Elon Musk and his team of software engineers at the Department of Government Efficiency are rampaging through the government in search of fraud, waste, and abuse. The government, they claim, is misusing taxpayer money. They are willing to shut down entire agencies to prove their point. By treating the civil service as a business, as well as importing Musk’s ruthless managerial style into public agencies, the Silicon Valley disrupters believe that the country can produce a leaner and more efficient government.
Put aside for now the fact that these actions are likely illegal and unconstitutional. The central problem is the false assumption of this approach: that problems of inefficiency in federal agencies stem exclusively from the public administration. Much of the waste, inefficiency, and indeed fraud result from the government’s overreliance on private-sector organizations to conduct its work. This byzantine system of outsourcing to nonprofit and for-profit organizations adds costs and creates waste because each nongovernmental contractor exacts fees or imposes a profit margin. In addition, government officials have in recent years exposed multiple cases of embezzlement by USAID contractors, leading to millions of dollars in fines paid out by major companies and their executives.
If the country is serious about improving government efficiency, the emphasis should be on curtailing contracting and making the civil service more accountable—to American voters and to their elected representatives, not to freelance tech bros.
The contracting swamp we have today emerged through previous attempts to streamline government by cutting the federal workforce. All such efforts ended the same way: a modest number of layoffs among public workers combined with a dramatic expansion of private-sector contracting. In fact, our postwar history shows that federal spending has ballooned while the size of the federal workforce has remained almost static: In 1946, the government employed about 2.5 million workers and ran a budget of $628 billion (in today’s dollars); in 2023, it had only half a million more workers, but its budget stood at $4.6 trillion.
How does the government disburse this colossal budget? Through contracting. A 2017 tally estimated that more than 5.2 million contract and grant employees worked for the federal government. On the largely unexamined assumption that the private sector is more efficient, past administrations of both parties have eagerly embraced contracting to make up for limited administrative capacity.
President after president has sought to cut the federal workforce—without reducing the responsibilities and demands on government agencies. That has meant ever greater reliance on contracting. President Ronald Reagan—who famously asserted that government was the problem, not the solution, to the country’s ills—oversaw shrinking the federal civil service by more than 130,000 employees in his first two years in office. Meanwhile, an equivalent number of civil servants was working solely on contract and grant administration. And over Reagan’s first term, spending on contract consultants increased from $1.1 billion to more than $1.5 billion. The Clinton administration echoed Reagan’s rhetoric and sought to win favor for the Democrats with a “reinventing government” program that cut the federal workforce by nearly 400,000 direct hires—even as it expanded the shadow government of contractor workers by nearly 300,000.
USAID, the foreign-aid agency that Musk has been busy feeding “into the wood chipper,” offers a prime example of how extensively privatized so much government work already is. The federal government first made overseas economic development a significant feature of U.S. foreign policy in the years following World War II. From foreign aid’s inception, the government contracted out much of this activity, largely because, after wartime state involvement in industry, a strident anti-statism took hold in Congress. As Cold War anti-Soviet sentiment rose, conservative politicians inveighed against the New Deal federal bureaucracy as evidence of a collectivist power grab. Congress responded by capping the growth of the civil service, but that did not limit the government’s scope or aspirations; foreign aid became a particular Cold War priority as an exercise of soft power. Expansive government aims instead swelled the number of private-sector contractors.
“The entire effort that the government agency carries out here is really carried out through private organizations,” Secretary of State Dean Acheson said in 1952, referring to the forerunner of USAID. “We do not have in the Government sufficient people to staff these operations, sufficient people to give us all the ideas, to give us all the working groups which are necessary.” So private actors would be drafted in to do the work.
Subsequent changes to foreign aid reinforced contracting as the core of U.S. foreign policy, including in the legislative text that originally established USAID in 1961, and in amendments a year later that mandated USAID to “utilize wherever practicable the services of United States private enterprise,” such as “the services of experts and consultants.” As early as 1964, USAID had committed more than $400 million through some 1,200 contracts for technical assistance from universities, for-profit firms, and nonprofits.
This contracting meant that most foreign-aid money went straight to domestic organizations. William Gaud, who led USAID during the Johnson administration, was blunt about this. “The biggest simple misconception about the foreign-aid program is that we send money abroad,” he said in a 1968 speech. “We don’t.” At the time, about 95 percent of the agency’s $1 billion–plus budget was spent directly in the United States.
USAID continued to be an important tool of U.S. foreign policy after the end of the Cold War, overseeing many of the “shock therapy” programs designed to help the former Soviet Union and Eastern Bloc countries transition to Western-style capitalism. But, as an early experiment in Bill Clinton’s “reinvention laboratory,” the agency suffered from the growing reliance on outsourcing. A 1993 Government Accountability Office report noted that expanding USAID work into newly independent countries “further burdened its operating expense budget, resulting in greater dependence on contractors and a greater potential that programs will be vulnerable to fraud, waste, or abuse for lack of adequate oversight.”
The way the contracting system favored U.S. firms was all too apparent. In the shock-therapy programs, U.S. aid was “composed for the most part of financial intangibles and technical assistance,” one U.S. diplomat complained. “The result is that very few Russians have seen anything at all of the vaunted billions … most simply do not believe the money ever existed.” Rather, money flowed from the U.S. government directly to “domestic contractors,” the diplomat added. For obvious reasons, this undermined U.S. foreign-policy goals, generating more frustration and cynicism than gratitude.
By 2001, more than 80 percent of USAID contracts went to domestic for-profit and nonprofit companies. Although Musk has singled out nonprofits that receive grants for projects he finds risible, in practice USAID has long given its most lucrative and important contracts to American corporations. By 1996, consulting and accounting firms such as Abt Associates, Booz Allen Hamilton, KPMG, and Chemonics International all held tens of millions of dollars’ worth of contracts. For such companies, this government spending was virtually their entire business: When Chemonics, for example, reported $85 million in revenue in the last nine months of 1999, 90 percent of its business came from USAID contracts. In 2009, Senator Patrick Leahy of Vermont, a Democrat, lamented that the agency had been reduced to a “check-writing agency.”
At least government-transparency mechanisms made the problems of over-relying on private-sector partners visible and public. But even that degree of accountability is disappearing in Musk’s bonfire of the agencies. USAID’s database of past research projects, for instance, provided scholars like me with valuable insights into foreign aid—and its flaws. Now that resource has been yanked offline. Likewise, inspectors general and the GAO produced reports that highlighted wasteful spending and outright fraud. Recent federal investigations have turned up staggering cases of graft and corruption. Contractors were indicted for a range of fraudulent charges while doing reconstruction and humanitarian work in Iraq and Afghanistan, including classic bribery and wire-fraud cases and engagement in illegal activities to help other contractors secure contracts. As recently as 2023, Booz Allen Hamilton agreed to pay $377 million—one of the largest procurement-fraud settlements in the country’s history—because the for-profit company was caught overbilling the government to cover its private-sector losses.
Silicon Valley tech moguls were not necessary to root out waste; the government was already doing that. But last month, the Trump administration took a hammer to such oversight when the president fired more than a dozen agency watchdogs. Congress could certainly do a better job of oversight, with a greater emphasis on exposing corruption and conflicts of interest. It could also empower inspectors general as its enforcers against graft and waste. One obstacle to smarter reform is that the person charged with overhauling the government has himself been a huge beneficiary of its largesse. Musk’s companies have enjoyed more than $15 billion in contracts over the past decade (including some from USAID), a spigot that continues to pour hundreds of millions of dollars into his pocket every year.
The contracting model has bloated government costs while hindering public accountability and insulating policy making from citizens. Rather than inviting billionaires to demonize the civil service, the true solution to government inefficiency is to reverse outsourcing. Severing private contractors and hiring more public servants would allow the state to cut time spent managing contractors and devote more resources to the actual work of government. Relaxing hiring regulations could help agencies hire bright and enthusiastic talent, as could raising pay for federal employees. Instead of dismantling the federal workforce, we should put the contracting system in the wood chipper.
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