has fallen short. Ten years after the Sustainable Development Goals were adopted, only 18% of targets are on track. Catching up would now require $3.5 trillion per year — up from $2.5 trillion when the SDGs were launched. Meanwhile, public support in donor countries continues to wane: A 2023 poll found that nearly 70% of Americans think the U.S. spends too much on foreign aid, even though historically it comprises less than 1% of the federal budget. To see how we got here, follow the money. Since the end of the Cold War, official development assistance, or ODA, has been rising steadily, reaching a record $223 billion in 2023. Yet results have not kept pace. Economist Lant Pritchett long warned that rich-country aid had drifted toward “post-material” priorities — projects emphasizing rights, governance, and process over tangible, growth-oriented investments. While these are important, they can seem detached from the visible progress citizens expect: jobs, incomes, infrastructure, and upward mobility. Why the shift? The politics and incentives changed. As budgets grew, leaders became more risk-averse, fearing public backlash if projects failed. Inside agencies, compliance and reporting cycles rewarded programs that were easier to approve and audit. Over time, those incentives steered money toward safer activities that were easy to announce and away from those that took years of sustained execution. But not everything failed. When aid backed tangible assets and stayed the course, results followed. Vietnam’s rural electrification expanded access from a small minority in the early 1990s to near-universal coverage by the late 2010s, laying the groundwork for today’s manufacturing base. In Bangladesh, coordinated aid and reform to improve the business environment helped build infrastructure, attract billions in private investment, and power the country’s textile boom. In Kenya, last-mile connections brought hundreds of thousands of households onto the grid and helped lift access nationwide. These are visible wins: connections made, bridges built, and costs reduced. They show what durable, outcome-tied investments can do. So how do we correct the course? 1. Refocus aid on tangible shared economic benefits Over time, U.S. development aid has drifted away from things you can see — roads, bridges, ports — and toward post-materialist priorities. The chart below tells the story plainly: Since the early 2000s, these noneconomic buckets have taken a growing share of dollars, while “materialist” funding tied to infrastructure, production, and jobs has fallen. The result is aid that signals good intentions but doesn’t always move the needle on economic growth. This drift is a choice we can change. As Kevin Starr, CEO of the Mulago Foundation, recently argued in his article, “Big Aid Is Over,” the sharp decline in traditional aid presents a forcing moment — and an opportunity — to design interventions that national governments can and will pay for. Development assistance must once again be seen as materially beneficial to people’s lives. That means prioritizing infrastructure, job creation, and support for economic growth strategies that credibly deliver material prosperity. 2. Mobilize local private capital Blended finance has potential, but it hasn’t yet delivered at scale. Low-income countries mobilize just $0.37 of private capital per public dollar — most of it foreign. Unlocking local capital is essential. A recent GSG Impact report highlights a powerful but underused lever: local pension funds. These domestic institutional investors hold significant untapped capital and have a vested interest in stable, inclusive economic growth. Developing-country pensions and sovereign funds hold roughly $11.6 trillion. Redirecting even 10% into bankable domestic deals would cover about one-third of the $3.5 trillion SDG financing gap. Enabling them to invest in small business finance and infrastructure — via regulatory reform, de-risking tools, and capacity building — could be a game-changer. 3. Position aid as strategic national investment Foreign aid is not charity — rather, it is an investment in global stability, migration management, and mutual economic benefit. Donor governments must show voters concrete home-country gains. Japan’s Bangladesh Special Economic Zone offers a clear example. Developed by the Japan International Cooperation Agency and Sumitomo Corporation in partnership with the Bangladesh Economic Zones Authority, it provides world-class infrastructure for export-oriented manufacturing. The project aims to strengthen Bangladesh’s industrial base while securing long-term opportunities for Japanese firms in a fast-growing South Asian market. Aid structured this way makes the benefits tangible, mutual, and politically defensible. Switzerland’s crop receipts program in Ukraine, supported by the Swiss State Secretariat for Economic Affairs and implemented with the International Finance Corporation, shows similar logic in practice. A modest $8.5 million technical assistance grant helped farmers pledge future harvests as collateral, unlocking $2.1 billion in private credit for agricultural small and medium-sized enterprises. The model boosts Ukraine’s rural economy and food exports while reinforcing Europe’s broader interest in a stable, self-sufficient agricultural partner. Such investments make aid politically defensible because they connect global impact with national interest, a formula essential to rebuilding legitimacy with taxpayers. Projects that build real assets abroad also sustain markets, jobs, and supply chains at home. That is a story voters can understand. 4. Standardize to scale what works The experimentation phase for blended finance is over. Donors and development finance institutions now agree: The next phase is standardization to scale. Efforts are underway to that end. At the system level, the Convergence Private Investment Mobilization Models action plan sets out 12 blueprints for mobilizing private capital through guarantees, tiered funds, and local-currency facilities. At the implementation level, British International Investment’s Scaling Blended Finance report, introduces five archetypes and a scorecard to make blended funds more replicable and cost-efficient. Last year, the Sustainable Markets Initiative released 13 case studies involving private institutional capital participants. Together, these initiatives contribute to a growing architecture for an industrialized blended-finance ecosystem: One where funds no longer start from scratch but draw on proven templates with clear concessional roles and predictable reporting. This would cut transaction costs, reduce fragmentation, and give institutional investors the familiarity they need to participate at scale. We’ll keep pushing these priorities forward, because development funding is not in crisis — it’s in transition. The age of abundant ODA is over; the age of strategic partnership and investment has begun. The question is no longer whether development funding should exist, but how it can adapt fast enough to matter to the median voter. That conversation starts now, with all of us.